FTI Consulting, Inc.

Welcome to the FTI Consulting's third quarter 2023 earnings conference call. All participants will be in a listen-only mode. And should you need any assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star, then one on your telephone keypad. And to withdraw a question, please press star, then two. Please also note that this event is being recorded today. I would now like to turn the conference over to Molly Hawks, Head of Investor Relations. Please go ahead.

Good morning. Welcome to the FTI Consulting Conference Call to discuss the company's third quarter 2023 earnings results as reported this morning. Management will begin with formal remarks, after which they will take your questions. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21 of the Securities Exchange Act of 1934 that involve risks and uncertainties. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events, future revenues, future results and performance, expectations, plans or intentions relating to financial performance, acquisition, share repurchases, business trends, ESG-related matters, and other information or other matters that are not historical, including statements regarding estimates of our future financial results and other matters. For discussion of risks and other factors that may cause actual results or events to differ from those contemplated by forward-looking statements, Investors should review the safe harbor statement in the earnings press release issued this morning, a copy of which is available on our website at www.fticonsulting.com, as well as other disclosures under the headings of risk factors and forward-looking information in our quarterly report on Form 10Q for the quarter ended September 30, 2023, our annual report on Form 10K for the year ended December 31, 2022, and in our other filings with the SEC. Investors are cautioned not to place undue reliance on any forward-looking statements which speak only as the date of this earnings call and will not be updated. During the call, we will discuss certain non-GAAP financial measures, such as total segment operating income, adjusted EBITDA, total adjusted segment EBITDA, adjusted earnings per diluted share, adjusted net income, adjusted EBITDA margin, and free cash flow. For a discussion of these and other non-GAAP financial measures, as well as our reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures, investors should review the press release and accompanying financial tables that we issued this morning, which includes the reconciliations. Lastly, there are two items that have been posted to the investor relations section of our website for your reference. These include a quarterly earnings presentation and an Excel and PDF of our historical financial and operating data, which have been updated to address our third quarter 2023 results and changes to certain historical information. Of note, effective July 1st, 2023, 127 billable professionals in the health solutions practice within the company's forensic and litigation consulting business segment were transferred to the corporate finance and restructuring business segment. 83 billable professionals within the health solutions practice remained in the forensic and litigation consulting segment. Prior period information for these two segments included in the quarterly report on form 10Q for the quarter ended September 30th, 2023 and the financial tables in this morning's press release have been recast to reflect the modified composition of these segments. Additionally, The unaudited summary financial information and other select financial and operating data for the corporate finance and restructuring and forensic and litigation consulting segments included in the historical financial statements posted on our website have been recast for each of the previously reported years ended December 31, 2020, December 31, 2021, and December 31, 2022. And the previously reported quarters in each such year and the first and second quarters of 2023 to conform to the current period presentation reflected in FTI Consulting's quarterly report on Form 10-Q, where the quarter ended September 30, 2023. Of note, during today's prepared remarks, management will not speak directly to the quarterly earnings presentation posted to the investor relations section of our website. To ensure our exposures are consistent, these slides provide the similar details as they have historically, and as I have said, are available on the investor relations section of our website. With these formalities out of the way, I'm joined today by Stephen Gumby, our president and chief executive officer, and Ajay Sabharwal, our chief financial officer. At this time, I will turn the call over to our president and chief executive officer, Steve Gumby.

Thank you, Molly. Welcome, everyone, and thank you once again for joining us this morning. I have one main message that I'd like to convey this morning. about this quarter, which is this is a quarter where we got our earnings back on track. And I'm focusing on the word earnings because as I hope everyone on this call will remember, our revenue has been terrifically on track all year. In the first half of this year, our revenues were up 13%. This quarter, we delivered 15% top line growth. Those are numbers that I would be proud of most years. but particularly so given this year has been an environment where it's been particularly challenging for many professional services firms. I like focusing on revenues. To me, that sort of revenue growth is one of the best predictors of long-term success. It is a validator of whether your teams are doing something right. When you have that sort of growth, it shows the power of your teams, their relevance in the market, their competitive position, and perhaps most important, the impact they are delivering for and with your clients. I believe in this case it also reflects our team's dedication to a continued success in attracting and supporting the sort of talent that aspires to make that sort of difference for clients. So we have been extraordinarily gratified this year that it has been yet another year where we have delivered terrific revenue growth. What was not so great in the first half of the year was translating the terrific revenue growth into earnings growth. In general, in most companies and in professional services, over time, earnings end up roughly tracking with revenues. And that's what we, of course, have seen for much of the last five years. But for periods of time, earnings and revenues can, of course, deviate. And that's what we saw for the first half of the year. And we discussed on prior calls some of the causes of that, some of the causes of the lag in bottom line results. Two of the causes that we've discussed were externally driven. Inflation. It's taken us a while to adjust for the impact of inflation. And second, we, like many professional services firms this year, have ended up with lower attrition than we expected, lower attrition than we've had prior years and lower attrition than we had budgeted for. So two of the factors for the lag in bottom line results were externally driven.