FTI Consulting, Inc.

Good day and welcome to the FTI Consulting First Quarter 2024 Earnings Conference Call. All participants will be in a listen-only mode. Should you need 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 your question, please press star then two. Please note this event is being recorded. I would now like to turn the conference over to Ms. Molly Hawk HIDM Investor Relations. Please go ahead, ma'am.

Good morning. Welcome to the FDI Consulting Conference Call to discuss the company's first quarter 2024 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 involves risks and uncertainties. Forward-looking statements include statements concerning plans, initiatives, projections, prospects, policies, processes, and practices, objectives, goals, commitments, strategies, future events, future revenues, future results and performance, future capital allocations, and expenditures. expectations, plans or intentions relating to acquisition, share repurchases and other matters, business trends, ESG-related matters, new or changing laws, brand regulations, scientific or technological developments, and other information or other matters that are not historical, including statements regarding estimates of our future financial results and other matters. For a 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 10-Q for the quarter ended March 31, 2024. our annual report on Form 10-K for the year ended December 31, 2023, 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 discussion of these and other non-GAAP financial measures, as well as reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures, investors should review the press release and the accompanying financial tables that we issued this morning, which include 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 include our first quarter 2024 results. 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 disclosures are consistent, these slides provide similar details as they have historically, and as I've 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. Thank you all for joining us this morning. As I'm sure many of you saw in our press release this morning, we again delivered terrific results this quarter. In fact, we delivered results which exceeded our expectations and I suspect many of yours as well. What I would like to do is to make two points before I turn the call over to Ajay, who will, as usual, go through the details of the quarter. The first is to talk about something we've always believed is important to talk about. after bad quarters, but also after good ones, which is that individual quarters, where they do tend to reflect the core strengths we work every day to create, are often influenced by transient elements as well. And hence, we always all urge caution about taking any given quarter, multiplying it by four, and thinking, wow, that's a great representation of where the company is. So that's the first point. The second point is on a different subject, but one that in an important way ties to the first, and is in any case something very important going on, which is the rich set of investment opportunities that we are seeing right now across our segments and across the world. Let me start with the first point, why it is that quarterly results can deviate from what we would see as the true, durable, underlying economic power of the business. One reason is that certain P&L companies P&L elements can sometimes have somewhat of a random feel. Sometimes you happen to have negative FX in a quarter, or higher bad debt than is typical, or happen to have lower success fees. And sometimes it's the opposite, where those factors in a given quarter cut more positively than you'd typically expect them to do, to operate. This quarter, the sort of factors we typically discuss didn't all cut positively, for example, As Ajay will talk about, we had some major revenue deferrals in econ. But as Ajay will also talk about, the factors on average this quarter cut more positively. For example, our tax rate happened to be significantly lower than we expected, and in this quarter we have lower FX remeasurement losses as well as higher success fees compared to the prior year quarter. So the seeming randomness of those factors is one reason I believe we should never overweight a quarter. The second reason I'd like to discuss is more subtle, but it's also one that has turned out to be powerful in some quarters, which is the degree to which the business ebbs and flows coincide. As I think everyone knows, all of our businesses can have substantial real underlying swings from quarter to quarter. Those swings can have a multitude of causes. Sometimes they reflect overall forces, like COVID or geopolitical tensions. Other times it's market-specific conditions that drive our business, such as whether the restructuring market or deal markets are booming. And yet other times it can be factors that are more idiosyncratic for us. For example, whether a business happens to be conflicted out of that quarter's largest job, or if the big jobs in any one segment happen to start or end that quarter. We have, across our business, enough disparate businesses across FTI that those business influencing factors rarely cut all the same way across all of our businesses at the same time. More typically, if one region or business has a big set of jobs roll off, another is facing a set of jobs that are just beginning. But occasionally, there's more alignment to those factors, more coincidence, either positively or negatively, than is typical. Many of you have been following us for a while. For those of you who have, you might remember the first half of 2017. I would say that was a period where we had a whole lot of negative coinciding going on. We happened to swing and miss on some big jobs. We were conflicted out of some others. Some of the investments we had made had not yet sworn out. And we were cycling the first half that happened to be particularly strong. And so we had a couple of very poor quarterly results. At that time, however, we were quite confident that the coincidence of bad factors did not reflect the true underlying strength of our business. We reaffirmed guidance for the year, and as you know, that confidence was subsequently borne out by the results in the second half of 2017 and beyond. Nevertheless, it was still painful. We were sitting there in the beginning of 2017 reporting two quarters that were pretty terrible. That's negative coinciding. On the other hand, in 2019, some quarters felt like Camelot. With us coming the closest we've ever come to everything going right across every business in every region at the same time. When Ajay and I talk about this quarter, it doesn't quite feel like 2019. But it does feel closer to Camelot than typical. We have had just so many things go right so far this year. I'll give you a few examples. In CorpFen, as you know, when restructuring is up, there's often a partial offset in some of the other businesses. This quarter, all three of the major businesses in CorpFen, restructuring, business transformation and strategy, and transactions grew at double-digit rates year over year. In econ, we have won some of the biggest jobs we have ever won. And we're seeing strength not only in non-M&A and M&A-related antitrust, but also in financial economics and international arbitration, and not just in big regions, but in smaller geographies like us, for us, like Asia Pacific and LATAM. I'm sure you saw FLC had terrific results this quarter, year over year. and it came from powerful contributions across investigations, disputes, construction solutions, health solutions, essentially almost all of our practice lines pulled in the right direction. Tech. Tech is a business that is facing industry backdrop with some significant challenges. Yet in the face of that, we continue to gain share, winning large M&A second requests to such engagements, and we're also seeing the results of forward-looking investments in areas like emerging data. And at Stratcom, we also delivered double-digit revenue growth. And that's from a segment perspective. If you look at it from a geographical perspective, this quarter we saw growth in all four regions, with North America and EMEA both growing revenues at double-digit rates year over year. The strength of this quarter clearly reflects the multi-year progress we've made and the focus we've had on building stronger businesses that are durable, more powerful, able to sustain growth year over year after year. But I think both Ajay and I thought that in terms of the ebbs and flows of the underlying businesses, it does feel a little closer to Camelot than we would typically see in a quarter. The consequence of these observations, as Ajay will talk about, is that notwithstanding the strong quarter, we are not revising guidance. We are not assuming Camelot lasts forever.