FTI Consulting, Inc.

Welcome to the FDI Consulting first quarter of 2026 earnings conference call. All participants will be in a listen-only mode. And should you need any assistance today, 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 Hawkes, Head of Investor Relations. Please go ahead.

Good morning. Welcome to the FTI Consulting Conference Call to discuss the company's first quarter 2026 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 the Private Securities Litigation Reform Act, including the company's outlook and expectations for the full year 2026, based on management's current beliefs and expectations. These forward-looking statements involve many risks and uncertainties, assumptions and estimates, and other factors that could cause actual results to differ materially from such statements. 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.fpiconsulting.com. As well as other disclosures under the headings of Risk Factors and Forward-Looking Information, in our annual report on Form 10-K for the year ended December 31st, 2025, our quarterly reports on Form 10-Q, 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 of the date of this earnings call and will not be updated. FTI Consulting assumes no obligation to update these forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by applicable law. During the call, we will discuss certain non-GAAP financial measures. A discussion of any non-GAAP financial measures addressed on this call and reconciliations to the most directly comparable GAAP measures are included in the press release and the accompanying financial tables that we issued this morning. 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, an Excel and PDF of our historical financial and operating data, which have been updated to include our first quarter 2026 results. With these formalities out of the way, I'm joined today by Steve Gumby, our CEO and Chairman, and Paul Linton, our Interim Chief Financial Officer and Chief Strategy and Transformation Officer. At this time, I will turn the call over to our CEO and Chairman, Steve Gumby.

Thank you, Molly. Welcome, everybody. and thank you all for joining us today. As you may have seen this morning, we reported once again solid results for the quarter. I will talk to those results in a moment briefly, and then Paul, of course, will talk to them somewhat more extensively. With your permission today, I'd like to start discussion, however, in a somewhat different place. Typically, in these sessions, I start with some perspective on the quarter or on the last few quarters and then try to zoom out from those to see if I can draw from them any lessons as to why we've been successful and then some lessons about the future, why typically I at least continue to believe that that experience suggests an extraordinarily bright future. Today, let me reverse that order, drawing on some of what we just experienced at our all-SMB meeting a couple weeks ago. and see if I can use that experience to perhaps share some perspective on this year and on this quarter. We finished that all SMD meeting just a few days ago. At every one of these meetings, so many people come up to me or others after the meeting and say just how terrific a meeting they felt it was. In terms of the work that got done, but I think for most people even more powerfully, in terms of the sense of pride sense of excitement, a sense of conviction about the future of the company that people emerge from those meetings with. That's been true at prior meetings, but after this one, my EXCO colleagues and I were struck by just how many people came up to us and shared those thoughts and just how deeply they seem to be feeling them. So I thought I might share a little bit about that, why that might be, and why it is that after such a meeting like this, that so many people leave with a conviction about the magnitude of the opportunities yet in front of this company. And the conviction that this company is still so much closer, the beginning of the powerful journey we're on than the end. So why was this meeting so good? I think actually part of the power of the meeting had nothing to do with the meeting itself. It had to do with just how pumped up so many people were coming into the meeting. Pumped up particularly about what they had each individually and collectively accomplished over the prior 18 months. Paul and I today will talk about all the stuff we still have to do because there's always stuff to do. We have a long way to go on Compass Lexicon. This quarter we did also have some of the normal blips. For example, FLC didn't quite perform as we intended. Our tax rate was a little higher than we expected. We had some higher SG&A expenses and so forth. But if you go back 18 months, you might just recall just how many of our businesses were facing truly tough challenges exiting 2024 and heading into 2025. If you remember, CorpFin had been down two quarters in a row. FLC was facing fundamental uncertainty because of tremendous new regulatory changes. Tech was facing a major second request headwind. And StratCom was coming off probably the most challenging 18 months it had faced in a while. people coming into this meeting in Orlando knew that not withstanding those multitudes of headwinds in the end, they, we had managed to deliver a record level of performance as a company in 2025 as a whole and in the bulk of our businesses. And we ended the year with tremendous momentum in most of our businesses. The fact that we had gotten through 2025, and turned every business, Compass Lexicon aside, but every other business back onto its long-term, tremendously positive trajectory, created, I believe, a powerful sense of pride, motivation, and importantly, confidence that people brought into the meeting, even if they credited Molly and others for creating it in the meeting. So that was one cause. I do think those feelings were powerfully reinforced by some of the stories told in the meeting. The stories of the actions and activities in 2024 and 2025 that led to those results, but also some of the powerful multi-year success stories that were brought to life once again in the meeting. Those stories at an aggregate level powerful, and they are powerful. I can't talk about all of them, but an example is Mike Eisenban talking about the fact that CorpFins today is three times the size it was eight years ago, or perhaps even more powerfully, he and others talking about how folks in the room made that happen. The extension of our restructuring practice around the world, the doubling down of the restructuring practice in the US and UK, even though it had always been strong, the extension into new businesses and transactions and transformation, or analogous stories about the people in this room in other segments or geographies. For example, Sophie talking about all the efforts that took tech from a struggling business to one that is in the face of very challenging market conditions is continuing to win, and at least in my measure, is going faster than any other competitor. So I think people came in really motivated, but that motivation got tremendous reinforcement by plenary presentations, but also I think at least as powerfully by sharing stories with colleagues about the actions that each person had taken, the actions that led to those overall results embedded in the plenary presentations. It suggested it wasn't magic wands that somebody waved. It wasn't markets that gave us those results. It was what people in that room individually and collectively had done that got us to where we are. The third reason that people highlighted, and actually I think probably highlighted more than the first two as motivating, was just the group of the people in the room. Somebody said to me, you know, you look around and just a group you are proud to be associated with. A group of people, some of whom I've known for a while and I've loved working with, but then you also see this terrific group of promotions and these people who you've managed to attract. At the end of the opening speech, we asked people to think back to the all-SMD meeting we had at the end of 2018 and asked everyone in the room who had been in that room in 2018 from a bunch of geographies to stand. So we asked anybody from Italy who was in the room today and had been there in 2018 to stand, as well as the Nordics and Amsterdam and the Middle East. We started with that group.

Zero people stood.

Then we asked people from Germany to join them, and a few folks stood. I did a few more when we went through the rest of the continent of Europe and the continent of Australia and Asia and Latin America. But in the aggregate, in a room of 700 people, there were a few handfuls of people standing. And then we asked everybody from those markets today to stand. And over 200 people got up. We did a similar exercise for the U.S. and the U.K., and of course, we had powerful position in the U.S. and the U.K. in 2018. But when we had the entire group of SMDs in the U.S. and U.K. today, it was double the ones that had been there in 2018. We talked about that, the transformation of our capabilities represented by those changes in terms of geography, the position in those geographies. We also talked about the fact that we could do the same exercise by segment or practice and see the power of the growth of our capabilities in areas like cyber or transactions or aviation or financial crimes investigations. That stand-up exercise triggered tremendous, terrific capability conversations, but I think actually even more powerful for most of us was at the end of three days when people had had working session with the folks who stood. Working sessions with longtime colleagues, but also new colleagues, which allowed in a much more tangible sense, not just seeing people stand in the room, but in a tangible sense of just how much capability we have in this firm and how much capability we continue to add to this firm. So my speculation is the reason we got that feedback at the end of the meeting is a combination of those. People brought in pride and conviction to the meeting because what they had accomplished over the prior 18 to 24 months, that pride was reinforced by the stories they heard, but also the stories they shared about the number of places around the world where our teams are building businesses, creating adjacencies, reinforcing core positions, turning around difficult positions. And that in turn was reinforced by the power that always comes From deep connection with longtime colleagues, you respect people who have inspired confidence for extended periods of time, as well as exposure to fabulous new colleagues who are bringing new expertise and new energy. All of that energy got ended up getting devoted into work sessions, not only celebrating where we're great today, but importantly, confidence and conviction as to where we can take this business further. I think not surprisingly, people came out of a meeting like that finding myriad opportunities in every practice and every geography, which I think left a lot of people in a position that I've been in for a while, which is the sense of the extraordinary opportunity yet in front of us and feeling incredibly strongly the company is much closer to the beginning of our journey than the end.

Let me turn back to the quarter.

I think our performance this quarter, the forecast we have for this year, are simply consistent with this story. It is a story of a firm that I believe has proven that our essential DNA is a simple one, to support great professionals, to help them build businesses that they are passionate about to build. And a firm that understands that if we do that, if we find those professionals, support them in their ambitions, though there will be zigs and zags, If we do that, we ultimately control our destiny. We grow market share. We support clients more fully. And we deliver for you, our shareholders. This quarter is consistent with that story. Like all quarters, it doesn't mean we didn't have some zags. Our FLC business, which has been performing incredibly this last while, had a short-term zag this quarter. It doesn't mean that anybody in FLC is less bullish about its future or the capabilities we've built, the aspirations we have, or the future we believe we can target. Our tax rate happened to be higher than we expected this quarter. We had some SG&A expenses that exceeded our expectations. These are things we have to look at and can address. We do have one longer-term issue that we've been talking about and that we are still working through, which is Compass Lexicon. Compass Lexicon's performance was in line with where we thought it was going to be this quarter, but that certainly leaves us with multi-quarters of work yet to do. But of course, that has also always been true for this company in many prior years. We have not always had every business every year set up exactly to soar. This year, we have work to do in Compass Lexicon, and we are doing that work. So we have headwinds, particularly in econ, but in the face of those headwinds, I hope you saw we grew close to double-digit revenue this quarter. I hope you saw that STRATCOMS delivered yet another record quarter. And Corporate Fin delivered double-digit revenue growth year over year in all three of its sub-businesses. And tech came out of the other side of the headwinds it faced last year. And the non-compass lexicon team in econ is having another great quarter. So Paul will go through the quarter in more detail. To me, what is more powerful than the fact that we delivered yet another solid quarter and we believe we're on track for the year is that in the context of the last eight years, eight years in which we've had some solid quarters, some extraordinary quarters, and some quarters that weren't so good. All of which added up, however, to an incredible run of growth in multiple geographies and multiple segments around the world. Building a stronger, more capable group of people with a set of leaders with a conviction of where they can take us. And putting us on a solidly, with zigzags, but solidly upward sloping set of lines. My view is that if we continue to invest in the ways we know behind great people of ambition and the sort of conviction and drive and energy that was demonstrated at this meeting, people who take responsibility for turning that into results, this firm is and will be much closer to the beginning of this journey than the end. With then, Paul, let me turn this over to you. Thank you, Steve.

Good morning, everybody. In my prepared remarks, I will take you through our company-wide and segment results for the quarter. First quarter of 2026 revenues of $983.3 million increased 85.1 million, or 9.5%, compared to the first quarter of 2025. The increase was primarily driven by revenue growth in our corporate finance, strategic communications, and technology segments, but partially offset by a revenue decline in our economic consulting segments. Excluding an estimated positive impact of FX, revenues increased 60.8 million, or 6.8%, compared to the prior year quarter. Net income was $57.6 million compared to $61.8 million in the prior year quarter. The decrease was primarily due to higher direct costs and SG&A expenses, which included legal settlements in the prior year quarter, as well as an increase in interest expense and a higher effective tax rate compared to the prior year quarter, which more than offset the increase in revenue. Direct costs of $676.5 million compared to $608.9 million in the prior year quarter, primarily due to higher compensation expenses, which included an increase in variable compensation, salaries, and forgivable loan amortization compared to Q1 2025. SG&A of $222.3 million, or 22.6% of revenues, increased $38 million from $184.3 million, or 20.5% of revenues, in the prior year quarter. The increase was primarily due to higher legal expenses this quarter as compared to Q1 of 2025, which included the benefit from legal settlements that did not recur in Q1 of 2026, as well as higher compensation and T&E expenses. Excluding an estimated negative impact of FX, XG&A increased approximately $32.4 million compared to the prior year quarter. First quarter of 2026 adjusted EBITDA of $96.8 million, or 9.8% of revenues, compared to $116.2 million, or 12.8% of revenues, in the prior year quarter. Our first quarter effective tax rate of 26.6% compared to 23.3% in the prior year quarter, primarily due to a less favorable tax benefit related to share-based compensation as fewer shares vested, as well as an increase in valuation allowance recorded against current period losses compared to the prior year quarter. While our tax rate this quarter of 26.6% was higher than expected, we continue to expect our full-year tax rate to be between 22% and 24%. Weighted average shares outstanding, or WESO for Q1, of 30.3 million shares compared to 35.5 million shares in the prior year quarter, a 14.6% decrease. Earnings per share of $1.90 compared to $1.74 in the prior year quarter. As a reminder, in Q1 2025, our EPS included a $25.3 million special charge related to severance and other employee-related costs, which reduced GAAP EPS by 55 cents. Excluding the 55 cents Q1 2025 special charge, adjusted EPS was $2.29 in Q1 2025. Billable headcount increased by 1.1 percent with growth in our core FIN and FLC segments being partially offset by declines in STRATCOMS, ECON, and TECH. Non-billable headcount decreased by 0.4% compared to the prior year quarter. Now turning to performance at the segment level. In corporate finance, revenues of $409.5 million increased 19.2%, primarily due to higher demand and realized bill rate in turnaround and restructuring, which grew 19%, transactions, which grew 18%, and transformation, which grew 20% compared to the prior year quarter. Excluding an estimated positive impact of FX, revenues increased 16.7%. In turnaround and restructuring, revenue growth was driven by roles in some of the largest bankruptcies globally, from Spirit Airlines to Saks in the U.S., to Praxis Oil Refinery in the UK, and Azul Airlines in Brazil. Notably, in transactions, our engagements have expanded in size and scope as we continue to bring more of our services to clients across the deal lifecycle. In addition to working for PE-backed clients, we are working on some of the largest mergers, integrations, and carve-outs in the market, including Omnicom's merger with IPG, Skyworks Solutions' merger with Corvo, and lumen sale of their fiber-to-home business to AT&T, among many other brand-building cases. In transformation, our performance this quarter exceeded our expectations. In fact, the number of million-plus engagements nearly doubled compared to Q1 2025. We continue to win our share of end-to-end cost takeout, supply chain, and operational efficiency mandates in key industries where our experts bring deep, real-world expertise such as healthcare, industrials, communication services, and financial services. Segment operating income of $85.2 million compared to $41 million in the prior year quarter. Adjusted segment EBITDA of $88.7 million, or 21.6% of segment revenues, compared to $55.9 million, or 16.3% of segment revenues in the prior year quarter. The increase in adjusted segment EBITDA was primarily due to higher revenues, which was partially offset by higher compensation. Sequentially, corporate finance revenues decreased 3.2%, primarily due to lower success fees and lower pass-through revenues. Adjusted segment EBITDA increased $8.5 million, primarily due to lower compensation. Turning to FLC. revenues of $192.9 million increased 1.2% due to higher realized bill rate for risk investigation and construction solution services, which was partially offset by lower demand for dispute advisory services. Excluding an estimated positive impact of FX, revenues decreased by 0.9%. Segment operating income of $23.1 million compared to $30.1 million in the prior year quarter. adjusted segment EBITDA of $25.3 million, or 13.1% of segment revenues, compared to $37.5 million, or 19.7% of segment revenues in the prior year quarter. The decrease in adjusted segment EBITDA was primarily due to higher compensation and SG&A expenses, which included an increase in higher unrelated expenses and an increase in bad debt. Sequentially, FLC revenues were flat. and adjusted segment EBITDA increased by $1.4 million, primarily due to lower compensation expenses, which was partially offset by an increase in hiring-related costs. In general, disruptions the world is facing increases the need for our expertise, from national security and cyber threats to AI-related risk compliance to shifting geopolitical issues, among others. That, of course, does not play in our favor every quarter. and this quarter, FLC underperformed our expectations. Some of this underperformance is timing-driven, as there are always quarter-to-quarter volatility in our business. As we've discussed during the last several calls, our team is supporting complex headline and brand-building matters, but those engagements are often large and lumpy, with starts and stops that are often driven by factors that are outside of our control. In economic consulting, revenues of $175.6 million decreased 2.3%, primarily due to lower demand for antitrust services, which was partially offset by higher demand for financial economic services and higher realized bill rates. Excluding an estimated positive impact of FX, revenues decreased 5.7%. Segment operating loss of $7.3 million compared to segment operating income of $12.1 million in the prior year quarter. Adjusted segment EBITDA was a loss of $5.9 million compared to $14.4 million, or 8% of segment revenues in the prior year quarter. The decrease in adjusted segment EBITDA was primarily due to higher compensations largely related to the increase in forgivable loan amortization and . Sequentially, economic consulting's revenues were potentially flat, and adjusted segment EBITDA decreased $6.9 million, primarily due to higher compensation expenses which was partially offset by lower bad debt. We have, as expected, made some good progress over the past months in Europe, in particular, and we expect that to begin to show up in the P&L as this year goes on. Although we've added terrific talent to our Compass Lexicon antitrust business in North America, we're just beginning to rebuild that revenue base. Technologies revenues of $102.3 million increased 5.3% primarily due to higher demand for litigation and information governance, privacy, and security services, which was partially offset by lower demand for investigations and M&A-related second request services. Excluding an estimated positive impact of FX, revenues increased 2.8%. Higher demand for litigation was largely driven by clients in the healthcare, media, and technology industries, and demand for information governance, privacy, and security services was driven by a large privacy breach. Look, the complexity of data is compounding. Our tech business combines domain experts, operators, attorneys, and investigators with deep technical experts who have worked with artificial intelligence for over a decade to solve their clients' most complex, high stakes issues at the intersection of law and regulation. This combination of experience and expertise has long been a core differentiator for our tech business. And that's why the world's leading AI companies are turning to us for their most complex matters. From IP and copyright, to privacy, security, and data monitoring, to building custom, defensible tools for specific client uses and workflows based on our expertise collecting and analyzing massive-scale AI system data, from activity logs to RAG databases. Segment operating income was $7.7 million compared to $6.6 million in the prior year quarter. Adjusted segment EBITDA of $11.8 million or 11.6% of segment revenues compared to $11.6 million or 11.9% of segment revenues in the prior year quarter. The increase in adjusted segment EBITDA was primarily due to higher revenues, which was partially offset by an increase in compensation. Technology revenues increased 3.3%, primarily due to demand for information governance, privacy, and security services, which was partially offset by lower demand for investigation services. Adjusted segment EBITDA decreased $3 million sequentially, primarily due to higher compensation, which more than offset the increase in revenues. Strategic communications record revenues of $103 million increased 18.4%. primarily due to higher demand for corporate reputation, public affairs, and financial communication services. Excluding an estimated positive impact of FX, revenues increased 14.5%. Worth noting, STRATCOM's continued powerful results reflect the strength of our multi-year investments to build out our higher margin, event-driven offerings in areas such as crisis, cyber, transactions, and activism, as well as frequently teaming with the other segments to address complex client issues in our largest global cases. Segment operating income of $20.8 million compared to $8.7 million in the prior year quarter. Record adjusted segment EBITDA of $21.9 million, or 21.3% of segment revenues, compared to $12.9 million, or $14.8 of segment revenues in the prior year quarter. The increase in adjusted segment EBITDA was primarily due to higher revenues, which was partially offset by an increase in compensation expenses largely related to variable compensation. Sequentially, strategic communications revenues were up 3.6%, primarily due to higher demand for financial communications and public affairs services. Adjusted segment EBITDA increased 15% sequentially, primarily due to higher revenues. Let me now discuss a few cash flow and balance sheet items. As is typical, we pay the bulk of our annual bonuses in the first quarter. Net cash used in operating activities of $310 million compared to $465.2 million used in the prior year quarter. The year-over-year decrease in net cash used in operating activities was primarily due to a decline in forgivable loan issuances, higher cash collections, and lower income tax payments, which was partially offset by an increase in compensation payments. During the quarter, we repurchased 787,098 shares at an average price per share of $161.11 for a total cost of $126.8 million. As of March 31, 2026, approximately $354.9 million remained available for common stock repurchases under the company's stock repurchase program. Total debt, net of cash, of $556.7 million at March 31, 2026, compared to $8.9 million as of March 31, 2025, and $99.9 million at December 31, 2025. A sequential increase in total debt and net of cash was primarily due to annual bonus payments and shared repurchases. Turning to our outlook. First, let me remind you of the guidance ranges for 2026 that we provided in February. Revenues of between $3.94 billion and $4.1 billion. EPS of between $8.90 and $9.60. Based on our solid Q1 performance, we are maintaining our guidance ranges, which incorporates the following considerations. First, in our Compass Lexicon business, though we believe our adjusted segment EBITDA in economic consulting has hit its low point this quarter, As Steve said, we have multiple quarters of work ahead to get the P&L back to the levels we are happy with. Second, we're an event-driven business, and therefore our results can be lumpy. As mentioned, we had several jobs in FOC that rolled off during the quarter or started later than expected. We have some large jobs rolling off in other segments where our work is event-driven. However, as mentioned previously, our ability to win the largest headline-making jobs in the market reflects the continued power of our platform and the relevance of our people. Third, the M&A market has had a strong start to the year in terms of deal volume and mega deals. We saw solid demand for our businesses that support M&A related activity in CorpFin, Econ, Tech, and Stratcoms. However, we can never be certain how activity will continue through the remainder of the year, particularly amid continued market uncertainties. Fourth, we continue to invest in talent. In 2025, we announced 85 senior hires In 2026, we plan to add more senior professionals where we see the right opportunities. We have announced 29 SMD and affiliate hires year-to-date in key geographies, such as Australia and the Middle East, where we're benefiting from competitive disruptions, as well as in key adjacencies, such as transaction, transformation, public affairs, cybersecurity, data privacy, and AI. We also intend to build teams around these leaders, and in the second half of the year, we expect to increase junior hiring in parts of the business that lagged in hiring in 2025. Fifth, we now expect SD&A expenses for 2026 to be approximately $60 million higher than 2025. The increase is largely due to higher legal and compensation expenses. As a reminder, as Steve mentioned, we held our all-SMD meeting in April. We expect Q2 2026 to be the high point for SG&A, or approximately $5 million higher than Q1 2026. Before I close, I want to reiterate four key themes that I believe continue to underscore the attractiveness of our business. First, in an increasingly uncertain and disrupted world, our powerful platform and unique set of offerings allow us to deliver impactful results for our clients as they navigate their most significant crises and transformations, from bankruptcies and M&A transactions to investigations and cyber breaches, regardless of business cycles. Second, we continue to attract top talent. When the right people are available, regardless of short-term economic impacts, particularly in the backdrop when many competitors are facing major challenges, from expensive debt and poor liquidity to heightened client skepticism around the quality of their core offering. Third, as we continue to hire, our management team remains focused on both growth and utilization. And fourth, our business generates excellent free cash flow, and we have a strong balance sheet that provides us the flexibility to boost shareholder value through organic growth, share buybacks, and acquisitions when we see the right ones. Before we open up the call to your questions, I want to take one more opportunity to welcome our new Chief Financial Officer, Angela Nam. will join us on May 1st. We're looking forward to introducing Angela on our next earnings call in July. With that, let's open up the call for your questions.

We will now begin the question and answer session. To ask a question, you may press star, then one on your telephone keypad. And if you're using a speakerphone, please pick up your handset before pressing those keys. To withdraw a question for any reason, please press star, then two. And at this time, We will take our first question, which will come from Andrew Nicholas with William Blair. Please go ahead.

Good morning. Appreciate you taking my questions. The first one is just kind of on the macro environment. A lot of helpful color on the puts and takes at the segment level, but I just wanted to ask kind of at a big picture level, you know, CFR, you saw really good growth on both the restructuring side and the transaction side. How feasible is it, whether it's over the course of this year or even multiple years, for both of those businesses to grow at such strong rates simultaneously? Typically, you'd expect a little bit of conflict between a restructuring environment or a strong restructuring environment and a strong M&A environment. Just kind of interested in whether or not you see those conflicting in the coming corners in years.

Yeah, let me take a crack at that, Paul. You probably have views on that, too, if you want to add. Look, I would say there's a couple different forces going on there. There's the market forces, which I think you're right. Markets that tend to support lots of M&A will often not be markets that are big restructuring markets. And so you have some macroeconomic forces that have historically suggested that these don't all go aligned. I think the other thing that goes on here is that we've actually, our teams have done a fabulous job of adding talent and expanding the businesses. These are not just us businesses today. They're global businesses where we have powerful positions overseas, and we continue to be attracting talent. So some of what you see here is the market forces come in coalescing in an unusual way and all supportive. I think some of it has to do with actually us gaining share, particularly in, in like transactions and transformation. And look, that just depends on us doing the right things and the right talent come available and us being bold enough to jump on that talent when it's available. So I think one of them says they're inconsistent, they shouldn't all grow together. The other one says if we do the right things, we can defy those market realities a bit. Does that help, Andrew?

Yeah, no, that's helpful. Appreciate the color. And then for my follow-up on kind of segment margins, I think both FLC and STRATCOM kind of their first quarter results were a decent bit different than what we've seen over the past several quarters. So just kind of curious how we should think about those two segments margins and with FLC more specifically, you know, last year was a really good year for profitability. I understand that the top line is a little bit lumpy, but is there a margin profile that you think is, quote-unquote normal for this business that we should kind of gear our models to. Thank you.

Yeah. I don't think we're going to give any specific guidance around margins, but maybe it can help a little bit with FLC. I mean, we have been, you know, adding talent in FLC, and particularly over the last little while, a lot of the talent we've added has been at the top, you know, in terms of SMDs. So that investment is, and building out our expert model, which will allow us to continue to drive the revenue in some of these higher margin services, we feel is the right investment for the business. There's also some one-time stuff that we talked about earlier in the call that drove some margin to be a little bit lower than our expectations. But I think in the long term, we feel pretty confident in the business.

And then Stratcom, to the point, has had a fabulous quarter. And we never project people to take the best quarter and then multiply it and extend it forever. But let me say this. I think, though you never want to take the quarter where everything's on fire and just make that the normal quarter, I will say there's stuff underlying in Stratcom that is powerful going on. There's been a move over now a number of years, but that starts to show up in the numbers towards much more of a, highest value part of its business, crisis, transformation, cyber deals, and so forth. And that is a, it's a lumpier business, but it's of course a crisis business, which tends to be a higher margin business for us. The other thing is, I think that's a business that has adjusted its leverage ratio in taking account AI. You know, the high end of that business, the core advisory business, is like the rest of our business where crisis is why people are hiring us. We used to need a lot of people to help summarize things like EU regulations. You need fewer of those. So some of the leverage ratios have changed. So look, I think that business is headed in a great trajectory, but you never want to take the quarter where, I mean, even Paul sounded rapturous about the numbers. You never want to take that and just say, oh, that's the new normal. Does that help, Andrew?

Yeah, that's perfect. Thank you very much. And our next question will come from James Yarrow with Goldman Sachs.

Please go ahead.

Good morning, and thanks for taking the questions. So maybe I just wanted to, maybe just starting first on restructuring, I just wanted to touch a little bit more on that and dig in a little bit on some of the things you've already alluded to. But I'd love to just get your perspective on what, you know, the disruptions in private credit and software, and obviously the two are related, but basically the nexus of those two things means for the business. I think a number of investment banks out there have talked about the liability management opportunity potentially over time. Obviously, that's not where your restructuring business lies. And so just love to get your perspective on whether private credit and software could have a a positive impact or impulse on your restructuring business?

Want me to take that? You want to take it? Okay. So, look, I think we have good relationships with private credit. You know, look, our business is helping companies that have challenges, and private credit in general tends to be companies that lend money to more risky, more venturesome activity. And so they're taking risk. And so when things get stressed, that's where we are the strongest. Okay. I would say that has not been the major driver of our growth so far, but we have very good relationships there. And we have also relationships that are important, not just in Corp Fin, but in FLC and investigating, you know, some of these, some of these are very covenant light loans and therefore covenant light loans on average have more susceptibility to the statement or frauds and so forth. And you, we have an FLC business that specializes in fraud investigation. So I would say that, you know, depending on how that market evolves, it could be a terrific source of revenue growth for us. I think our private equity clients are hoping it's not that, that, that the world is, is, is, is calm going forward. But we are well positioned if it is, you're right. We don't do liability management exercises, but as you know, James, not every liability management exercise works out. And the number of the bankruptcies we're working on now were liability management exercises a couple years ago. So look, we know these clients well, we think they're valuable clients, we stay close to them, and we stand ready to serve if and when they need us. And I think if they need us, we will get significant revenue from them. Does that help, James?

Super helpful, as always. Maybe just zooming out on a somewhat related topic, but Steve, I'd just love to get your perspective on what you think are the businesses that could be most impacted by the disruptions we're seeing, whether it's AI, software, private credit, and the global conflict, and perhaps in which ways?

You're talking about our end customers, or are you talking about our businesses?

Your business. Yes, your business.

Let me think about that.

You know... Well, sorry. Let me just clarify the point. I just want to clarify the point. My apologies. That was imprecise of me. So just to clarify, how do you think those large items could impact your end customers and therefore drive more business for you? Yeah.

Look, I think it's true for all of our businesses. I mean, our business – maybe when we acquired all these businesses 15 years ago or 20 years ago now, you know, they were somewhat different. I mean, maybe our Stratcom people wrote annual reports at that point in time. I mean, at this point, so many of our businesses really are businesses that are designed to serve companies at their biggest times of change and potential disruption in the marketplace or transformations they're in. And to the extent the world is more disruptive or in response to anticipate disruption, people are transforming their businesses with greater rapidity and And more frequently, it's a boon to the businesses. And it's hard for me to pick favorite children out of that because you can see that in Stratcom right now. You can see that in restructuring right now. It leads, all of those things lead to litigation, which we're expert witnesses and testifier. Sometimes people misrepresent things and that leads to fraud. And so I'm pretty bullish about that. position to help companies in as I think I said once if the world were the kind of world that we tried to describe to our two-year-olds you know wonderful world everybody gets along you're trying to tell your two-year-old that because he or she is beating up on the four-year-old but but you know you know you know a peaceful world where everybody's getting along there's no litigation there's no crisis and the world isn't changing, that's not what we're set up to serve. To the extent the world has other aspects, it's a pretty big driver for us. Does that respond, James?

Yep, yep, yep. Extremely helpful. And last one, just for you both, just as you think about hiring, you talked about accelerating hiring towards the the back half of this year, you also highlighted a substantial number of recent senior hires. I just would love to get your perspective on what gives you the confidence or the ability to accelerate the hiring so substantially. Is it even greater disruptions among the firms from which you hire or just even more investment on your side or maybe a combination of both?

Yeah, let me distinguish between the junior hires and the senior hires. The junior hires we're forecasting for the second half of the year is to catch up because we have been been so fortunate in the number of senior hires that we've been bringing on that our ratios and a number of our businesses are below where we've historically been. OK, so I think the junior hires in the second half of the year is not based on some forecast of of disruption in the world. It's we got senior hires. We have to bring in some people below them. Um, the senior hires is, um, is, uh, is really a supply side driven thing. I think as we've had, you know, I'll give you an example of Australia at one point in Australia. Uh, we had several good leaders down there and they couldn't attract anybody. We were not number one or two in any market position. Nobody believed the global network was worth anything. We had really good people trying to recruit people and nobody would come. And it just transformed itself. I think today we may have more SMDs per capita for GDP, whatever, in Australia than any place else. Because what happened is there was a breakthrough. Some of the number of leading restructuring people came over and they founded a tremendous platform. We made the global network work. That went around the market. Now, that led to a few additions, but then you're right. Competitors had real missteps. And when competitors had real missteps, now we were the destination that everybody wanted to talk to. Didn't mean only us, but everybody wanted to talk to. And then they talked to us and they talked to the people and said, wow, these are people I want to join and then when they join that gets around the market as well and so we've gone from a position where nobody would take our calls 10 years ago or eight years ago the phone is ringing off the hook and i i don't know if we released the exact number of smbs molly she's shaking her head but where it's ringing off the hook and i think that's what we bet on because if we can get those people maybe we get those people three quarters ahead of where they can bring in revenue. Sometimes they have restrictions, and so it's six quarters before they can bring in a lot of revenue. But that, we think, is the single best fuel of long-term growth for us, what we've been on, and then what we showed, what people were talking about in this all-SMB meeting is why we have driven this. So on the senior head count, that's the reason, James. Does that respond?

Extremely helpful. Thank you, Steve.

Yeah, maybe I'll just add to that just a little bit. Part of your question was, why do we have the confidence? And I'll point you to Stratcom and Corp Fin. The growth that you saw in Q1 of 2026, those are investments that were made three years ago, two years ago, one year ago that enabled. Now, some of it's pricing, but without the heads, that growth is not possible. So the confidence we're seeing, the performance we're seeing in those businesses gives us confidence to continue to invest behind those businesses to drive growth. not only restructuring, but transactions and transformation, and then stratcoms, not just financial communications, but all those other event-driven services, such as, you know, cyber. So we're going to continue to invest if we find the right people in the market, because that's the way we delivered the growth you saw this quarter.

That's super cool. Thank you, Paul.

And our next question will come from Toby Sommer with Truist. Please go ahead. Thank you. We've heard from some other management at various consulting firms think that one of the impacts of AI could be a move towards some more fixed pricing structures. as well as potentially changes in ratios of juniors to seniors. You made a couple of comments on the leverage ratio of juniors to seniors in different directions or hiring a little bit more in the back half to support some of your new senior hires. How do you see fixed price and changing ratios evolving over a little longer stretch of time?

Look, it's a good question, Toby. I think it's one that I talk with the managing partners of a number of law firms. I talk with managing partners of other professional services firms. I mean, everybody is thinking through what the pricing dynamics are in an AI environment. I would say nobody has a perfect answer for any of them, and there's lots of experiments going on. You know, in our tech business where we're using, we have a really leading set of offerings, AI-related They do require then really smart senior overview to make sure that you don't have the sort of AI hallucination legal issues that some people have. So that has reduced some of the junior most work, but it has required some more senior work, which is build out at higher rates. How that nets out, I don't know. Right now, I would say... Uh, it's probably netting out with a few more, a few fewer hours, but us gaining share because we're leading edge, you know? And so there's all these dynamics that are going on. We're clearly in some places, um, looking at, uh, fixed price contracts because, you know, we're focused on trying to use AI to make sure we're delivering more value, which typically means fast, the value faster, either broader with deeper sources, or faster and and that has more value for your clients as well but we're experimenting with multiple models in multiple places um like on most things on ai the uh it's moving so fast that you have to be ahead of it but the immediate impact of those pricing decisions right now is is muted it's just that we're staying on top of it because it's pretty damn critical for the going ahead and so we're looking at lots of different versions does that help toby

Sure. Yeah, it does. So with economic consulting, you kind of described a multi-quarter path to trying to grow that business and improve profitability. Could you dig into what the likely path is to improve profitability? Because last year you handed out a bunch of forgivable loans and that's going to weigh on things. And I'm just wondering as you placed some of those bets on people who weren't necessarily commercially proven, um, as they, some of them do prove themselves and become successful, how do they not get sort of marked to market for that new improved, uh, condition?

Yeah. So I don't think, I don't think we're really too worried about the people getting, uh, you know, getting commercial with the, you know, the, the, uh, That's not gonna be a problem for us. We're worried about those who don't get commercial, Toby. What we did was we bet on some very proven rainmakers and they've come in and generally been driving revenue. And that's pretty straightforward. We have bet on some very leading edge academics. I think we've talked about the Medicaid that came out and one of the academics from University of Chicago Behavioral economist was cited by the judge multiple times in that case. You know, those people are incredible assets for the biggest stakes litigation, which is the place where we still win most of the, you know, we're the leading player in that. And that's it. But those people are not necessarily automatically economic for us because you sign them up. And then over time, behavioral economics gets accepted in the courts. And then behavioral economics gets used more. We have structures for each of those people. As they get used more, they will get paid more. But their forgivable loan doesn't go up. So the economics of them getting used more are positive for us, not worse for us. And, you know, we made a lot of those bets. And some of them will take quarters to start to prove out. And some of them will take years to start to prove out. They were very intelligent bets. These are bets on people who, you know, some of our people are the edit the leading academic journals in economics. And they have insight into people who are really leading edge, which is the foundation of Compass Lexicon. But many of those bets are not near-term payback. And therefore, we're saying it's a multi-quarter journey for us. Does that help a little bit, Toby?

It does. If I could ask one follow-up, is there a path or strategy for you to regain your position in competition consulting domestically?

Yeah, let me just separate out a few things. So as we might imagine, there's like three or four different parts of our business. Our Europe business was not particularly hardly hard hit by the competitive disruption. Last year, it happened to have a tough year, partly because of distraction by some of this. I think they're on their way back to the position and they are still the leaders, to my knowledge, of we are the leaders in global antitrust based on a terrific team over there. And that's starting to show up as this year goes on, I believe. In the U.S., we've always been the leader, I believe, in the finance practice. And I think our revenue year on year has been up on the finance practice. And we still win the largest cases and I don't think we lost anybody of significance in the competitive disruption. The hit we had was to the U.S. antitrust business. But even there, it's nuanced. The biggest cases in the U.S., when it goes to litigation, people want the depth of expertise we have. And I don't think we have people like Dennis Carlton. We have the people like I just mentioned, these affiliates like John List, who were on the Meta case. We have added to that some tremendous people like Doug Bernheim. So we, I think, are still the go-to person for the leading litigation-related cases in antitrust in the U.S., and I think you can check that out with different sources on that. Where we've gotten hit is, surprisingly, is on the more routine standard merger clearance cases, where we lost some people, and the people we have, we still have some very good people, but they tend to be pretty academics and shy, and they're not out there marketing, and we've lost a lot of share on that in the U.S. And that's rebuildable. It's not a unique characteristic, but it does require us going out and meeting the attorneys and so forth. And we've got a ways to go on that. So I think that's doable. But even that, you know, when people have entrenched relationships, it takes a while to get a crack and then improve yourself. And so we've got a ways to go in the more routine, particularly in the more routine merger agency related clearances in the United States. Does that help, Toby?

Thank you.

I want to say thank you to everyone for attendance. And I think since I won't say thank you to Paul for being the CFO yet, because we'll wait until Angela is here and she can thank you. But also because you are not going anyplace, right? You're going to come back and still be our Chief Transformation Officer. But thank you, everybody, for your time and your support. And I hope this meeting was helpful. Have a great week.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect your lines.