FTI Consulting, Inc. (FCN) Earnings

Management highlights

### Overall Company Performance - The company delivered record Q2 2026 revenues, up 5.3% year-over-year; excluding pass-through revenues, revenues increased 6.5%. Year-to-date revenues are up 7% year-over-year, or 10% when normalized for economic headwinds. - Adjusted EBITDA came in at $104.5 million (10.5% of revenues), down from $111.6 million (11.8% of revenues) year-over-year, as higher direct costs and SG&A expenses outpaced revenue growth. The decline included $6.6 million in extraordinary non-recurring litigation-related expenses. - Billable headcount increased 3.2% year-over-year, with 5% growth at the SMD and MD levels as the company continues to invest in senior expert talent. ### Strategic Progress & Tailwinds - The firm continues to win high-stakes work in long-standing core markets (bankruptcy, antitrust, transactions, investigations, litigation, reputational issues), as clients prioritize top expert talent for complex matters, a trend that has benefited FTI for 7-8 years. - Artificial intelligence is a strong growth tailwind: AI-focused companies engage FTI for regulatory, litigation, transaction and dispute support, and broader AI disruption increases demand for FTI's services around bankruptcies, investigations, and crises. Tech segment's AI leadership has enabled new types of large-scale complex work that was not possible just months ago. - The company maintains a strong, low-leverage balance sheet, a competitive differentiator in the professional services industry. Operating cash flow was $152.3 million in Q2, up from $55.7 million year-over-year. FTI repurchased 2.6 million shares for $390.9 million in Q2, leaving ~$344 million remaining in the repurchase program as of June 30, 2026. ### Operational Updates - The UK business faced a short-term slowdown in the first half of the year, while the Econ segment outperformed expectations sequentially in Q2. - Expanded litigation against a former employee, which added new defendants including a competing firm and new claims, drove higher-than-expected legal costs in the quarter.

Guidance

- Full-year 2026 revenue guidance is reaffirmed at a range of $3.94 billion to $4.1 billion. The wide range is maintained due to continued uncertainty around near-term geopolitical and operational timing, including the Middle East conflict and the timing of a UK business rebound. - Full-year GAAP EPS guidance is lowered to a range of $8.70 to $9.30, from the prior range of $8.90 to $9.60, to reflect extraordinary litigation-related expenses. Adjusted EPS guidance is set at $9.10 to $9.70. - SG&A expenses for full-year 2026 are now expected to be ~$70 million higher than 2025, up from the prior expectation of $60 million higher, primarily due to higher expected legal expenses including extraordinary litigation costs. Q3 SG&A is projected to be ~$12 million lower than Q2 2026. - Full-year effective tax rate guidance is adjusted to a range of 21% to 23%, down from the prior 22% to 24% range. - Econ is expected to deliver year-over-year revenue and adjusted segment EBITDA growth in the second half of 2026, though no additional sequential step-up in growth is expected after Q2's strong improvement. - Despite a softer year-to-date restructuring market globally, FTI gained market share (growing global restructuring revenues 8% year-over-year in the first half) and remains well-positioned to win the largest, most complex global restructuring matters. - The company will continue to invest in talent: 45 SMD and affiliate hires have been made year-to-date across key growth segments, and more than 270 new graduate hires are expected to join in Q3. - A sequential pickup in earnings is expected in the second half of 2026, driven by lower non-recurring SG&A and legal expenses, improved performance from Econ and Tech, and earnings per share benefits from share repurchases.

Segment performance

1. CorpFin: 8.5% year-over-year revenue growth. Turnaround and restructuring contributed 44% of segment revenue (2% year-over-year decline), transactions contributed 26% (10% year-over-year growth), and transformation contributed 30% (26% year-over-year growth, exceeding expectations). Almost 50% of the company's year-over-year billable headcount growth is tied to investments in this segment. 2. FLC: Delivered year-over-year top-line growth driven by higher realized bill rates, despite lower overall volume from a continued pullback in regulatory enforcement. North American financial services and cybersecurity businesses perform strongly, with demand driven by shifting regulations and AI-related risk complexity. Over 40% of year-over-year headcount growth in FLC is at the SMD and MD levels. 3. Econ (part of FLC): Sequential Q2 revenue increased by $13.2 million, and adjusted EBITDA increased by $14.7 million, with broad-based strength across EMEA and North America. Growth in EMEA was led by M&A-related antitrust work, while North America growth was driven by financial economics and antitrust practices including the high-profile OpenAI engagement. 4. Tech: 18.4% year-over-year revenue growth, driven by increased demand for M&A-related second request services. 5. STRATCOM: Delivered a solid quarter, with a 5.4% year-over-year revenue increase excluding pass-through revenues, led by higher demand for corporate reputation services. Multi-year investments in higher-margin event-driven offerings (crisis, cyber, M&A, activism) are paying off.

Risks & headwinds

- Geopolitical instability, specifically the ongoing conflict in the Middle East, has created near-term uncertainty for the region's business, with clients suspending purchases or delaying project starts; the timing of any recovery is extremely difficult to forecast, and no near-term turnaround is currently expected. - Short-term operational volatility is inherent to FTI's event-driven business model, with results impacted by variability in when projects start/end, seasonality, and fluctuations in key market activity including restructuring, M&A, and regulatory enforcement. - Ongoing expanded litigation against a former employee (with additional defendants and claims added in Q2) has driven extraordinary litigation costs, and while expenses are expected to be lower in the second half, they continue to pressure full-year profitability. - While a more deal-friendly posture from the current U.S. administration has boosted mega-deal volume, faster merger clearances, negotiated remedies, and fewer litigated challenges may reduce the duration and intensity of FTI's client engagements. - FLC has faced slower demand under the current U.S. administration's regulatory environment. - The UK business has faced a short-term slowdown that is expected to take time to rebound, due to seasonal factors and broader market conditions. - Intense competitive pressure exists in both the Tech and STRATCOM segments, with the Tech segment facing a particularly challenging competitive environment.

Analyst Q&A

• Q: How is the Middle East geopolitical conflict impacting FTI's regional business, and could it become a tailwind eventually? /

  A: The conflict has created significant near-term uncertainty, with conditions changing weekly: teams have faced personnel exits and returns, clients often suspend project purchases or delay the start of new assignments. FTI believes there is long-term demand for its services in the region, and it has a strong local team, but it is impossible to forecast when conditions will improve, and no near-term recovery is expected. For the world's sake, management hopes they are wrong about the timing.