FTI Consulting, Inc. 2026 Q3 Earnings Call

Welcome to the FTI Consulting conference call to discuss the company's third 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.fticonsulting.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 31, 2025, and 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 assumes no obligation to update these forward-looking statements, whether it is 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 and were also posted to the Investor Relations section of our website. Lastly, there are two additional 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 a PDF of our historical, financial, and operating data, which have been updated to include our third quarter 2026 results. With these formalities out of the way, I am joined today by Steve Gunby, our CEO and Chairman, and Angela Nam, our Chief Financial Officer. At this time, I will turn the call over to our CEO and Chairman, Steve Gunby.

Thank you, Molly. Good morning, everyone, and thank you for joining us. As I suspect many of you have already seen this morning, we reported a powerful third quarter. It was an amazing quarter by many measures. Our revenues exceeded $1 billion for the first time. All five of our segments delivered top-line growth. Adjusted EBITDA grew 18%, and adjusted EPS was $3.84. If I can, let me focus on that last number a bit and see if I can put a little perspective on it. It is not only a record, almost as much as we earned in the first two quarters of this year combined, and I realized just a couple of days ago that it is more than we earned in the first two years of my CEO tenure combined.

For me, it is a pretty special number showing, I think, the power of this organization and the progress we have made. Now, look, my experience is any time anyone has a great quarter, the first thing you have to do is check how real it is. Not in the accounting sense, we always focus on the right accounting, but how much was driven by one-time factors? The type of factors that just could happen to cut positively in a given quarter. If you do that analysis here, you find out that a lot did cut positively this quarter. We had significantly higher than usual success fees, we had a lower tax rate, and we had a number of smaller factors that also cut positively.

Having said that, I worked to normalize for all of those factors, and I still had a hard time getting the number below $2.90 a share, which compares with the average adjusted EPS over the prior four quarters in the low twos. So even with all the adjustments I could make, our performance this quarter ended up powerful. A seemingly powerful reaffirmation of the strength of our earnings potential and our growth potential. After a number of quarters recently that did not seem to reaffirm that power anywhere nearly as strongly, which of course has raised the question, why? What happened? Why did this happen after five to six quarters that were not so powerful? Did we change our fundamental strategy? Did the world somehow change radically in our favor? What is going on? I assume some of those questions occurred to many of you, not just me.

Rather than go through the details of the quarter, which Angela will do, I thought I would try to share some perspective on those questions. What is fundamentally different? And importantly, what is not? And importantly, how durable is any of this? What I would like to suggest in the rest of this opening is that our powerful results of this quarter, in contrast to the prior five or six quarters, do not represent some fundamental change in the company's strategy Nor some fundamental changes in the markets in which we operate.

Rather, what I would like to argue is that the core of what is going on is more simple but also more fundamental. It is a resumption of the growth trajectory that this company has been on since we turned the fundamental strategies around almost a decade ago. A resumption of the trajectory that we demonstrated was so powerful from 2017 to 2024. A trajectory that has been going on underneath the surface but has been obscured over the last five to six quarters that has taken to fully digest the disruption in our Compass Lexecon business. Well, that is a lot. I would like to go into a little bit more detail to see if it would make the points come alive a little bit.

If I can, let me start by re-anchoring in the success we had in the prior period, the 2017 to 2024 period, then bridge to the period of the last five to six quarters that were not so good, and then arrive at why we are having such a good quarter today. I am not sure how many of the people on this call remember our Investor Day in 2017. For those who do, you might remember a little of what we said then. Which was then, after a period of truly major change in our company, that was a time when we did change our strategy, we did change our operational focus, we did change most of our leadership. After all those changes, we believe we had then put the company back finally into an incredibly powerful position.

We had put in place strategies focused on key high-value areas for clients. We are using that focus to win important brand-building client work. Important, we had put in place an energized, action-oriented leadership team, and that team was retaining great people. We had pipelines of people we believed we could develop and promote. We now believe we have positioned ourselves as the destination for terrific talent around the world. We asserted then that we believed those strengths would translate into a powerful and durable economic model. A model that we believe would deliver sustained mid to high single-digit organic growth, which combined with good use of cash over any extended period, would not only help us build the business for our people and our clients, but also allow us to significantly outperform the market. For those of you who do remember that, you will also remember an important fact.

From 2017 to 2024, we did not just make those assertions. We delivered both on the strategy and on the results. Not every quarter for the company, and certainly not every quarter for every region or segment or sub-segment. Every segment and region had zigzags during that time. But in every business, we made the zigzags surround upward sloping lines, and the company as a whole therefore delivered strong organic revenue growth, strong adjusted EBITDA, strong adjusted EPS, and a stock price that moved commensurately. Turning to the next period, what the heck happened over the last five to six quarters? Over the last five to six quarters, it looked different. We had some adjusted EBITDA and some adjusted EPS growth, but we have not performed on most measures anywhere near as strongly as we had previously. Look, one can speculate around a lot of different explanations.

One possible explanation could focus on some specific challenges. We had market headwinds, including geographical slowness in markets like Asia and the Middle East. We had some bets that took longer to ramp than expected. We had some individual businesses that faced challenges. Tech, for example, last year faced a serious slowdown in second request activity, and FLC has faced a slowdown in global risk and investigations over the last several quarters. The problem with those as the explanation for the last quarters is that those sorts of challenges have always existed, even during our most successful periods. Not those specifics, of course, but analogous ones. For example, in 2017 to 2024, we had years with major restructuring troughs. We had big jobs that ended. We had market and geopolitical dislocations, and we had COVID, among other factors.

The reality is, and our experience and our expectation is that if we don't just have a strategy on paper, but we have a really truly robust organic growth strategy, we do not need to be terrific every quarter in every business. We do not need every market to be in our favor. What we need to do is to be making enough powerful bets behind strong businesses and strong people that the power of those bets and those people overcome a few bets that do not work, and overcome at least over any extended period of time market conditions. That is what we showed from 2017 to 2024. So those idiosyncratic things that we had the last few quarters aren't the answer. We made the same sort of powerful bets the last two years. Why don't they seem to be showing through?