FTI CONSULTING, INC (FCN)·Q1 2025 Earnings Summary

Executive Summary

• Adjusted EPS was $2.29, a significant beat versus S&P Global consensus of $1.79, while GAAP diluted EPS was $1.74 after a $25.3M severance-related special charge; revenue was $0.898B, a modest miss versus $0.907B consensus. The company delivered Adjusted EBITDA of $115.2M (12.8% margin), above $96.2M consensus, driven by record Forensic & Litigation Consulting performance and cost actions . EPS Consensus Mean Q1: $1.79*; Revenue Consensus Mean Q1: $906.7M*; EBITDA Consensus Mean Q1: $96.2M*.
• Management maintained full-year 2025 guidance set in February (Revenue $3.66–$3.81B; GAAP EPS $7.44–$8.24; Adjusted EPS $7.80–$8.60), but flagged near-term headwinds: SG&A expected to run $15–$20M higher in Q2/Q3 vs Q1 and amortization of $162M forgivable loans beginning to weigh on Adjusted EBITDA in Q2 .
• FLC posted record revenues ($190.6M; +8.3% YoY) with 19.7% segment Adjusted EBITDA margin, while CFR transactions surprised positively; Technology benefited sequentially from several second requests that began and concluded in Q1, but M&A-related activity is unlikely to persist given the sharp decline in HSR filings .
• The Board added $400M to the share repurchase authorization (remaining capacity ~$568.3M as of April 22), and the company repurchased ~1.73M shares in and after Q1; net cash used in operations was $465.2M, reflecting bonus timing and forgivable loans used to retain and attract talent (notably in Compass Lexecon) .
• Strategic setup: near-term uncertainty from tariffs and subdued M&A could pressure Economic Consulting and Technology, while restructuring activity is showing early signs of pickup; medium-term confidence remains high given talent investments and brand strength in FLC and restructuring .

What Went Well and What Went Wrong

What Went Well

• Record FLC performance: $190.6M revenues (+8.3% YoY) and Adjusted Segment EBITDA $37.5M (19.7% margin); CEO emphasized “winning and delivering on some incredibly major roles,” reinforcing brand and visibility in cyber, AML, consumer fraud, export controls, and sanctions .
• Company-level profitability: Adjusted EBITDA $115.2M (12.8%), up from $111.1M in prior-year Q1, with SG&A benefiting from litigation settlements; sequential Adjusted EPS up versus Q4 2024 ($2.29 vs $1.56) .
• Capital allocation: $400M increase to buyback authorization; ~1.13M shares repurchased in Q1 at $165.15, plus ~0.60M post-quarter; remaining capacity ~$568.3M supports EPS and shareholder returns .

What Went Wrong

• Economic Consulting softness: revenues down 12.1% YoY to $179.9M amid lower M&A-related antitrust demand and practice disruption from departures; management expects greater near-term P&L impact as forgivable loans amortize and new affiliates ramp .
• Technology headwinds: revenues fell 3.5% YoY (to $97.2M) on weaker M&A “second request” activity; CFO highlighted March HSR transactions at 89, the lowest in ~5 years, limiting near-term demand .
• Cash usage spike: net cash used in operations was $465.2M (vs $274.8M prior-year Q1) driven by bonus timing and $162M net forgivable loans; cash fell to $151.1M with revolver borrowings up $235M and buybacks, lifting net debt .

Financial Results

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• “We reported a strong first quarter… even adjusting for anything one might think of as anomalous, it was a solid quarter.” — CEO Steven Gunby .
• “FLC… teams there have been winning and delivering on some incredibly major roles… critical, powerful, and for us, brand building.” — CEO Steven Gunby .
• “Our SG&A was exceptionally low this quarter primarily due to legal settlements; we expect SG&A to be approximately $15–$20 million higher in each of the next two quarters than it was in Q1.” — CFO Ajay Sabherwal .
• “We funded $162 million in forgivable loans… amortization… will begin to significantly impact adjusted EBITDA in Q2.” — CFO Ajay Sabherwal .
• “There is considerable uncertainty in the M&A market… only one mega deal over $10 billion was announced in Q1.” — CFO Ajay Sabherwal .

Q&A Highlights

• Tariffs impact: Management sees stress for companies dependent on China-sourced COGS, with potential restructuring demand; StratCom and supply chain advisory active on related issues .
• Regulatory enforcement posture: No observed impact yet on FLC, but a sustained reduction could materially affect AML/FCPA/consumer fraud work; caution noted .
• Economic Consulting dynamics: Departures largely late-Q1; revenue impact expected to show more in Q2–Q3; near-term bottom-line hit likely higher than prior ~$35M speculation due to retention programs and affiliate investments .
• Restructuring market: Liability management not always effective (repeat bankruptcies at 42% per S&P statistic cited); tariffs increasing working capital stress, supporting restructuring pipeline .
• Headcount actions: ~400+ reductions across Q4–Q1, proportionate across levels and geographies; skew slightly to senior and EMEA .

Estimates Context

Values retrieved from S&P Global.*

Implications:

• Q1 2025: Bold EPS and EBITDA beats, slight revenue miss; Q4 and Q3 both missed revenue and EPS relative to consensus, underscoring the importance of FLC outperformance and cost actions in Q1.*

Key Takeaways for Investors

• Strong quality of beat: Adjusted EPS +$0.50 vs consensus and Adjusted EBITDA +$19M vs consensus, indicating resilient profitability despite softer revenue; however, GAAP EPS was $1.74 due to $25.3M severance charges . EPS/EBITDA consensus Q1: $1.79/$96.2M*.
• Near-term headwinds: Expect SG&A to normalize higher (+$15–$20M in Q2/Q3) and forgivable loan amortization to weigh on Adjusted EBITDA beginning Q2; these could compress margins sequentially .
• FLC strength likely to moderate if U.S. regulatory enforcement declines; monitor policy signals—this is the biggest swing factor for sustaining current run-rate .
• M&A slowdown remains a drag on Technology and Economic Consulting; March HSR volume at multi-year lows implies “second request” demand risk into Q2 .
• Restructuring activity showing early pickup; CFR’s world-leading positioning could offset M&A weakness if tariff-induced stress broadens .
• Capital returns: $400M authorization increase and ~$568.3M remaining capacity provide downside support; share count reduction enhances per-share metrics amid earnings volatility .
• Medium-term thesis intact: Management continues to invest in top-tier talent (31 SMDs, 21 new affiliates), strengthening competitive moat across antitrust, investigations, and transformation .

---

Supporting Detail

Additional Operating and Cash Flow Highlights

• Net cash used in operating activities: $(465.2)M versus $(274.8)M prior-year Q1; drivers include forgivable loans (+$162M net), bonuses, and collections timing .
• Cash/Net debt: Cash at $151.1M; net debt of $8.9M vs net cash at prior year and quarter-end due to bonus payments, buybacks, and loans .
• Segment mix Q1: CFR 46% restructuring / 29% transformation & strategy / 25% transactions; sequential CFR revenue +2.4% driven by transactions +19.5% .

Notable Press Releases (Q1 2025 Context)

• Q1 results announcement and call details .
• Compass Lexecon added prominent digital platforms economist Julian Wright and ~20 affiliates over prior six months, aligning with ongoing talent strategy .

Revenue by Region (Q1 2025)

• North America 66.6%, EMEA 27.3%, APAC 5.1%, LatAm 1.0% .

---

Bolded beats/misses reflect comparison to S&P Global consensus estimates.*