FTI CONSULTING INC

Previous wording

The following is a discussion and analysis of our consolidated financial condition, results of operations, and liquidity and capital resources for the three months ended March 31, 2024 and 2023, and significant factors that could affect our prospective financial condition and results of operations. This discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes and with our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”). In addition to historical information, the following discussion includes forward-looking statements based on current expectations that involve risks, uncertainties and assumptions, such as our plans, objectives, expectations and intentions. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, these expectations or any of the forward-looking statements could prove to be incorrect, and actual results could differ materially from those projected or assumed in the forward-looking statements.

Current wording

The following is a discussion and analysis of our consolidated financial condition, results of operations, and liquidity and capital resources for the three and six months ended June 30, 2024 and 2023, and significant factors that could affect our prospective financial condition and results of operations. This discussion should be read in conjunction with the accompanying unaudited condensed consolidated financial statements and related notes and with our Annual Report on Form 10-K for the year ended December 31, 2023 filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”). In addition to historical information, the following discussion includes forward-looking statements based on current expectations that involve risks, uncertainties and assumptions, such as our plans, objectives, expectations and intentions. Although we believe that the expectations reflected in the forward-looking statements contained herein are reasonable, these expectations or any of the forward-looking statements could prove to be incorrect, and actual results could differ materially from those projected or assumed in the forward-looking statements.

Previous wording

Net income for the three months ended March 31, 2024 increased $32.4 million, or 68.2%, to $80.0 million, as compared to the three months ended March 31, 2023. The increase in net income was primarily due to higher revenues, a lower effective tax rate and a decrease in FX remeasurement losses compared to the prior year quarter, which was partially offset by an increase in direct compensation expenses, higher selling, general and administrative (“SG&A”) expenses, primarily due to higher compensation, which included the impact of a 5.0% increase in non-billable headcount, and an increase in bad debt expense and legal services as compared to the same quarter in the prior year.

Current wording

Net income for the three months ended June 30, 2024 increased $21.6 million, or 34.5%, to $83.9 million, compared to the three months ended June 30, 2023. The increase in net income was primarily due to higher revenues, a lower effective tax rate and an FX remeasurement gain compared to a loss in the same quarter in the prior year, which was partially offset by an increase in direct compensationand selling, general and administrative (“SG&A”) expenses.

Previous wording

Adjusted EBITDA for the three months ended March 31, 2024 increased $32.6 million, or 41.6%, to $111.1 million, compared to the three months ended March 31, 2023. Adjusted EBITDA Margin of 12.0% for the three months ended March 31, 2024 compared to 9.7% for the three months ended March 31, 2023. The increase in Adjusted EBITDA was primarily due to higher revenues, which was partially offset by an increase in direct compensation expenses and higher SG&A expenses, primarily due to higher compensation, which included the impact of a 5.0% increase in non-billable headcount, and an increase in bad debt expense and legal services compared to the same quarter in the prior year.

Current wording

Adjusted EBITDA for the three months ended June 30, 2024 increased $15.7 million, or 15.7%, to $115.9 million, compared to the three months ended June 30, 2023. Adjusted EBITDA Margin of 12.2% for the three months ended June 30, 2024 compared to 11.6% for the three months ended June 30, 2023. The increase in Adjusted EBITDA was primarily due to higher revenues, which was partially offset by increased direct compensation and SG&A expenses.

Previous wording

EPS for the three months ended March 31, 2024 increased $0.89 to $2.23 compared to $1.34 for the three months ended March 31, 2023. The increase in EPS was primarily due to higher net income as described above.

Current wording

EPS for the three months ended June 30, 2024 increased $0.59 to $2.34 compared to $1.75 for the three months ended June 30, 2023. The increase in EPS was primarily due to higher net income as described above.

Previous wording

Net cash used in operating activities for the three months ended March 31, 2024 increased $20.6 million to $274.8 million, compared to $254.2 million for the three months ended March 31, 2023. The increase in net cash used in operating activities was primarily due to an increase in salaries, higher annual bonus payments and an increase in forgivable loan issuances, which was partially offset by higher cash collections compared to the prior year period. Days sales outstanding (“DSO”) of 105 days at March 31, 2024 compared to 102 days at March 31, 2023. The increase in DSO was primarily due to cash collections that did not keep pace with higher revenues.

Current wording

Netcash provided by operating activities for the three months ended June 30, 2024 increased $146.2 million to$135.2 million, compared to net cash used in operating activities of$11.0 million for the three months ended June 30, 2023. The increase in net cash provided by operating activities was primarily due to an increase in cash collections resulting from higher revenues, which was partially offset by higher operating expenses and an increase in compensation payments, primarily related to variable compensation, annual salary increases and headcount growth. Days sales outstanding (“DSO”) of 105 days at June 30, 2024 compared to 111 days at June 30, 2023. The decrease in DSO was primarily due to cash collections that outpaced the increase in revenues.

Previous wording

Free Cash Flow was an outflow of $279.5 million and $272.2 million for the three months ended March 31, 2024 and 2023, respectively. The decrease in Free Cash Flow for the three months ended March 31, 2024 was primarily due to higher net cash used in operating activities, as described above, partially offset by a decrease in net cash used for purchases of property and equipment.

Current wording

Free Cash Flow was aninflow of $125.2 million and an outflow of $22.0 million for the three months ended June 30, 2024 and 2023, respectively. The increase in Free Cash Flow for the three months ended June 30, 2024 was primarily due to higher net cash provided by operating activities, as described above, and a decrease in net cash used for purchases of property and equipment.

Previous wording

The following table includes the net headcount additions (reductions) by segment and in total for the three months ended March 31, 2024.

Current wording

The following table includes the net headcount additions (reductions) by segment and in total for the six months ended June 30, 2024.

Previous wording

Net Income and EPS were equal to Adjusted Net Income and Adjusted EPS, respectively, for the three months ended March 31, 2024 and 2023.

Current wording

Net Income and EPS were equal to Adjusted Net Income and Adjusted EPS, respectively, for the three and six months ended June 30, 2024 and 2023.

Previous wording

Reconciliation of Net Cash Used in Operating Activities to Free Cash Flow:

Current wording

Reconciliation of Net Cash Provided by (Used in) Operating Activities to Free Cash Flow:

Previous wording

Unallocated corporate expenses for the three months ended March 31, 2024 increased $4.8 million, or 13.8%, to $39.5 million compared to $34.7 million for the three months ended March 31, 2023. The increase was primarily due to higher compensation, investments related to artificial intelligence (“AI”) and higher legal services.

Current wording

Unallocated corporate expenses for the three months ended June 30, 2024 increased $3.9 million, or 9.9%, to $42.9 million compared to $39.0 million for the three months ended June 30, 2023. The increase was primarily due to higher compensation expenses and investments related to artificial intelligence (“AI”) capabilities, which was partially offset by lower expenses for corporate initiatives.

Previous wording

Interest expense for the three months ended March 31, 2024 decreased $1.2 million, or 41.5%, to $1.7 million comparedto $2.9 million for the three months ended March 31, 2023. The decrease was primarily due to lower borrowings, which was partially offset by higher interest rates on our borrowings. Our borrowings in the prior year quarter included amounts owed on our 2.0% convertible senior notes due 2023, which matured in August 2023, as well as our borrowings on our senior secured bank revolving credit facility (“Credit Facility”).

Current wording

Interest expense for the three months ended June 30, 2024 increased $0.3 million, or 9.8%, to $3.3 million compared to $3.0 million for the three months ended June 30, 2023. The increase was primarily due to higher interest rates on our borrowings, which was partially offset by lower borrowings. Our borrowings in the prior year quarter included amounts owed on our 2.0% convertible senior notes due 2023 (“2023 Convertible Notes”), which matured in August 2023, as well as our borrowings on our senior secured bank revolving credit facility (“Credit Facility”).

Previous wording

Interest income and other, which includes FX gains and losses, increased $2.9 million to $1.6 million for the three months ended March 31, 2024 compared to a $1.3 million expense for the three months ended March 31, 2023. The increase was primarily due to a decrease of $3.8 million in FX losses, which was partially offset by a $0.8 million decrease in interest income.

Current wording

Interest income and other, which includes FX gains and losses, increased $5.4 million to $3.5 million for the six months ended June 30, 2024 compared with a $1.9 million loss for the six months ended June 30, 2023. The increase was primarily dueto a $6.7 million FX loss for the six months ended June 30, 2023 that did not recur during the six months ended June 30, 2024, which was partially offset by a $1.1 million decrease in interest income.

Previous wording

Our income tax provision increased $4.6 million, or 30.4%, to $19.5 million for the three months ended March 31, 2024 compared to $15.0 million for the three months ended March 31, 2023. Our effective tax rate of 19.6% for the three months ended March 31, 2024 compared to 24.0% for the three months ended March 31, 2023. The increase in the income tax provision was due to an increase in income before income tax provision, which was partially offset by a decrease in the tax rate. The tax rate for the three months ended March 31, 2024 was impacted by a more favorable tax benefit related to share-based compensation and a decrease in foreign taxes as compared to the three months ended March 31, 2023. During the three months ended March 31, 2024, a larger number of non-qualified stock options were exercised as compared to the prior year quarter.

Current wording

Our income tax provision increased $0.6 million, or 1.5%, to $38.3 million for the six months ended June 30, 2024 compared to $37.7 million for the six months ended June 30, 2023. Our effective tax rate of 18.9% for the six months ended June 30, 2024 compared to 25.5% for the six months ended June 30, 2023. The increase in the income tax provision was due to an increase in income before income tax provision, which was partially offset by a decrease in the tax rate. The tax rate for the six months ended June 30, 2024 was impacted by a favorable tax benefit related to share-based compensation, as a larger number of non-qualified stock options were exercised as compared to the same period in the prior year, and a decrease in foreign taxes as compared to the six months ended June 30, 2023.

Previous wording

We evaluate the performance of each of our operating segments based on Adjusted Segment EBITDA, which is a GAAP financial measure. The following table reconciles net income to Total Adjusted Segment EBITDA, a non-GAAP financial measure, for the three months ended March 31, 2024 and 2023:

Current wording

We evaluate the performance of each of our operating segments based on Adjusted Segment EBITDA, which is a GAAP financial measure. The following table reconciles net income to Total Adjusted Segment EBITDA, a non-GAAP financial measure, for the three and six months ended June 30, 2024 and 2023:

Previous wording

(2)The number of revenue-generating professionals for the Technology segment excludes as-needed professionals, who we employ based on demand for the segment’s services. We employed an average of 727 as-needed employees during the three months ended March 31, 2024 compared with 499 as-needed employees during the three months ended March 31, 2023.

Current wording

(2)The number of revenue-generating professionals for the Technology segment excludes as-needed professionals, who we employ based on demand for the segment’s services. We employed an average of 899 as-needed employees during the three months ended June 30, 2024 compared with 630 as-needed employees during the three months ended June 30, 2023.

Previous wording

Gross profit increased $12.2 million, or 23.7%, to $63.7 million for the three months ended March 31, 2024. Gross profit margin increased 3.5 percentage points for the three months ended March 31, 2024. The increase in gross profit margin was primarily due to a 2 percentage point increase in utilization.

Current wording

Gross profit increased $46.7 million, or 23.6%, to $244.2 million for the six months ended June 30, 2024. Gross profit margin increased 3.0 percentage points for the six months ended June 30, 2024. The increase in gross profit margin was primarily due to higher realized bill rates and a 2 percentage point increase in utilization.

Previous wording

Revenues increased $35.0 million, or 20.6%, to $204.5 million for the three months ended March 31, 2024, primarily due to higher demand and realized bill rates for our non-M&A-related antitrust and financial economics services.

Current wording

Revenues increased $64.0 million, or 17.2%, to $435.4 million for the six months ended June 30, 2024, primarily due to higher demand and realized bill rates for our financial economics, M&A-related antitrust and non-M&A-related antitrust services.

Previous wording

Revenues increased $10.1 million, or 11.1%, to $100.7 million for the three months ended March 31, 2024, primarily due to higher demand for M&A-related “second request” and information governance, privacy & security services, which was partially offset by lower demand for investigations services.

Current wording

Revenues increased $18.4 million, or 18.9%, to $115.9 million for the three months ended June 30, 2024, primarily due to higher demand for M&A-related “second request” services, which was partially offset by lower demand for investigations services.

Previous wording

SG&A expenses increased $1.2 million, or 7.2%, to $17.7 million for the three months ended March 31, 2024, which included a 1.2% estimated negative impact from FX. SG&A expenses of 21.8% of revenues for the three months ended March 31, 2024 compared with 22.6% of revenues for the three months ended March 31, 2023. The increase in SG&A expenses was primarily driven by higher compensation, infrastructure support, rent and occupancy, and travel and entertainment expenses.

Current wording

SG&A expenses increased $6.8 million, or 15.0%, to $52.0 million for the six months ended June 30, 2024. SG&A expenses were 24.0% of revenues for the six months ended June 30, 2024 and 2023. The increase in SG&A expenses was primarily due to higher compensation, infrastructure support and travel and entertainment expenses, which was partially offset by lower bad debt expenses.

Previous wording

Gross profit increased $4.0 million, or 15.7%, to $29.3 million for the three months ended March 31, 2024. Gross profit margin increased 1.4 percentage points for the three months ended March 31, 2024. The increase in gross profit margin was primarily driven by lower compensation expenses as a percentage of revenues.

Current wording

Gross profit increased $4.6 million, or 8.3%, to $59.4 million for the six months ended June 30, 2024. Gross profit margin increased 0.6 percentage points for the six months ended June 30, 2024. The increase in gross profit margin was primarily due to lower compensation expenses as a percentage of revenues.

Previous wording

Our conclusion that we will be able to fund our cash requirements for at least the next 12 months by using existing capital resources and cash generated from operations does not take into account events beyond our control that could result in a material adverse impact on our business, the impact of any future acquisitions or unexpected significant changes in the number of employees or other unanticipated uses of cash. The anticipated cash needs of our business could change significantly if we pursue and complete additional business acquisitions, if our business plans change, if events such as economic and workforce disruptions arise, including any future impact of future public health crises, or economic or business conditions change from those currently prevailing or from those now anticipated, or if unexpected circumstances or other events beyond our control arise that may have a material adverse effect on the cash flow or profitability of our business, including material negative changes in the health and welfare of our employees or those of our clients, and the operating performance or financial results of our business. Any of these events or circumstances, including any new business opportunities, could involve significant additional funding and could require us to borrow under our Credit Facility or raise additional debt or equity funding to meet those needs. Our ability to borrow or raise additional capital, if necessary, is subject to a variety of factors that we cannot predict with certainty, including:

Current wording

Our conclusion that we will be able to fund our cash requirements for at least the next 12 months by using existing capital resources and cash generated from operations does not take into account events beyond our control that could result in a material adverse impact on our business, the impact of any future acquisitions or unexpected significant changes in the number of employees or other unanticipated uses of cash. The anticipated cash needs of our business could change significantly if we pursue and complete additional business acquisitions, if our business plans change, if events such as economic, political and workforce disruptions arise, including any impact of future public health crises, political situations, or economic or business conditions change from those currently prevailing or from those now anticipated, or if unexpected circumstances or other events beyond our control arise that may have a material adverse effect on the cash flow or profitability of our business, including material negative changes in the health and welfare of our employees or those of our clients, and the operating performance or financial results of our business. Any of these events or circumstances, including any new business opportunities, could involve significant additional funding and could require us to borrow under our Credit Facility or raise additional debt or equity funding to meet those needs. Our ability to borrow or raise additional capital, if necessary, is subject to a variety of factors that we cannot predict with certainty, including:

Previous wording

Net cash used in operating activities of$274.8 million for thethree months ended March 31, 2024 compared to $254.2 million for the three months ended March 31, 2023. The increase of $20.6 million, or 8.1%, in net cash used in operating activities was primarily due to an increase in salaries, higher annual bonus payments and an increase in forgivable loan issuances, which was partially offset by an increase in cash collections compared to the prior year period. DSO was 105 and 102 days as of March 31, 2024 and 2023, respectively.

Current wording

Net cash used in operating activities of $139.6 million for the six months ended June 30, 2024 compared to $265.2 million for the six months ended June 30, 2023. The decrease of $125.6 million, or 47.4%, in net cash used in operating activities was primarily due to an increase in cash collections resulting from higher revenues, which was partially offset by an increase in salaries largely related to annual salary increases and headcount growth, and higher annual bonus payments, operating expenses, forgivable loan issuances and income tax payments as compared to the same period in the prior year. DSO was 105 and 111 days as of June 30, 2024 and 2023, respectively. The decrease in DSO was primarily due to cash collections that outpaced the increase in revenues.

Previous wording

214.4%, in net cash provided by investing activities was primarily due to short-term investments of $25.2 million maturing during the three months ended March 31, 2024, as there were no proceeds from short-term investments during the three months ended March 31, 2023, and a $13.4 million decrease in capital expenditures, primarily driven by lower spend on leasehold improvements and cloud computing costs as compared to the prior year quarter.

Current wording

Net cash provided by investing activities of $10.5 million for thesix months ended June 30, 2024 compared to net cash used in investing activities of $29.0 million for thesix months ended June 30, 2023. The increase of $39.6 million in net cash provided by investing activities was primarily due to short-term investments of $25.2 million maturing during the six months ended June 30, 2024, as there were no proceeds from short-term investments during the six months ended June 30, 2023, and a $14.3 million decrease in capital expenditures primarily driven by lower spend on leasehold improvements and cloud computing costs as compared to the same period in the prior year, which was partially offset by an increase in purchases of software licenses.

Previous wording

Net cash provided by financing activities of $198.6 million forthe three months ended March 31, 2024 compared to $15.8 million for thethree months ended March 31, 2023. The increase of $182.8 million, or 1,159.5%, in net cash provided by financing activities was primarily due to an increase in net borrowings of $160.0 million under our Credit Facility and a decrease of $21.0 million in payments for common stock repurchases under the Repurchase Program as compared with the same period in the prior year.

Current wording

Net cash provided by financing activities of $58.3 million forthesix months ended June 30, 2024 compared to net cash used in financing activities of $8.9 million for thesix months ended June 30, 2023. The increase of $67.3 million in net cash provided by financing activities was primarily due to an increase in net borrowings of $35.0 million under our Credit Facility, a decrease of $21.0 million in payments for common stock repurchases under the Repurchase Program and an increase in proceeds on stock option exercises of $9.4 million as compared to the same period in the prior year.

Previous wording

The effect of exchange rate changes on cash and cash equivalents had an unfavorable impact of $3.6 million for the three months ended March 31, 2024 compared to a favorable impact of $3.3 million for the three months ended March 31, 2023.

Current wording

The effect of exchange rate changes on cash and cash equivalents had an unfavorable impact of $6.1 million for the six months ended June 30, 2024 compared to a favorable impact of $15.0 million for the six months ended June 30, 2023.

Previous wording

$23.5 million of the $25.9 million of cash paid for income taxes and tax credits, net of tax refunds related to payments for the purchase of tax credits.

Current wording

For the six months ended June 30, 2024, cash paid for income taxes and tax credits, net of tax refunds included $23.5 million of payments for the purchase of tax credits.

Previous wording

As of March 31, 2024, our capital resources included $244.0 million of cash and cash equivalents and available borrowing capacity of $695.0 million under the $900.0 million revolving line of credit under our Credit Facility. The $900.0 million revolving line of credit under our Credit Facility includes a $125.0 million sublimit for borrowings in currencies other than USD, including the euro, British pound, Australian dollar, Canadian dollar, Swiss franc and Japanese yen.

Current wording

As of June 30, 2024, our capital resources included $226.4 million of cash and cash equivalents and available borrowing capacity of $840.0 million under the $900.0 million revolving line of credit under our Credit Facility. The $900.0 million revolving line of credit under our Credit Facility includes a $125.0 million sublimit for borrowings in currencies other than USD, including the euro, British pound, Australian dollar, Canadian dollar, Swiss franc and Japanese yen.

Previous wording

During the three months ended March 31, 2024, we spent $4.6 million in capital expenditures to support our organization, including direct support for specific client engagements. For the remainder of 2024, we currently expect additional capital expenditures to support our organization in an aggregate amount of between $28 million and $34 million. Our estimate takes into consideration the needs of our existing businesses but does not include the impact of any purchases that we may be required to make as a result of future acquisitions or specific client engagements that are not completed or not currently contemplated. Our capital expenditure requirements may change if our staffing levels or technology needs change significantly from what we currently anticipate, if we are required to purchase additional equipment specifically to support new client engagements, or if we pursue and complete additional acquisitions.

Current wording

During the six months ended June 30, 2024, we spent $14.7 million in capital expenditures to support our organization, including direct support for specific client engagements. For the remainder of 2024, we currently expect additional capital expenditures to support our organization in an aggregate amount of between $25 million and $30 million. Our estimate takes into consideration the needs of our existing businesses but does not include the impact of any purchases that we may be required to make as a result of future acquisitions or specific client engagements that are not completed or not currently contemplated. Our capital expenditure requirements may change if our staffing levels or technology needs change significantly from what we currently anticipate, if we are required to purchase additional equipment specifically to support new client engagements, or if we pursue and complete additional acquisitions.

Previous wording

Our future contractual obligations as of March 31, 2024 include long-term obligations of $205.0 million related to outstanding borrowings under our Credit Facility. For more information on our Credit Facility, refer to Note 8, “Debt” in Part I, Item 1. Future contractual obligations related to our debt assume that payments will be made based on the current payment schedule and that interest payments will be at their stated rates and exclude any additional revolving line of credit borrowings or repayments subsequent to March 31, 2024 and prior to the November 21, 2027 maturity date of our Credit Facility. Under our operating leases as described in Note 9, “Leases” in Part I, Item 1, we have current obligations of $34.7 million and non-current obligations of $213.6 million.

Current wording

Our future contractual obligations as of June 30, 2024 include long-term obligations of $60.0 million related to outstanding borrowings under our Credit Facility. For more information on our Credit Facility, refer to Note 8, “Debt” in Part I, Item 1. Future contractual obligations related to our debt assume that payments will be made based on the current payment schedule and that interest payments will be at their stated rates and exclude any additional revolving line of credit borrowings or repayments subsequent to June 30, 2024 and prior to the November 21, 2027 maturity date of our Credit Facility. Under our operating leases as described in Note 9, “Leases” in Part I, Item 1, we have current obligations of $37.5 million and non-current obligations of $214.5 million.

Previous wording

•our ability to protect the confidentiality of internal and client data and proprietary and confidential information, including from cyberattacks, systems failures or other similar events, or the use or misuse of social media;

Current wording

•our ability to protect the confidentiality of internal and client data and proprietary and confidential information, including from cyberattacks, systems failures or other similar events or outside or internal bad actors, or the use or misuse of social media;

Previous wording

•general economic factors, industry trends, restructuring and bankruptcy rates, legal or regulatory requirements, capital market conditions, merger and acquisition activity, major litigation activity and other events outside of our control;

Current wording

•general economic factors, industry trends, restructuring and bankruptcy rates, legal or regulatory requirements, capital market conditions, merger and acquisition activity, major litigation activity, geopolitical disruptions and other events outside of our control;

Previous wording

•our climate change and ESG-related initiatives and goals, including our policies and practices relating to the environment and climate change, sustainability, and diversity and inclusion, if they do not meet or keep pace with evolving governmental, investor or other stakeholder expectations and standards or rules and regulations; and

Current wording

•our climate change and ESG-related initiatives and goals, including our policies and practices relating to the environment and climate change, sustainability, and diversity and inclusion, if they do not meet or keep pace with current or evolving governmental, investor or other stakeholder expectations and standards or rules and regulations; and