FTI Consulting Q4 2024 Earnings Call Transcript

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February 20, 2025
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Operator

Welcome to the FTI Consulting Fourth Quarter and Full Year twenty twenty four Earnings Conference Call. All participants will be in a listen only mode. After today's presentation, there will be an opportunity to ask questions. Please note this event is being recorded. I would now like to turn the conference over to Ms.

Operator

Molly Hawkes, Head of Investor Relations. Please go ahead, ma'am.

Mollie Hawkes
Mollie Hawkes
Head of Marketing, Communications & Investor Relations at FTI Consulting

Good morning. Welcome to the FTI Consulting Conference Call to discuss the company's fourth quarter and full year twenty twenty four 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 on this conference call may include forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21 of the Securities Exchange Act of 1934 that involve risks and uncertainties. Forward looking statements include statements concerning plans, initiatives, projections, prospects, policies, processes and practices, objectives, goals, commitments, strategies, future events, future revenues, future results and performance, future capital allocations and expenditures, expectations, plans or intentions relating to acquisitions, share repurchases and other matters business trends new or changes to laws and regulations scientific or technical developments and other information or other matters that are not historical, including statements regarding estimates of our future financial results and other matters.

Mollie Hawkes
Mollie Hawkes
Head of Marketing, Communications & Investor Relations at FTI Consulting

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.sticonsulting.com, as well as other disclosures under the headings of Risk Factors and Forward Looking Information in our quarterly report on our annual report on Form 10 K for the year ended 12/31/2024, and in 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. During the call, we will discuss certain non GAAP financial measures such as total segment operating income, adjusted EBITDA, total adjusted segment EBITDA, adjusted earnings per diluted share, adjusted net income, adjusted EBITDA margin and free cash flow. For a discussion of these and other non GAAP financial measures, as well as our reconciliations of non GAAP financial measures to the most directly comparable GAAP measures, investors should review the press release and the accompanying financial tables that we issued this morning, which include the reconciliations.

Mollie Hawkes
Mollie Hawkes
Head of Marketing, Communications & Investor Relations at FTI Consulting

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 and an Excel and PDF of our historical financial and operating data, which have been updated to include our fourth quarter and full year '20 '20 '4 results. Of note, during today's prepared remarks, management will not speak directly to the quarterly earnings presentation posted to the Investor Relations section of our website. To ensure our disclosures are consistent, these slides provide the similar details as they have historically and as I have said are available on the Investor Relations section of our website. With these formalities out of the way, I'm joined today by Steve Gumby, our President and Chief Executive Officer and Ajay Saverwell, our Chief Financial Officer.

Mollie Hawkes
Mollie Hawkes
Head of Marketing, Communications & Investor Relations at FTI Consulting

At this time, I'll turn the call over to our President and Chief Executive Officer, Steve Gundy.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

Thank you, Molly. Welcome, everyone, and thank you all for joining us today. I'm sure many of you have already seen some of the results we reported this morning. What I'd like to do is to start by sharing some perspective on 2024, which was a year with some terrific elements. It's also a year, particularly towards the second half of the year, where we had some shortfalls versus our expectations.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

And then I'd like to spend the bulk of the time on 2025, a year where I have to say we are probably facing a serious headwinds as we have had in a while. And in that connection, I'll try to communicate both what we see the potential headwinds are and important try to send a share a sense of the potential magnitude of the headwinds because together they are creating about a serious challenge for the P and L for a year as we've seen in a while. So I will spend a fair amount of time on the potential challenges for 2025. But I will also, with your permission, take a moment to close the session by reiterating something fundamental, something important, which is that the success of this company over the last ten years has never been about optimizing a given quarter or even optimizing a year. What has driven our success has been continually focusing on building a stronger business, a business ever more able to deliver for our clients and ever more attractive for great professionals to be part of, and as a result, delivering a multiyear trajectory of growth.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

At the end of the talk this morning, I will reiterate, though I am somewhat sober about headwinds we're facing in front of us for 2025, I do remain incredibly bullish about the company, about the multiyear trajectory the company has been on and the multiyear trajectory that I believe we will continue to be on. All right, let me start with 2024. As I think many of you know, we had a terrific, terrific first half of the year. Revenues, you may recall, were up 12% and EPS grew 48% compared to the first half of twenty twenty three. Now some of that strong performance in the first half was because we were cycling a slow first half of twenty twenty three, but it's also somewhat because of what we did.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

As I think you know, many other firms did not report anywhere near as good results during that period. Our teams were winning big jobs in the marketplace, and some of the bets we had made in prior years came to fruition at this time. And those results were notwithstanding the fact that we continued to attract during the year and invest in great talent, which always costs us some money in the first year. Let me turn to the second half of the year. We always expected that year on year growth would be slower, mainly because we knew we were cycling a much stronger second half of twenty twenty three.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

But the sales we actually got in the second half of twenty twenty four turned out to be even a bit slower than we expected. Last quarter, we talked about the fact that we only had revenue growth of 3.7% year on year, which is among the slowest growth we have seen in a while. This quarter, we were actually down year on year and down sequentially. Now I think most of us on this call know that our multiyear growth, the performance of this company over time has never been a straight line up, and we never expect it to be. However, I did want to point out that we did expect the business to be a bit better in the second half.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

We knew it was going to be slow, and it actually turned out to be worse. That's somewhat important for explaining 2024 results, but it's also important because it presents a revenue trajectory that is carrying into 2025 as a headwind. So I'll turn to 2025 in a minute, But before I get to 2025, let me try to sum up 2024. I'm going to talk about the fact that we were a little disappointed about because of the cumulative second half effect. But I think it's appropriate to point out that it was yet another year of record revenues.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

And it was the tenth year in a row, the tenth year in a row of adjusted EPS growth. So look, there's a lot to be proud of for 2024, but it's also true that relative to our expectations, the second half of the year disappointed. And as a consequence, the year as a whole, but certainly not terrible, didn't fully meet our expectations. With that on '24, let me turn to 2025 and some of the headwinds we are facing. Obviously, the slowed growth trajectory is an issue we bring into 2025.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

But in addition, there are several other important headwinds that I want to make sure we talk to. Probably the most important, which I'll talk to at some length, is that we're in the process of seeing a number of senior departures in our U. S. Competition, part of our Compass Lexicon subsidiary, which in turn, as you may remember, is part of our econ business. And we currently believe that a number of less tenured people may also depart, which together can create some substantial headwinds, particularly for that subset of the business, but are sufficient magnitude that it will create headwinds for us as a company as a whole this year.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

The second issue is much more technical issue, which is we happen to be cycling a particularly low tax rate in 2024, which is not technically a headwind, but it does create some tough comparisons year on year. So it's akin to a headwind. And then not really at all a headwind, in fact a very good thing, but a headwind in terms of near term financials is the fact that we continue to see great opportunities, terrific opportunities to attract and invest in people. The phone is continuing to ring off the hook from people who want to join us. And as we've always done, we're committed to take advantage of those opportunities when we see them, notwithstanding the near term financial pressures we may feel.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

So let me talk about those in a little bit more depth so you can get a sense of the magnitude. In terms of revenue slowdown,

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

as

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

Ajay talked about in October, we did see the revenue momentum slowing in the third quarter, and we thought that the slowdown might persist. And it has, and in fact, it's worsened year on year into the fourth quarter. It is hard to pinpoint one thing that has caused that slowdown apart from what I mentioned before that we're recycling an incredibly strong second half of twenty twenty three. As I think many of you know, we were not alone in seeing slower performance in parts of 2024. So some of it appears to be market forces.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

For example, we had a fourth quarter slowdown in our activity in our M and A related businesses, in econ and tech and CorpFin, where we had a large a number of large jobs roll off and not as many large jobs start. And we believe that that was at least in part driven by The U. S. M and A market slowing in the fourth quarter. And there is, as you probably know, a fair amount of pressure on different economies around the world, for example, in The UK.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

And we believe in that case, some of those pressures on the economy as a whole has affected several of our businesses. So market forces clearly appeared to be one of the factors. But I also think that some things that drove our slowdown in sales were idiosyncratic to us. Like, for example, our strategy business in Corp Fin, which had several large jobs roll off over the first last few quarters, which we haven't yet replaced. As we have talked about, the nature of our business, the core nature of our business is that we can always have substantial lumpiness quarter to quarter in individual segments and for the company as a whole.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

And when we've had that in the past, it has never been a permanent condition. And important, there is no belief today that it is a permanent condition. We are currently forecasting solid revenue growth for every one of our business segments except for econ, which is of course is because of the headwinds I'll talk about in The U. S. Competition practice.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

But one of the reasons for our caution is it's also the case that right now, except for FLCs, parts of STRATCOM, a little pickup in the pause in M and A activity we saw in the fourth quarter in Corp FinTech to date, we haven't yet seen the major resurgence of our overall revenue trajectory. So I hope that one is clear. Let me talk to the second headwind, which is clearly idiosyncratic to us, which is in addition to whatever market headwinds there are in econ, we are in the process of experiencing some dislocation in our Compass LexCom subsidiary. In particular with the part of the business that deals with U. S.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

Competition work. In that part of the business so far in the first quarter, we've had the departures of a number of senior professionals. And we currently believe that quite a number of less tenured people may also depart as well, which together will create a headwind for revenue and profitability as the year goes on and potentially into early 'twenty six. So we talked a little bit about how we dimensionalize this for you and it's a problem that it's very early days. And so we cannot be certain about the exact magnitude of the effects.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

So one possibility for this call was simply to use the word substantial. We think it could have a substantial effect and hence we're talking about it. I think the problem with that is, as I'm sure many of you know, the word substantial can mean so many different things. So let me try, given which is hard in the context of it being early days, to at least give you some sort of dimensionalizing using a historical analogy. When I first started in the first in my first year in that same Compass Lexicon subsidiary eleven years ago, we had a dislocation.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

It wasn't the exact same dislocation, but it was a substantial dislocation, a dislocation that handed me in my first year a $35,000,000 decline in adjusted EBITDA

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

in that segment. So I

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

want to say, even though we don't know the exact numbers here, it could be in the order of that same magnitude as this unfolds. Now just to be a little redundant, the issue with that sort of dimensionalizing is we are very much at the early stages. We don't know exactly how many senior departures we will have, how many junior people will end up leaving, more important, how many great people will see this as a great opportunity to join our firm. So it's hard to estimate the exact effect, but what we wanted to do is to communicate here that we do not expect the effect to be trivial.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

I want to

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

take a risk here because my general counsel is going to stare at me in my, for my comms and maybe ad lib a couple of comments. I tell you, eleven years ago when I got handed a $35,000,000 hit, which nobody had told me about when I was interviewing, it hit. But it hit also because the business at that time was a business that had no growth engines. There wasn't a single business that had been growing the past few years. We had not extended overseas.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

We didn't have the leadership team that we had today. We didn't have the quality, the vast quality of people and the hunger and the drive and the energy and the conviction that characterizes this company today. I think we are less than half the current size. So that really hit me. Today, this is not something I like to report.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

It's not like something I like to forecast. It's not something I like to talk about. We have to talk about because it's significant enough that we should disclose it to you. But we are nowhere near in that situation. This company is a vibrant growth engine and it's a pain.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

And some of the circumstances around it are a pain. And that has led to us having a lawsuit around some of the circumstances around it, us leveling a lawsuit around the circumstances around it. But the company is in a fundamentally better shape. And so we will get through it. It is just something that we thought we should disclose to you.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

The other point I want to describe and is that, yes, this hits that business. It is a fabulous business. FTI's econ practices under the Compass Lexicon brand and the FTI brand together constitute the leading group of economists around the world, the best group of economists around the world today and even after these departures. Even after these departures, I believe we will still have the single most powerful, vibrant, respected economic consulting firm with the best collective group practitioners in the world. So our point is not that this business is going away.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

It's a great business and will still be a great business, but we can't ignore the fact that it will have a big effect on this business and is big enough to have an effect on the company. So we thought we would spend a little bit of time describing that. I hope that is clear. The third issue is a much simpler and more technical point, which Ajay will turn to, which is we had a particularly low tax rate in 2024, which is largely due to non recurring factors and we were recycling that. I mean, that's the sort of stuff that happens from the year over year, but we should point it out.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

The fourth headwind, as mentioned before, is not really a headwind at all, but really a terrific thing that represents a headwind in terms of near term financial results, which is that we continue to get tremendous level of interest from top talent. And we, of course, are continuing our multiyear commitment to take advantage of those opportunities to build the businesses as those people become available. As you know, we do have a responsibility to be disciplined. In that light, we took some significant corrective action last quarter and this quarter in areas of sustained flow utilization. That discipline is essential.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

But we now have a management team, an aligned group of people that realize that while being disciplined is essential, that the key driver of our powerful multi year success has been the commitment through that discipline to find great people, to invest in them, to attract them, to support them as they build businesses independent of any current potential P and L stress. So we have a team that is going to continue to do it even if it does have some initial P and L cost. So what does that all add up to? Ajay will talk about it in more depth and more quantitatively. Conceptually, it adds up to more headwinds for this year than we've typically had, more than we've seen in a while.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

As a consequence, our guidance for this year is not up as much as we typically have. It's more muted. So it's not likely our current view to be the easiest year we've seen. But before I close, let me see if I can step back from the details of those and all the issues that we wanted to make sure we brought to your attention and maybe offer a little perspective on them. On the year, which may not be as good as we had in the last few years, but also on the multi year trajectory we have been on and we believe we are going to stay on.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

At one point, I'm not sure how many of you on this call have been covering us for long enough to remember this, but at one point, I suspect a few of you do remember this. This company was never up more than two years in a row. We'd be up two years and down a year or sometimes up one year and then down a year. We've now had a period of ten years in a row of adjusted EPS growth. And if we hit the midpoint of our guidance, even if our guidance isn't as bullish as we have been in the previous year, if we hit the midpoint of that guidance, it will be eleven years.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

Yes, this year may be the toughest year we've had in a while. We have market forces against us, some idiosyncratic forces against us. None of those forces challenge the underlying strength of the people in our firm or what they've shown or the power of the ways we have shown we can help clients, sometimes in the most critical times in their existence. Nothing in those market forces or this year's idiosyncratic forces challenges the fundamental strength that has driven this company, that has allowed us to grow, to allow us to become the vibrant growth engine that attracts the sort of people we do. Market forces do, of course, affect us.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

Idiosyncratic forces do affect us. As we've talked about before, market forces come and go. And idiosyncratic forces do as well, at least if you manage them right. What we have believed and I think the data show that, yes, over short periods of time, market forces and idiosyncratic forces can impact us, potentially have a major impact. But I believe the same data also show that if we maintain our focus, we maintain our commitment to do the right things for the business, we have to monitor the market forces, we have to adjust what we do.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

But underlying that, we focus on what matters in professional services, the fundamentals, attracting great people, supporting those people, people who have drive to make a difference for the clients, who have drive to mentor and see grow the careers of people behind them. If we do all those things, actually, we still have substantial zigzags. We just have substantial zigzags and portions of the business that wraps overall. But what we've also shown is that through those zigzags, over any extended period of time, those zigzags surround a powerfully upward sloping line for shareholders, for clients and for our people. Some years, they slope up less.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

Some years, they slope up more. Over time, we've proven that that commitment delivers a powerfully substantial lineup that reflects the strength of what our teams do for our clients and the excitement and the pride they have in doing so and having other great colleagues join them in those enterprises. We intend to maintain that commitment. And I believe we've shown that with that commitment, even if we have some muted results this year or given quarter, this company has an extraordinarily bright future for you, the shareholder, for our clients and the great people who join us and stay with us. I and the team look forward to sharing that with you as we go forward.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

With that, Ajit, let me turn it over to you.

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

Thank you, Steve. Good morning, everybody. In my prepared remarks, I will take you through our company wide and segment results and guidance for 2025. And beginning with highlights from our full year 2024 results, revenues of $3,700,000,000 increased 6% compared to revenues of $3,490,000,000 in 2023. GAAP earnings per share of $7.81 compared to $7.71 in the prior year adjusted EPS of $7.99 compared to adjusted EPS of $7.71 in the prior year.

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

The difference between our GAAP and adjusted EPS for the year reflects an $8,200,000 fourth quarter special charge related to severance and other employee related costs, which reduced GAAP EPS by $0.18 Net income of $280,100,000 compared to $274,900,000 in 2023 adjusted EBITDA of $403,700,000 or 10.9% of revenues compared to $424,800,000 or 12.2% of revenues in 2023. For the year, 6% growth in revenue was not sufficient to offset higher direct costs and SG and A expenses, resulting in an adjusted EBITDA decline compared with full year 2023. Despite the decline in adjusted EBITDA, net income grew primarily because of a lower tax rate and FX remeasurement gains compared with FX remeasurement losses in the prior year. In 2024, we had a tax rate of 20.2%, which compared with 23.3% in 2023. The decrease was largely due to favorable discrete tax adjustments related to equity compensation.

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

Conversely, bad debt for the year of 1.4% of revenues was higher than our average bad debt of approximately 0.8% of revenues over the prior five years. The increase was driven in part by a $12,800,000 of bad debt in the fourth quarter related to one completed matter in our economic consulting segment. Even netting these items though, both our full year and fourth quarter twenty twenty four results were below our expectations. Year over year revenue growth that was 12.4% in the first half of the year slowed to flat revenues in the second half of the year with a negative growth rate of 3.2% in the fourth quarter. To better align capacity with demand, we reduced headcount in Q4 resulting in a special charge of $8,200,000 related to severance and other employee related costs.

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

These actions continued after the New Year, which will result in an additional estimated special charge of approximately $17,000,000 in Q1. Now turning to the details of the fourth quarter. Revenues of $894,900,000 decreased 3.2% compared to the fourth quarter of twenty twenty three. The decrease in revenues was primarily due to lower demand in our Corporate Finance and Restructuring and Technology segments, which was partially offset by higher demand in our Forensic and Litigation Consulting or FLC segment. Worth noting, the fourth quarter of twenty twenty three was an exceptional quarter, a quarter when three of our five segments, Corporate Finance and Restructuring, Economic Consulting and Technology delivered at the time record quarterly revenues in what is typically our slowest quarter of the year.

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

In contrast, as Steve said, in Q4 twenty twenty four, revenue declined both year over year and sequentially. Fourth quarter net income of $49,700,000 compared to $81,600,000 in the fourth quarter of twenty twenty three. GAAP EPS of 1.38 compared to $2.28 in the prior year quarter and included the special charge which reduced EPS by $0.18 adjusted EPS of $1.56 compared to $2.28 in the prior year quarter. SG and A of $208,100,000 was 23.2% of revenues. This compares to SG and A of $194,600,000 or 21% of revenues in the fourth quarter of twenty twenty three.

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

The year over year increase was primarily due to higher bad debt, outside services and travel and entertainment expenses, which was not sufficiently offset by lower variable compensation. Fourth quarter twenty twenty four adjusted EBITDA of $73,700,000 or 8.2% of revenues compared to $127,400,000 or 13.8% of revenues in Q4 of twenty twenty three. Our fourth quarter effective tax rate of 16.9% compared to 20.8% in fourth quarter of twenty twenty three. The lower effective tax rate was primarily due to a higher discrete tax adjustment related to equity compensation and the lower than expected pre tax income in the quarter. Weighted average shares outstanding or WESO for Q4 of '30 '5 point '9 million shares compared to 35,800,000.0 shares in the prior year quarter.

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

Billable headcount increased by two eighty three professionals or 4.5% compared to the prior year quarter, with the largest increases in FLC, technology and corporate finance and restructuring. Non billable headcount increased by 101 professionals or 6.2%. Sequentially, billable headcount decreased by 26 professionals or 0.4% and non billable headcount increased by 18 professionals or 1%. The sequential decrease in billable headcount was largely due to headcount actions taken in the fourth quarter, which particularly impacted our Corporate Finance and Restructuring and FLC segments. Now turning to our performance at the segment level for the fourth quarter.

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

In Corporate Finance and Restructuring, revenues of $335,700,000 decreased 8.2% compared to Q4 of twenty twenty three. The decrease in revenues was primarily due to lower demand for transformation and strategy and transactions services. In the fourth quarter, restructuring represented 47% of segment revenues. Transformation and strategy represented 31% of segment revenues and transactions represented 22% of segment revenues. This compares to 44% for restructuring, 34% for transformation and strategy and 22% for transactions in Q4 of twenty twenty three.

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

Adjusted segment EBITDA of $44,700,000 or 13.3% of segment revenues compared to $65,400,000 or 17.9% of segment revenues in the prior year quarter. The decrease was primarily due to lower revenues, which was partially offset by a decrease in contractor costs and compensation expenses. Sequentially, corporate finance and restructuring revenues decreased 1.7% as 7% growth in transformation and strategy revenues was offset by a 15 decline in transactions revenues. Restructuring revenues were flat sequentially. Adjusted segment EBITDA decreased $13,200,000 sequentially, primarily due to lower revenues, an increase in variable compensation and higher SG and A expenses.

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

In FLC, fourth quarter revenues of $175,900,000 increased 6.3% compared to Q4 of twenty twenty three. Acquisition related revenues contributed $2,400,000 in the quarter. Excluding acquisition related revenues, the increase in revenues was primarily due to higher demand and realized bill rates for our data and analytics and construction solutions services. Adjusted segment EBITDA of $18,000,000 or 10.2% of segment revenues compared to $19,200,000 or 11.6% of segment revenues in the prior year quarter. The decrease was primarily due to higher compensation, which more than offset the increase in revenues.

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

Sequentially, revenues increased 4.2%, primarily due to higher data and analytics and investigations revenues. Adjusted segment EBITDA decreased by $2,000,000 primarily due to an increase in variable compensation and higher SG and A expenses, which more than offset the increase in revenues. Economic Consulting's revenues of $206,100,000 were flat compared to Q4 of twenty twenty three as higher merger and acquisition or M and A related antitrust revenues were offset by lower international arbitration and non M and A related antitrust revenues. Adjusted segment EBITDA of $15,800,000 or 7.7% of segment revenues compared to $38,300,000 or 18.6% of segment revenues in the prior year quarter. The decrease was primarily due to higher bad debt as previously discussed and an increase in compensation compared to the prior year quarter.

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

Sequentially, economic consulting's revenues decreased 7.2%, primarily due to lower M and A related antitrust revenues, which were partially offset by higher financial economics revenues. Adjusted segment EBITDA decreased $19,400,000 primarily due to lower revenues and higher bad debt. In Technology, revenues of $90,600,000 decreased 10.2% compared to Q4 of twenty twenty three. The decrease in revenues was primarily due to lower demand for M and A related second request services. Adjusted segment EBITDA of 6,600,000 or 7.2% of segment revenues compared to $12,400,000 or 12.3% of segment revenues in the prior year quarter.

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

The decrease was largely due to lower revenues, which was partially offset by a decrease in SG and A expenses. Sequentially, technology revenues decreased 17.9%, primarily due to lower M and A related second request and litigation revenues. Adjusted segment EBITDA decreased $9,900,000 primarily due to lower revenues, which were partially offset by a decrease in contractor costs and lower SG and A expenses. Of note, in the first three quarters of twenty twenty four, we saw exceptional M and A related second request activity in our Technology segment and M and A related antitrust work in our Economic Consulting segment. In contrast, in Q4, some of the large jobs that drove record M and A related revenues in the first nine months of twenty twenty four wound down.

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

Lastly, strategic communications revenues of $86,600,000 were flat as higher demand for financial communication services were offset by lower demand for corporate reputation services. Adjusted segment EBITDA of 13,800,000 or 15.9% of segment revenues compared to $15,600,000 or 18% of segment revenues in the prior year quarter. This decrease was primarily due to higher SG and A expenses. Sequentially, strategic communications revenues increased 4%, primarily due to higher financial communications revenues. Adjusted segment EBITDA increased $1,700,000 primarily due to higher revenues, which were partially offset by an increase in compensation and SG and A expenses.

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

I will now discuss certain cash flow and balance sheet items. Net cash provided by operating activities of $395,100,000 for the year ended 12/31/2024, compared to $224,500,000 for the year ended 12/31/2023. The year over year increase in net cash provided by operating activities was primarily due to an increase in cash collections, which was partially offset by an increase in compensation, forgivable loan issuances, operating expenses and income tax payments. Cash and cash equivalents and short term investments of $660,500,000 at 12/31/2024, compared to $328,700,000 at 12/31/2023. We had no debt outstanding in either period.

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

We generated free cash flow defined as operating cash flow less capital expenditures of $360,200,000 in 2024, which compares to $174,900,000 in 2023. During the quarter, we repurchased 51,717 shares at an average price per share of $197.53 for a total cost of $10,200,000 As of 12/31/2024, approximately $450,400,000 remained available under our stock repurchase authorization. Turning to 2025 guidance, we are as usual providing guidance for revenues and EPS. We estimate that revenues will range between $3,660,000,000 and $3,810,000,000 We estimate GAAP EPS will range between $7.44 and $8.24 We estimate adjusted EPS will range between $7.8 and $8.6 The estimated $0.36 variance between EPS and adjusted EPS guidance for full year 2025 is because of the estimated special charge in the first quarter of twenty twenty five related to the continued headcount reductions to align staffing with demand. You will notice that the midpoint of our revenue and adjusted EPS guidance reflects growth of 12.6% year over year respectively.

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

Our 2025 guidance range is shaped by several considerations. First, as Steve said, though we are entering the year with an overall slow growth trajectory, our guidance is based on an increase in growth in many of our businesses over the course of the year. We expect demand to remain steady for restructuring and to see a pickup in our M and A and transformation and strategy related businesses. We also assume a pickup in demand for our disputes and investigations related businesses in FLC. Our expectation is based on matters where we are already engaged, investments we have made in attracting top level talent and growing dislocation in the world, which is typically a catalyst for our services.

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

Second, we have taken targeted headcount actions in areas with sustained low utilization, resulting in an approximately 4% reduction in our total headcount from these actions. We expect these actions to result in cost savings of approximately $70,000,000 in 2025. However, we also expect to continue investing in areas where we see exceptional opportunities to hire talent, which typically results in a negative adjusted EBITDA impact at least through the first year after hiring. Third, for the full year, we expect SG and A expenses to be flat compared with 2024 based on a few key assumptions. We expect bad debt as a percent of revenues of below 1% and net of settlements, we expect reduced legal expenses.

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

Conversely, we will continue to invest, including in upgrading our HR systems and enhancing our AI capabilities. Fourth, as Steve discussed, during the first quarter of twenty twenty five, we've had a number of senior departures in our U. S. Competition part of our Compass Lexicon subsidiary in our economic consulting segment and we currently believe a number of less tenured professionals may also depart. We expect that the resulting increased competitive pressures may impact our ability to attract and retain clients and will increase compensation costs to retain staff in the segment.

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

While the precise impact of these developments remains uncertain, we expect these factors will result in substantially reduced revenue and erosion of adjusted segment EBITDA margin in economic consulting compared to 2024. Fifth, we expect our effective tax rate for 2025 to be between 2325%. As I mentioned, our assumptions define a midpoint and we provide a range of guidance around such midpoint, which I characterize as our current best judgment. Often, we find actual results are outside of such range because ours is largely a fixed cost business in the short term and small variations in revenue may have an outsized impact on earnings. Before I close, I want to emphasize a few key themes that I believe underscore the attractiveness of our company.

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

First, we have a deep bench of experts that are helping clients navigate through exceptionally volatile times globally. Second, we are attracting top talent in areas including transformation and strategy, transactions, risk and investigations, construction solutions and corporate reputation, and in geographies such as Australia, Germany, Spain and France. Third, our management team is focused on both growth and utilization. And finally, we have an enviable balance sheet that provides us the flexibility to boost shareholder value through organic growth, share buybacks and acquisitions when we see the right ones. With that, let's open the call up for your questions.

Operator

Thank you. We will now begin the question and answer session. And the first question will come from Andrew Nicholas with William Blair. Please go ahead.

Andrew Nicholas
Equity Research Analyst at William Blair

Hi, good morning. Thanks for taking my question. Good morning. Good good morning. I wanted to start on the economic consulting outlook.

Andrew Nicholas
Equity Research Analyst at William Blair

Steve, you provided or you pointed us to the 2014 year as a potential outsized impact or reference point, I think you said $35,000,000 I'm just curious in terms of the guidance, is that similar to what you have embedded in the 2025 outlook? And then relatedly, if you could talk about the potential impact from these actions or current developments on 2026 and kind of how this could potentially bleed into next year, if at all?

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

Yes. Look, as I said thanks, Andrew. Look, I think it's very early days. The reason I use the $35,000,000 number is to give you a dimensionalized because if we had said substantial, sometimes we have accountants, good accountants who think $350,000 is substantial and $3,500,000 is substantial and $35,000,000 is substantial. And I just wanted to give people an order of magnitude of what I thought this could be, and that was the comparability point, and it just happened to be interestingly a comparable number.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

There's huge amount of uncertainty around this number. It's really early stages. And how that number shows up, even if it was close, could be very different ways. We tracked a lot of people. It could be in the cost of signing those people.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

If we lose people, it's the revenue you drop. And so, obviously, we threw that number out and we built in some sort of number akin to that, but we also, as Ajay always points out, have a range around our numbers to try to account for some of the variability around it. But yes, we didn't throw out a $35,000,000 number and build $3,000,000 into our budget for this year and to what we're giving you as guidance. Does that help a little bit, Andrew?

Andrew Nicholas
Equity Research Analyst at William Blair

Yes, that's helpful. I guess, I think there was a comment about it potentially impacting the start of 26.2%. Could you touch on just maybe how that happens? Is it people that would potentially be leaving over the next couple of months and sticking around through the beginning of next year to finish off projects? So just trying to figure out how much is isolated to 25 and if 26 can be a rebound year, all else considered?

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

Look, it's too early to say. I think the reason we put that in there is because if people finish up work and then they leave later, then some of the effect wouldn't be seen in the earlier quarters this year and it would show up in the beginning of next year. If people leave earlier and it starts hitting right away, then you would be cycling it a year from now. It's so early days that we don't know. And therefore, we're just throwing that in.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

I think our current belief is that this is moving faster than more than slower, but we're trying to reflect some of the uncertainty here. Does that help?

Andrew Nicholas
Equity Research Analyst at William Blair

Yes, that's helpful. Thank you. And then maybe just taking a step back on overall headcount growth plans in 2025, there's a lot of moving pieces here between the lepticon headwinds. You have recent headcount actions, but you've also announced a ton of senior level hiring over the past several months. Is there any way to frame how you're thinking about headcount growth in 2025 and maybe some of the puts and takes on how that develops throughout the year?

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

Yes. Let me take a crack at that and then I'll let Ajay decide whether he's going to be more quantitative. I'm glad you raised this. Look, the reason we highlighted some of these headwinds is because they're significant and they add up to a lot. We are still a company that is focused on growth and we have a right to be focused on growth.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

Even in our econ practice, which is having a setback, we have a fabulous group of people in EMEA, we have a fabulous group staying in this segment subsegment in The U. S. We have a great group based out of Chicago. I mean, so we have lots of growth opportunities. So I suspect we will hire many more senior people than we will lose this year.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

We have we've had dislocations at different points in the time. I can't remember a time in recent years that we haven't hired some years it's many more senior people than we've lost, a few years it's closer. So we do anticipate headcount growth even with some departures. I think for many of our businesses, a lot of that comes in the second half of the year just because of the natural hiring cycles. And I don't know whether we get more detail than that.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

But we have not turned into a notwithstanding the disciplined actions we took over complex exagon, we were expecting growth in headcount. Does that and because we are a growth company, even if you have setbacks, it's painful, but these are setbacks as opposed to fundamentally changing the fundamentals. Does that help, Andrew?

Andrew Nicholas
Equity Research Analyst at William Blair

Definitely. And maybe if I could just squeeze one more in on the M and A side. I mean, it sounds like there were some headwinds on some projects falling off in the fourth quarter, but there is some optimism for that to pick up as the year continues. Can you just speak to M and A trends as a whole? And maybe any color on kind of large scale M and A versus middle market M and A from what you're seeing in your businesses?

Andrew Nicholas
Equity Research Analyst at William Blair

Thanks again.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

Look, I think there's a lot of uncertainty about anything that has to do with potential government policies, right? I think the general thrust is that people expect M and A to pick up and then the question is, of course, answered by Trust GroupMe on those. But Ajay, do you want to elaborate on that?

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

And we are seeing some of it is all I would say on stage.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

Did that help, Andrew?

Andrew Nicholas
Equity Research Analyst at William Blair

Yes. Thank you.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

Thank you.

Operator

The next question will come from Tobey Sommer with Truist. Please go ahead.

Tobey Sommer
Tobey Sommer
Managing Director at Truist Securities

Thanks. Within the competition practice, is there any particular industry vertical that's being impacted more than another or is it just a sort of a subset of people across different industries? And what does if you could give us your pitch for sort of the network effect of perhaps having the other segments resident in FTI that you would convey to an economist you were recruiting?

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

Okay. There were two different levels of questions. So, the first one was, no, I don't think there's particular industries. I mean, this is driven by an individual and I think the common thread between the people who he's been able to recruit is his relationship with those individuals, I think is the main common thread is what I would say. And let me be clear, we have though this is a hit, it's a sign of how strong our Compass Lexicon business is, is that the people who are not leaving are just a fabulous group of people.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

So, I still think we cover, as far as I know right now, industries and we have a leading IO I think Dennis Carl is the leading IO economist in the world or at least in The U. S. And Jorge and his colleagues in Europe and so forth. So this is a hit. It's a hit slice that's been taken out.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

And I think the common theme is some personal connections. Look, I think the reason economists join us is a couple of different things. One is just a terrific group of people it has working behind them who can help them become more effective. And we hire PhD students, A plus PhD students who don't want to become academics, and they get trained in what is required to do antitrust clearance. And it used to be that the academics relied on their graduate students.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

And as having had a son who was a graduate student, I love my son, but performance can be variable. Once you get them in and you train them, they become incredibly effective. The other thing that Compass Lexicon has distinguished itself on is really having rigorous academics who these are folks who the origins of this are people who are scholars who really delve deep into figuring out what's really going on, and therefore wrote insightful pieces. Many of them originally weren't so good testifiers because they knew how to explain it in math symbols that didn't actually work for judges and juries, and they had to learn how to talk to a jury. But these were rigorous scholars who brought that discipline and insight to complex problems, and that's the origins of COMPASS Lexicon.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

And that's why we recruit people. And so Dan Fischel has historically not recently been focused on the competition in The U. S. Dan, because of these developments over the last few weeks, has started to recruit people in this area. And we I think we signed up in the last month five academic affiliates, maybe only a few of them, Molly is mentioning, waving at me, only a few of them are on the website.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

But terrific academics respect the rigor and discipline and integrity of Compass Lexicon. And so when we approach the right people, Dan does, we get receptive audiences. Does that help, Toby?

Tobey Sommer
Tobey Sommer
Managing Director at Truist Securities

It does. Thank you. And I was curious if you could comment on the puts and takes of the administration change on various end markets. I know it's a fluid situation and it's early days, but maybe you have some observations already you could share with us.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

Yes. I think if we have another four hours, we could go through that and you still probably wouldn't know for sure at the end of the four hours is my problem, Toby. Obviously, we're looking at it hard. Look, I think over any extended period of time, my experience is people over, use my wife's mid and best term, peg out about administration changes. If you have the right set of people, there is a need and you have to shift with the market, but it doesn't affect any multiyear growth thing.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

And a near term regulation change affect the subpart of our business significantly in the near time? It can be. And so you monitor those things and you have to figure out how you shift resources and deal with it. And so we're deep into that. But like most people right now, we're actually that's a third order consequence of regulations when the regulations aren't yet fully implemented, how deep they are cascading the specifics around them aren't and there's changes going on right now.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

So we're into it, but for me to predict exactly how that's going to be on this call, I think is premature at this point. It's a great question and we are focused on it. And as we have great wisdom on that, I suspect we will share it, but that's not where we are today. Does that at least talk to your question?

Tobey Sommer
Tobey Sommer
Managing Director at Truist Securities

It does. I wanted to ask one model question, if I could. Within the revenue guidance, what sort of assumption may there be embedded for headcount growth, billable headcount growth in 2025?

Ajay Sabherwal
Ajay Sabherwal
CFO at FTI Consulting

Tobey, we do expect headcount growth in 2025, but we have headcount reductions of three sixty folks between Q4 and Q1. We're aggressively hiring talented folks as they become available. We have the campus recruitment net and then the CompassTaxiCon competition piece you heard about. Net of all that, we do expect reasonable headcount growth.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

Thank you, Toby.

Tobey Sommer
Tobey Sommer
Managing Director at Truist Securities

Thank you.

Operator

The next question will come from James Yarrow with Goldman Sachs. Please go ahead.

James Yaro
James Yaro
Vice President Equity Research at Goldman Sachs

Good morning and thanks for taking my questions. Steve, last quarter you talked about a more challenging demand backdrop for consulting services broadly. I think your comments suggest that that persists. But we're three months further in. Any high level comments you could offer on that in terms of which products and geographies you're seeing that?

James Yaro
James Yaro
Vice President Equity Research at Goldman Sachs

And perhaps any additional color you might have on what the drivers are there? And then I guess finally, any early signs of that improving at all?

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

Yes. Look, I think as I tried to allude to a little bit on my script, I think it's a combination of market forces. There have been some idiosyncratic forces, like I think our strategy practice happened to have a bunch of jobs roll off and we haven't yet got them back and that's more idiosyncratic to us. But there are different types of market forces that affected us. Our transactions practices were and M and A practices were slower in the fourth quarter.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

We think that was a market force. There are some economic forces. I mean, we've expanded a lot in different economies in EMEA. I'd say we've expanded our services in The UK. And I think most professional services firms, all the data I've seen, has had a slow year in The UK for almost all of their services.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

So we have some market forces. I'm not sure we have some sense that some of these will turn around in this year. I mean, I don't think we think that the M and A market will stay slow and I think there's some early signs of green shoots on that. My sense is that, I've hesitated to over talk about market forces because my experience is that they do have short term effects, but if you are the leading firm, you tend to outperform the markets. And so that's what I like us to focus on.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

And so I think our leaders believe we're going to have growth in our businesses, not just because market forces come back, but because we're doing the right things in their business and because we're attracting great talent. So we are not expecting the negative fourth quarter growth to be resisting through this year for I mean, I think we have solid growth forecast for every one of their businesses except for the one that's affected by the Compass dislocations for everyone, notwithstanding what we think the market forces are. And I think that's reflecting of the power and the confidence we have in our businesses. But we're hoping for some market tailwinds in addition. But right now, we're making the solid growth forecast based on what we believe we can do.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

Does that help, James?

James Yaro
James Yaro
Vice President Equity Research at Goldman Sachs

Super helpful, Steve. Thank you. Maybe just on the F and LC business, you talked about a pickup in demand for disputes and investigations. Any additional color you could provide there in terms of what gives you the confidence across product and geography?

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

Look, I think we have over the last few years, just The U. S, particularly The U. S. Team has just come into its own. And we have a great group of leaders in that practice.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

And the practice always had great talent. I think we have some leaders who are a little more commercial too, because you can have great people who are focused on doing a good job, but you occasionally have to tell the clients that you're doing a good job. And I think as a result, our U. S. Practice is just keeps winning bigger and bigger jobs.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

And the market gets sometimes despite ourselves gets to know that, even though many of those jobs are actually very confidential. I think we've also got the right places where we're investing abroad. Some places abroad, we don't have the breadth of capability, but we have really good people who are more focused investing behind. And so I feel pretty good about that business. Now that is a business that some would say could be affected by regulatory changes in The U.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

S, and we'll see. But I think what I focus on is the capability of our teams. And I got to tell you, I've never been as excited about that business as I am today. Does that help, James?

James Yaro
James Yaro
Vice President Equity Research at Goldman Sachs

That's super helpful. Thanks, Steve. Last one, just on Econ Consulting, just a more in the weeds one. Did any of the departures affect the fourth quarter revenue for econ consulting? Or is that all on the come in the 2025 guide?

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

None of the departures affected the fourth quarter and none of them to my knowledge happened. They were all first quarter departures.

James Yaro
James Yaro
Vice President Equity Research at Goldman Sachs

Okay, great. All right, thanks a lot.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

All right. Listen, thank you all for your support over the time. This is the more muted most muted guidance we've ever given. It's because there's a ton of headwinds we're hearing. None of that challenges the fundamental strength that I think we've created in this company, and we look forward to getting back on that track through the year and into next year.

Steven Gunby
Steven Gunby
President and CEO at FTI Consulting

But we'll keep you informed on how we do that. Thanks very much for your time.

Operator

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

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