Executive Summary / Key Takeaways

• Resilience Amidst Headwinds: FTI Consulting (FCN) demonstrated remarkable resilience in Q2 2025, delivering solid financial results despite significant macroeconomic and idiosyncratic challenges, including a slowdown in M&A-related services and internal dislocations in its Economic Consulting segment. This performance underscores the strength of its diversified business model.
• Strategic Investment in Talent & Technology: The company continues its long-standing strategy of aggressive investment in top-tier talent and advanced technologies like AI (e.g., IQ.AI platform). While these investments create short-term P&L pressures, they are foundational to FCN's competitive moat and long-term growth.
• Segmental Divergence & Strength: Corporate Finance & Restructuring and Forensic and Litigation Consulting (FLC) delivered strong Q2 results, with FLC achieving a record first half. Conversely, Economic Consulting and Technology faced substantial revenue and margin pressures, though management anticipates a gradual improvement in Technology and a low point for Economic Consulting's EBITDA in the coming months.
• Disciplined Capital Allocation: FCN maintains a strong balance sheet with substantial liquidity and an investment-grade credit rating. The company actively deploys capital through share repurchases, with $309.3 million remaining under its authorization as of June 30, 2025, reflecting a commitment to shareholder value.
• Muted Near-Term Outlook, Strong Long-Term Conviction: Full-year 2025 guidance reflects a more conservative outlook, with revenues projected between $3.66 billion and $3.76 billion and Adjusted EPS between $7.80 and $8.40. However, management remains highly confident in the company's "powerfully upward sloping" long-term trajectory, driven by its expert-driven model and strategic adaptability.

The Enduring Strength of FTI Consulting: A Foundation of Expertise and Innovation

FTI Consulting, Inc. (FCN) stands as a global business advisory powerhouse, established in 1982 with roots in providing expert economic insights to legal proceedings. This foundational expertise has evolved into a diversified model dedicated to helping organizations manage change, mitigate risk, and resolve complex financial, legal, operational, political, regulatory, reputational, and transactional disputes worldwide. The company's history, marked by periods of both volatility and sustained growth, underscores a strategic shift around 2014 towards becoming a "vibrant growth engine," a commitment that has since yielded a decade of adjusted EPS growth. This enduring focus on building capabilities and attracting top talent has been central to its ability to navigate dynamic market conditions.

The company's competitive advantage is deeply rooted in its expert-driven model and its proactive embrace of technological differentiation. FCN's Technology segment, for instance, has historically been a leader, boasting the "fastest organic growth of any of our major competitors for the past 5 or so years" prior to 2025. This team specializes in the "toughest, most complicated jobs," involving the rapid processing of "massive amounts of data, some of them very complicated emerging forms of data." A key technological differentiator is FCN's investment in AI capabilities, including its IQ.AI platform. This platform enhances data analytics efficiency, reportedly offering 20-25% faster data processing and 15% higher efficiency in compliance tasks compared to standard tools. Such quantifiable benefits translate directly into superior margins and faster innovation cycles, allowing FCN to capture premium pricing in niche segments like litigation and economic consulting. The company's strategic alliances, such as with BigID for AI-driven data management and iManage for knowledge management, further bolster its technological moat. These initiatives are critical as over two-thirds of general counsel express interest in generative AI, and 65% of legal departments plan to invest in new technology, with 30% targeting generative AI.

In the broader competitive landscape, FCN operates against a backdrop of both direct and indirect rivals. Direct publicly traded competitors include Science Applications International (SAIC), Exponent (EXPO), UL Solutions (ULS), and ICF International (ICFI). FCN's strategic positioning emphasizes bespoke, integrated consulting solutions, often leading to superior profitability. For example, FCN's net margin (TTM 6.82%) significantly outpaces SAIC's (5.5%) and ICFI's (5%), reflecting better profitability from its advisory focus. While FCN's revenue growth (6% in 2024) matches SAIC's and is comparable to EXPO's (9%) and ULS's (6%), its gross margin (TTM 31.67%) is superior to SAIC's (19%) and ICFI's (37%), though it trails EXPO's (38%) and ULS's (49%) due to their more specialized, lean operations.

A key competitive advantage for FCN is its significantly lower debt burden compared to many private equity-owned competitors, which are often "6 and 11x levered." FCN's Debt/Equity ratio (TTM 0.36) is substantially lower than SAIC's (1.52), ULS's (1.03), and ICFI's (0.61), providing immense financial flexibility and resilience in economic downturns. This allows FCN to continue investing in talent and technology even when competitors might be forced to "cut corners." Indirect competitors, such as in-house corporate consulting teams and automated AI platforms, pose a threat by offering potentially cheaper, albeit less customized, solutions. However, FCN's focus on complex, high-stakes engagements and its continuous investment in differentiated expertise and AI-driven tools like IQ.AI are designed to mitigate this risk, positioning it for continued market share gains in its core areas.

Navigating a Challenging Environment with Strategic Acumen

The year 2025 has been characterized by management as "challenging," marked by "serious headwinds." The Q2 2025 financial results, while solid, reflect this environment. Consolidated revenues decreased 0.6% year-over-year to $943.7 million, or 1.8% excluding the positive impact of foreign exchange. Net income saw a 14.6% decline to $71.7 million, primarily due to lower revenues, increased direct costs from forgivable loan amortization, and a higher effective tax rate. Adjusted EBITDA decreased 3.7% to $111.6 million, with the margin contracting to 11.8% from 12.2% in the prior year.

These consolidated figures, however, mask a divergent performance across FCN's five segments, highlighting the strength of its diversified portfolio.

Segmental Performance and Strategic Responses

• Corporate Finance & Restructuring (Corporate Finance): This segment was a standout performer, achieving record revenues of $379.2 million in Q2 2025, a 9.0% increase year-over-year. Adjusted Segment EBITDA also hit a record at $81.7 million, representing 21.5% of segment revenues. This growth was fueled by robust demand for restructuring services (up 25% YoY) and transactions services (up 10% YoY), driven by factors like tariff-induced stress and a new wave of liability management exercises. The segment's long-term strategy of investing in adjacencies like merger integration and expanding globally has allowed it to "more than triple the revenue and more than quadrupled the adjusted EBITDA of 10 or so years ago."
• Forensic and Litigation Consulting (FLC): FLC delivered a "record first half of the year by far," with Q2 revenues increasing 10.0% to $186.5 million and Adjusted Segment EBITDA surging 121.9% to $31.2 million. This strong performance was driven by higher realized bill rates in risk and investigations, data analytics, and construction solutions. Despite a slowdown in federal FCPA cases, the segment is thriving due to "strong performance in our financial services vertical driven by continuing anti-money laundering related work and a pickup in regulatory scrutiny at the state level." This demonstrates FLC's ability to adapt and capitalize on evolving regulatory landscapes.
• Economic Consulting: This segment faced significant headwinds, with Q2 revenues declining 17.0% to $191.7 million and Adjusted Segment EBITDA plummeting 70.2% to $14.2 million. The decline was primarily due to lower demand for M&A-related antitrust and non-M&A-related antitrust services, particularly in EMEA, compounded by the financial impact of senior departures in its US competition practice. Management indicated the adjusted EBITDA hit could be "between $25 million and $30 million versus last year" on an annualized basis. Despite this, FCN has proactively invested in talent replenishment, attracting an "unbelievable set of academic affiliates and new arrivals," including potential "future Nobel Prize winners," which, while adding to near-term costs (e.g., $72 million in forgivable loans in Q2), reinforces the segment's long-term position as the "leading group of economists in the world." Management expects this segment's Adjusted EBITDA to "reach a low point over the next few months."
• Technology: The Technology segment experienced the most severe impact, with Q2 revenues decreasing 27.9% to $83.6 million and Adjusted Segment EBITDA falling 90.9% to $5.3 million. This was largely due to lower demand for M&A-related second request services, a consequence of fewer major deals and regulatory authorities waiving second requests. Management does not foresee an immediate rebound, stating they are "not forecasting a great second half of the year for this business." However, the company emphasizes the underlying strength of the team and its focus on complex data challenges, believing that "in slow markets over any extended period of time, they tend of favor and benefit people like us, the most capable competitors."
• Strategic Communications: This segment showed a strong rebound, with Q2 revenues increasing 20.8% to $102.7 million and Adjusted Segment EBITDA rising 64.9% to $18.5 million. This growth was driven by increased pass-through revenues and higher demand for corporate reputation and financial communications services, including critical crisis communications and cybersecurity issues. After "some struggles over the last couple of years," the segment is "beginning to get back on track" and is "helping the company carry the company's financial load."

Financial Health and Capital Deployment

FCN maintains a robust financial position, critical for its long-term investment strategy. As of June 30, 2025, the company held $152.8 million in cash and cash equivalents and had $430.0 million in available borrowing capacity under its $900.0 million Credit Facility. The company's credit rating was upgraded to investment grade by S&P Global in October 2024, reflecting its strong financial health and making its Credit Facility unsecured, further enhancing flexibility.

Net cash provided by operating activities for Q2 2025 was $55.7 million, a decrease from $135.2 million in the prior year, primarily due to increased forgivable loan issuances and higher compensation and income tax payments. Free Cash Flow also declined to $38.3 million from $125.2 million. Despite these short-term fluctuations, FCN's long-term cash generation remains strong, enabling strategic capital deployment. The company repurchased $354.9 million of common stock in Q2 2025, part of a broader $541 million in repurchases in the first half of 2025. With $309.3 million remaining under its $1.7 billion repurchase authorization, FCN demonstrates a commitment to returning value to shareholders, especially when its stock is deemed undervalued.

Outlook and Long-Term Vision

FTI Consulting has narrowed its full-year 2025 guidance, reflecting the current market realities. Revenues are now estimated to range between $3.66 billion and $3.76 billion, while Adjusted EPS is projected between $7.80 and $8.40. This updated guidance, while more conservative than previous years, still represents a "solid year" in the face of formidable headwinds.

Key assumptions underpinning this outlook include:

• Technology Segment: A gradual improvement in demand for M&A-related services is expected, though not to the record levels of 2024.
• Economic Consulting: Adjusted segment EBITDA is anticipated to reach a low point in the next few months, with the company continuing to invest in talent despite short-term P&L impacts.
• Momentum in Key Practices: Strong momentum from Q2 in Corporate Finance's restructuring, FLC's financial services and cybersecurity, and Strategic Communications is expected to continue.
• Seasonality: Q4 adjusted EPS is typically lower due to seasonal vacation patterns.

Management's long-term conviction remains unwavering. The company's ability to deliver solid results while simultaneously reinvesting in its core businesses and attracting top talent, even amidst significant market and idiosyncratic challenges, is a testament to its "amazing strength" and "incredible resilience." This strategic approach, focusing on building capabilities and client relevance through continuous investment in people and technology, is expected to drive a "powerfully upward sloping line" for shareholders over the long term, reinforcing FCN's position as a leading expert-driven firm.

Conclusion

FTI Consulting is navigating a complex and challenging environment in 2025, marked by a slowdown in key markets and internal dislocations. The company's Q2 2025 performance, while showing some declines in top-line and profitability metrics, underscores its deep resilience and the strategic benefits of its diversified business model. By proactively addressing headwinds through targeted headcount actions and continuous, disciplined investment in top-tier talent and advanced technologies like IQ.AI, FCN is not merely weathering the storm but actively strengthening its competitive position.

The company's robust balance sheet and commitment to strategic capital allocation provide a strong foundation for future growth. While the near-term outlook is more muted, FCN's history of transforming challenges into opportunities and its unwavering focus on delivering impactful client solutions position it for a return to healthier growth rates. Investors should view FCN as a resilient, expert-driven enterprise that, despite short-term "zigs and zags," is firmly committed to a long-term trajectory of value creation, driven by its unique blend of human capital and technological leadership.