FTI Consulting's Q3 Earnings Call: Modest Growth Amid Market Challenges

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FTI Consulting's Q3 Earnings Call: Modest Growth Amid Market Challenges

FTI Consulting, Inc. (NYSE: FCN) reported a modest annual revenue increase of 3.7% in the third quarter of 2024, with revenues reaching $996 million. Despite this growth, the company's earnings per share declined from $2.34 last year to $1.85, and adjusted EBITDA decreased by 13.3% to $102.9 million. CEO Steven Gunby acknowledged the slow growth, attributing it to global market challenges and internal delays, but expressed confidence in the company's long-term trajectory and investment in talent. CFO Ajay Sabherwal detailed the financial results, noting increased direct costs and selling, general, and administrative expenses. The company revised its full-year revenue guidance downward but remains optimistic about its diversified business model and growth mindset.

Key Highlights:

  • FTI Consulting reported $996 million in revenue for the third quarter of 2024, an increase of 3.7% year-over-year.
  • Earnings per share dropped to $1.85, and adjusted EBITDA fell by 13.3% to $102.9 million.
  • The company hired 25 senior managing directors and over 320 campus hires, marking its largest class to date.
  • Full-year revenue guidance was revised to between $3.7 billion and $3.75 billion, with earnings per share expected to be between $7.90 and $8.35.
  • Net cash and short-term investments were negative $386.3 million, down from last year.
  • Management is committed to investing in talent and capabilities, particularly in artificial intelligence and strategic areas.

Company Outlook:

  • Full-year revenue guidance revised to between $3.7 billion and $3.75 billion.
  • Adjusted earnings per share expectations are between $7.90 and $8.35.
  • Management remains optimistic about future growth and investment strategies despite current economic challenges.

Negative Highlights:

  • Declines in Corporate Finance and Restructuring, and Strategic Communications segments.
  • Direct costs rose by 4.9%, and SG&A expenses increased by 10.7%.
  • Effective tax rate increased to 25.1% due to adverse tax adjustments.

Positive Highlights:

  • Growth in Economic Consulting and Technology segments.
  • Strong balance sheet with continued investment in talent and capabilities.
  • Optimism around restructuring and acquisition activities.

Missed Points:

  • 3.7% revenue growth fell short of the company's historical target for mid-to-high single-digit organic growth.
  • No share repurchases were made during the quarter.

Q&A Highlights:

  • Executives discussed the importance of revenue growth for improving margins.
  • The company's diversified business portfolio, including restructuring, helps mitigate the impact of weak consulting sector trends.
  • Management reaffirmed long-term targets for mid-to-high single-digit organic growth and a commitment to building a robust growth engine.

FTI Consulting's third-quarter performance reflected the company's resilience in the face of global market challenges and internal delays. Although revenue growth was the lowest in recent quarters, the firm's leadership maintains confidence in its strategic investments and the strength of its diversified business model. The company's commitment to hiring top-tier talent and investing in key strategic areas like artificial intelligence underscores its determination to maintain a competitive edge in the consulting industry. Despite the setbacks, FTI Consulting's revised guidance and ongoing investments signal a focus on long-term shareholder value and sustainable growth.

InvestingPro Insights: FTI Consulting's recent financial performance discussed during the 2024 third-quarter earnings call can be further contextualized with additional data from InvestingPro. Despite the modest 3.7% revenue growth reported in the quarter, InvestingPro data shows that FCN's trailing twelve-month revenue growth as of the second quarter of 2024 was a stronger 14.72%, indicating better performance earlier in the year.

The company's price-to-earnings ratio of 21.08 suggests that investors are still pricing in growth expectations, although at a more moderate level. This is supported by an InvestingPro Tip stating that FCN is "trading at a low P/E ratio relative to near-term earnings growth," which may be appealing to value-focused investors given the company's revised guidance and commitment to long-term growth strategies.

Another relevant InvestingPro Tip highlights that FCN "operates with moderate leverage." This aligns with the company's reported financial position and its ability to continue investing in talent and capabilities while managing current market challenges.

For investors seeking more in-depth analysis, InvestingPro offers 7 additional tips for FCN, providing greater insights into the company's financial health and market standing.