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FTI CONSULTING, INC - Quarter Report: 2022 September (Form 10-Q)


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from   to                    
Commission File Number: 001-14875
 
FTI CONSULTING, INC.
(Exact Name of Registrant as Specified in its Charter)
 
  
Maryland52-1261113
(State or Other Jurisdiction of
Incorporation or Organization)
(I.R.S. Employer
Identification No.)
555 12th Street NW
Washington,
DC20004
(Address of Principal Executive Offices)(Zip Code)
(202) 312-9100
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading SymbolName of each exchange on which registered
Common Stock, $0.01 par valueFCNNew York Stock Exchange
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).    Yes      No  
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. 
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    Yes      No  
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date. 
ClassOutstanding at October 20, 2022
Common Stock, $0.01 par value34,423,110



FTI CONSULTING, INC. AND SUBSIDIARIES
INDEX
 
  
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2


PART I—FINANCIAL INFORMATION
FTI Consulting, Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
(in thousands, except per share data)
Item 1.Financial Statements
 
 September 30,December 31,
 20222021
(Unaudited)
Assets 
Current assets  
Cash and cash equivalents$327,047 $494,485 
 Accounts receivable, net947,993 754,120 
Current portion of notes receivable27,198 30,256 
Prepaid expenses and other current assets91,187 91,166 
Total current assets1,393,425 1,370,027 
Property and equipment, net144,713 142,163 
Operating lease assets195,339 215,995 
Goodwill1,212,541 1,232,791 
Intangible assets, net25,673 31,990 
Notes receivable, net54,144 53,539 
Other assets56,259 54,404 
Total assets$3,082,094 $3,100,909 
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable, accrued expenses and other$175,491 $165,025 
Accrued compensation422,985 507,556 
Billings in excess of services provided50,523 45,535 
Total current liabilities648,999 718,116 
Long-term debt, net314,756 297,158 
Noncurrent operating lease liabilities213,449 236,026 
Deferred income taxes161,486 170,612 
Other liabilities98,821 95,676 
Total liabilities1,437,511 1,517,588 
Commitments and contingencies (Note 10)
Stockholders' equity
Preferred stock, $0.01 par value; shares authorized — 5,000; none
outstanding
— — 
Common stock, $0.01 par value; shares authorized — 75,000; shares
issued and outstanding 34,422 (2022) and 34,333 (2021)
344 343 
Additional paid-in capital— 13,662 
Retained earnings1,868,424 1,698,156 
Accumulated other comprehensive loss(224,185)(128,840)
Total stockholders' equity1,644,583 1,583,321 
Total liabilities and stockholders' equity$3,082,094 $3,100,909 
 
See accompanying notes to condensed consolidated financial statements
3


FTI Consulting, Inc. and Subsidiaries
Condensed Consolidated Statements of Comprehensive Income
(in thousands, except per share data)
(Unaudited)
 
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Revenues$775,865 $702,228 $2,254,477 $2,099,991 
Operating expenses
Direct cost of revenues526,654 472,235 1,539,838 1,431,381 
Selling, general and administrative expenses159,186 138,600 476,097 399,076 
Amortization of intangible assets2,315 2,860 7,320 8,515 
 688,155 613,695 2,023,255 1,838,972 
Operating income87,710 88,533 231,222 261,019 
Other income (expense)    
Interest income and other7,771 5,175 10,418 5,297 
Interest expense(2,378)(5,073)(7,468)(15,164)
 5,393 102 2,950 (9,867)
Income before income tax provision93,103 88,635 234,172 251,152 
Income tax provision15,836 19,155 46,156 54,394 
Net income$77,267 $69,480 $188,016 $196,758 
Earnings per common share — basic$2.29 $2.07 $5.57 $5.88 
Earnings per common share — diluted$2.15 $1.96 $5.25 $5.58 
Other comprehensive loss, net of tax
Foreign currency translation adjustments, net of tax
expense of $0
$(48,475)$(18,607)$(95,345)$(18,042)
Total other comprehensive loss, net of tax(48,475)(18,607)(95,345)(18,042)
Comprehensive income$28,792 $50,873 $92,671 $178,716 
 
See accompanying notes to condensed consolidated financial statements
4


FTI Consulting, Inc. and Subsidiaries
Condensed Consolidated Statements of Stockholders’ Equity
(in thousands)
(Unaudited)
 
Accumulated
Other
Comprehensive
Loss
 Common StockAdditional
Paid-in
Capital
Retained
Earnings
 
 SharesAmountTotal
Balance at December 31, 202134,333 $343 $13,662 $1,698,156 $(128,840)$1,583,321 
Net income— $— $— $59,321 $— $59,321 
Other comprehensive loss:
Cumulative translation adjustment— — — — (6,191)(6,191)
Issuance of common stock in connection with:
Exercise of options26 — 923 — — 923 
Restricted share grants, less net
             settled shares of 54
134 (7,836)— — (7,834)
Stock units issued under incentive
             compensation plan
— — 1,664 — — 1,664 
Purchase and retirement of common stock(22)— (3,098)— — (3,098)
 Cumulative effect due to adoption of new accounting standard— — (34,131)22,078 — (12,053)
 Conversion of convertible senior notes due 2023— — (2)— — (2)
Share-based compensation— — 5,967 — — 5,967 
 Reclassification of negative additional paid-in capital— — 22,851 (22,851)— — 
Balance at March 31, 202234,471 $345 $— $1,756,704 $(135,031)$1,622,018 
Net income— $— $— $51,428 $— $51,428 
Other comprehensive loss:
Cumulative translation adjustment— — — — (40,679)(40,679)
Issuance of common stock in connection
with:
Exercise of options22 — 687 — — 687 
Restricted share grants, less net
settled shares of 55
47 — (8,907)— — (8,907)
Conversion of convertible senior notes
   due 2023
— — (11)— — (11)
Share-based compensation— — 6,083 — — 6,083 
 Reclassification of negative additional paid-in capital— — 2,647 (2,647)— — 
Balance at June 30, 202234,540 $345 $499 $1,805,485 $(175,710)$1,630,619 
Net income— $— $— $77,267 $— $77,267 
Other comprehensive loss:
Cumulative translation adjustment— — — — (48,475)(48,475)
Issuance of common stock in connection
with:
Restricted share grants, less net
settled shares of 5
10 — (837)— — (837)
Purchase and retirement of common
   stock
(128)(1)(20,431)— — (20,432)
Share-based compensation— — 6,441 — — 6,441 
 Reclassification of negative additional paid-in capital— — 14,328 (14,328)— — 
Balance at September 30, 202234,422 $344 $— $1,868,424 $(224,185)$1,644,583 
5


Additional
Paid-in
Capital
Accumulated
Other
Comprehensive
Loss
 Common StockRetained
Earnings
 
 SharesAmountTotal
Balance at December 31, 202034,481 $345 $— $1,506,271 $(106,435)$1,400,181 
Net income— $— $— $64,496 $— $64,496 
Other comprehensive loss:
Cumulative translation adjustment— — — — (5,242)(5,242)
Issuance of common stock in connection with:
Exercise of options12 — 434 — — 434 
Restricted share grants, less net settled
   shares of 63
157 (7,232)— — (7,231)
Stock units issued under incentive
   compensation plan
— — 2,603 — — 2,603 
Purchase and retirement of common stock(422)(4)(3,047)(43,082)— (46,133)
Share-based compensation— — 7,242 — — 7,242 
Balance at March 31, 202134,228 $342 $— $1,527,685 $(111,677)$1,416,350 
Net income— $— $— $62,782 $— $62,782 
Other comprehensive income:
Cumulative translation adjustment— — — — 5,807 5,807 
Issuance of common stock in connection
with:
Exercise of options33 1,136 — — 1,137 
Restricted share grants, less net
settled shares of 13
21 — (1,814)— — (1,814)
Share-based compensation— — 4,948 — — 4,948 
Balance at June 30, 202134,282 $343 $4,270 $1,590,467 $(105,870)$1,489,210 
Net income— $— $— $69,480 $— $69,480 
Other comprehensive loss:
Cumulative translation adjustment— — — — (18,607)(18,607)
Issuance of common stock in connection
  with:
Exercise of options— 126 — — 126 
Restricted share grants, less net
   settled shares of 6
— (866)— — (866)
Share-based compensation— — 4,960 — — 4,960 
Balance at September 30, 202134,295 $343 $8,490 $1,659,947 $(124,477)$1,544,303 

See accompanying notes to condensed consolidated financial statements
6


FTI Consulting, Inc. and Subsidiaries
Condensed Consolidated Statements of Cash Flows
(in thousands)
(Unaudited)
 
 Nine Months Ended September 30,
20222021
Operating activities
Net income$188,016 $196,758 
Adjustments to reconcile net income to net cash provided by (used in) operating activities:  
Depreciation and amortization27,045 25,631 
Amortization and impairment of intangible assets7,320 8,515 
Acquisition-related contingent consideration863 (1,014)
Provision for expected credit losses13,101 14,816 
Share-based compensation18,491 17,150 
Amortization of debt discount and issuance costs and other1,588 8,551 
Deferred income taxes(9,140)5,128 
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable, billed and unbilled(251,280)(115,544)
Notes receivable838 4,392 
Prepaid expenses and other assets(3,066)1,145 
Accounts payable, accrued expenses and other21,936 (22,745)
Income taxes3,940 18,025 
Accrued compensation(67,763)2,803 
Billings in excess of services provided7,672 (7,691)
Net cash provided by (used in) operating activities(40,439)155,920 
Investing activities  
Payments for acquisition of businesses, net of cash received(6,742)(9,833)
Purchases of property and equipment and other(38,935)(52,441)
Net cash used in investing activities(45,677)(62,274)
Financing activities  
Borrowings under revolving line of credit165,000 377,500 
Repayments under revolving line of credit(165,000)(352,500)
Purchase and retirement of common stock(23,530)(46,133)
Share-based compensation tax withholdings and other (15,663)(8,277)
Payments for business acquisition liabilities(4,848)(7,496)
Deposits and other7,092 1,928 
Net cash used in financing activities(36,949)(34,978)
Effect of exchange rate changes on cash and cash equivalents(44,373)(11,094)
Net increase (decrease) in cash and cash equivalents(167,438)47,574 
Cash and cash equivalents, beginning of period494,485 294,953 
Cash and cash equivalents, end of period$327,047 $342,527 
Supplemental cash flow disclosures
Cash paid for interest$8,012 $8,756 
Cash paid for income taxes, net of refunds$51,353 $31,240 
Non-cash investing and financing activities:
Issuance of stock units under incentive compensation plans$1,664 $2,603 
Business acquisition liabilities not yet paid$5,593 $— 
Non-cash additions to property and equipment    $4,970 $4,435 
See accompanying notes to condensed consolidated financial statements
7


FTI Consulting, Inc. and Subsidiaries
Notes to Condensed Consolidated Financial Statements
(dollar and share amounts in tables in thousands, except per share data)
(Unaudited)
 
1. Basis of Presentation and Significant Accounting Policies
The unaudited condensed consolidated financial statements of FTI Consulting, Inc., including its consolidated subsidiaries (collectively, the “Company,” “we,” “our” or “FTI Consulting”), presented herein, have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and under the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Some of the information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to those rules and regulations. Certain prior period amounts have been reclassified to conform to the current period presentation. In management’s opinion, the interim financial statements reflect all adjustments that are necessary for a fair presentation of the results for the interim periods presented. All adjustments made were normal recurring accruals. Results of operations for the interim periods presented herein are not necessarily indicative of results of operations for a full year. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the SEC. 
2. New Accounting Standards
Recently Adopted Accounting Standards
In August 2020, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2020-06 ("ASU 2020-06"), Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation in certain events. On January 1, 2022, we adopted ASU 2020-06 using the modified retrospective method and recorded a cumulative-effect adjustment of approximately $22.1 million to the beginning balance of retained earnings at the date of adoption and a $16.4 million net increase to "Long-term debt, net" on the Condensed Consolidated Balance Sheets. As permitted by the guidance, prior comparative periods were not adjusted under this method.
Pursuant to ASU 2020-06, we are no longer permitted to separately account for the liability and equity components of convertible debt instruments. As such, the carrying amount of our 2.0% convertible senior notes due 2023 ("2023 Convertible Notes") is recognized as a liability as of September 30, 2022 on the Condensed Consolidated Balance Sheets. The ASU 2020-06 adoption also resulted in the derecognition of the embedded conversion option, net of tax effects, of approximately $34.1 million, which is included in “Additional paid-in capital,” as well as the derecognition of the related deferred tax liabilities of approximately $4.3 million on the Condensed Consolidated Balance Sheets.
The net effect of the adoption in the current and future periods as compared to prior periods is to reduce non-cash interest expense, or increase net income, as there is no longer a discount from the separation of the conversion feature within equity. The discount from recognition of debt issuance costs will be amortized over the effective life of the 2023 Convertible Notes using the effective interest method.
ASU 2020-06 also no longer allows the use of the treasury stock method for convertible instruments for purposes of calculating diluted earnings per share and instead requires application of the if-converted method. Under that method, diluted earnings per share will generally be calculated assuming that all of the convertible debt instruments were converted solely into shares of common stock at the beginning of the reporting period unless the result would be anti-dilutive. Effective January 1, 2022, pursuant to the terms of the indenture, dated as of August 20, 2018, as amended by the first supplemental indenture, dated as of January 1, 2022 (the "First Supplemental Indenture"), between us and U.S. Bank National Association, as trustee (as so amended, the "Indenture"), the principal amount of the 2023 Convertible Notes being converted is required to be paid in cash and only the premium due upon conversion, if any, is permitted to be settled in shares, cash or a combination of shares and cash. Consequently, the if-converted method produces a similar result as the treasury stock method, which was used prior to the adoption of ASU 2020-06 for the 2023 Convertible Notes.
8


Accounting Standards Not Yet Adopted
In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance, which requires entities to provide disclosures on significant government assistance transactions for annual reporting periods. The disclosures include information around the nature of the assistance, the related accounting policies used to account for government assistance, the effect of government assistance on the entity’s financial statements, and any significant terms and conditions of the agreements, including commitments and contingencies. The new standard is effective for annual periods beginning after December 15, 2021 and impacts only annual financial statement footnote disclosures. The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements.
3. Earnings per Common Share
Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common share adjusts basic earnings per common share for the effects of potentially dilutive common shares. Potentially dilutive common shares include the dilutive effects of shares issuable under our equity compensation plans, including stock options and share-based awards (restricted share awards, restricted stock units and performance stock units), each using the treasury stock method.
For the three and nine months ended September 30, 2022, we used the if-converted method for calculating the potential dilutive effect of the conversion feature of the principal amount of the 2023 Convertible Notes on earnings per common share, as required by the adoption of ASU 2020-06. Prior to the adoption of ASU 2020-06, we used the treasury stock method for calculating the potential dilutive effect of the conversion feature of the principal amount of the 2023 Convertible Notes on earnings per common share because we had the ability and intent to settle the principal amount of the outstanding 2023 Convertible Notes in cash. The conversion feature had a dilutive impact on earnings per common share for the three and nine months ended September 30, 2022 and 2021, as the average market price per share of our common stock for the periods exceeded the conversion price of $101.38 per share. See Note 8, "Debt" for additional information about the 2023 Convertible Notes.
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Numerator — basic and diluted    
Net income$77,267 $69,480 $188,016 $196,758 
Denominator
Weighted average number of common shares outstanding — basic
33,812 33,495 33,741 33,478 
Effect of dilutive share-based awards545 662 607 697 
Effect of dilutive stock options322 363 330 369 
Effect of dilutive convertible notes1,239 842 1,147 721 
Weighted average number of common shares outstanding — diluted
35,918 35,362 35,825 35,265 
Earnings per common share — basic$2.29 $2.07 $5.57 $5.88 
Earnings per common share — diluted$2.15 $1.96 $5.25 $5.58 
Antidilutive stock options and share-based awards— 10 
4. Revenues
We generate the majority of our revenues by providing consulting services to our clients. Most of our consulting service contracts are based on one of the following types of contract arrangements:
Time and expense arrangements require the client to pay us based on the number of hours worked at contractually agreed-upon rates. We recognize revenues for these contract arrangements based on hours incurred and contracted rates utilizing a right-to-invoice practical expedient because we have a right to consideration for services completed to date. When a time and expense arrangement has a not-to-exceed or "cap" amount and we expect to perform work in excess of the cap, we recognize revenues up to the cap amount specified by the client, based on the efforts or hours incurred as a percentage of total efforts or hours expected to be incurred (i.e., proportional performance method).
9


Fixed-fee arrangements require the client to pay a fixed fee in exchange for a predetermined set of professional services. We recognize revenues earned to date by applying the proportional performance method. Generally, these arrangements have one performance obligation.
Performance-based or contingent arrangements represent forms of variable consideration. In these arrangements, our fees are based on the attainment of contractually defined objectives with our client, such as completing a business transaction or assisting the client in achieving a specific business objective. We recognize revenues earned to date in an amount that is probable not to reverse and by applying the proportional performance method when the criteria for over time revenue recognition are met.
Certain fees in our time and materials arrangements may be subject to approval by a third party, such as a bankruptcy court or other regulatory agency. In such cases, we record revenues based on the amount we estimate we will be entitled to in exchange for our services and only to the extent a significant reversal of revenues is not likely to occur when the uncertainty associated with the estimate is subsequently resolved. Potential fee reductions imposed by bankruptcy courts and other regulatory agencies or negotiated with specific clients are estimated on a specific identification basis. Our estimates may vary depending on the nature of the engagement, client economics, historical experience and other appropriate factors. When there are changes in our estimates of potential fee reductions, we record such changes to revenues with a corresponding offset to our billed and unbilled accounts receivable.
Revenues recognized during the current period may include revenues from performance obligations satisfied or partially satisfied in previous periods. This primarily occurs when the estimated transaction price has changed based on our current probability assessment over whether the agreed-upon outcome for our performance-based and contingent arrangements will be achieved. The aggregate amount of revenues recognized related to a change in the transaction price in the current period, which related to performance obligations satisfied or partially satisfied in a prior period, was immaterial for the three months ended September 30, 2022 and $12.5 million for the nine months ended September 30, 2022, and $11.5 million and $23.0 million for the three and nine months ended September 30, 2021, respectively.
Unfulfilled performance obligations primarily consist of fees not yet recognized on certain fixed-fee arrangements and performance-based and contingent arrangements. As of September 30, 2022 and December 31, 2021, the aggregate amount of the remaining contract transaction price allocated to unfulfilled performance obligations was $2.5 million and $3.7 million, respectively. We expect to recognize the majority of the related revenues over the next 24 months. We elected to utilize the optional exemption to exclude from this disclosure fixed-fee and performance-based and contingent arrangements with an original expected duration of one year or less and to exclude our time and expense arrangements for which revenues are recognized using the right-to-invoice practical expedient.
Contract assets are defined as assets for which we have recorded revenues but are not yet entitled to receive our fees because certain events, such as completion of the measurement period or client approval, must occur. The contract asset balance was immaterial as of September 30, 2022 and $3.8 million as of December 31, 2021.
Contract liabilities are defined as liabilities incurred when we have received consideration but have not yet performed the agreed-upon services. This may occur when clients pay fees before work begins. The contract liability balance was $1.0 million as of September 30, 2022 and immaterial as of December 31, 2021.
5. Accounts Receivable and Allowance for Expected Credit Losses
The following table summarizes the components of "Accounts receivable, net" as presented on the Condensed Consolidated Balance Sheets:
September 30,
2022
December 31,
2021
Accounts receivable:
Billed receivables$636,288 $542,056 
Unbilled receivables352,711 248,681 
Allowance for expected credit losses(41,006)(36,617)
Accounts receivable, net$947,993 $754,120 
10


We maintain an allowance for expected credit losses, which represents the estimated aggregate amount of credit risk arising from the inability or unwillingness of specific clients to pay our fees or disputes that may affect our ability to fully collect our billed accounts receivable. We record our estimate of lifetime expected credit losses concurrently with the initial recognition of the underlying receivable. Accounts receivable, net of the allowance for expected credit losses, represents the amount we expect to collect. At each reporting date, we adjust the allowance for expected credit losses to reflect our current estimate.
The following table summarizes the total provision for expected credit losses and write-offs:
 Three Months Ended September 30,Nine Months Ended September 30,
2022202120222021
Provision for expected credit losses (1)
$4,348 $6,580 $13,101 $14,816 
Write-offs$3,877 $5,746 $9,917 $15,464 
(1)    Adjustments to the allowance for expected credit losses are recorded to selling, general & administrative ("SG&A") expenses on the Condensed Consolidated Statements of Comprehensive Income.
We estimate the current-period provision for expected credit losses on a specific identification basis. Our judgments regarding a specific client’s credit risk considers factors such as the counterparty’s creditworthiness, knowledge of the specific client’s circumstances and historical collection experience for similar clients. Other factors include, but are not limited to, current economic conditions and forward-looking estimates. Our actual experience may vary from our estimates. If the financial condition of our clients were to deteriorate, resulting in their inability or unwillingness to pay our fees, we may need to record additional provisions for expected credit losses in future periods. The risk of credit losses may be mitigated to the extent that we received a retainer from some of our clients prior to performing services. Our provision for expected credit losses includes recoveries, direct write-offs and charges to other accounts. Billed accounts receivables are written off when the potential for recovery is considered remote.
6. Goodwill and Intangible Assets
Goodwill
The table below summarizes the changes in the carrying amount of goodwill by reportable segment:
Corporate
Finance &
  Restructuring (1)
Forensic and Litigation Consulting (1)
Economic
Consulting (1)
Technology (1)
Strategic
Communications (2)
Total
Balance at December 31, 2021$501,046 $237,929 $268,858 $96,811 $128,147 $1,232,791 
Acquisitions (3)
11,332 — — — — 11,332 
Foreign currency translation
adjustment and other
(2,026)(5,870)(1,612)(61)(22,013)(31,582)
Balance at September 30, 2022$510,352 $232,059 $267,246 $96,750 $106,134 $1,212,541 
(1)    There were no accumulated impairment losses for the Corporate Finance & Restructuring ("Corporate Finance"), Forensic and Litigation Consulting ("FLC"), Economic Consulting or Technology segments as of September 30, 2022 and December 31, 2021.
(2)    Amounts for our Strategic Communications segment include gross carrying values of $300.3 million and $322.3 million as of September 30, 2022 and December 31, 2021, respectively, and accumulated impairment losses of $194.1 million as of September 30, 2022 and December 31, 2021.
(3)    During the nine months ended September 30, 2022, we acquired a business that was assigned to the Corporate Finance segment. We recorded $11.3 million in goodwill based on a purchase price allocation as a result of the acquisition. We have included the results of the acquired business’s operations in the Corporate Finance segment since its acquisition date.
11


Intangible Assets
Intangible assets were as follows:
 September 30, 2022December 31, 2021
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Amortizing intangible assets      
Customer relationships (1)
$79,347 $63,546 $15,801 $83,101 $63,124 $19,977 
Trademarks (1)
8,886 4,648 4,238 10,965 4,732 6,233 
Acquired software and other (1)
967 433 534 3,114 2,434 680 
89,200 68,627 20,573 97,180 70,290 26,890 
Non-amortizing intangible assets
Trademarks 5,100 — 5,100 5,100 — 5,100 
Total$94,300 $68,627 $25,673 $102,280 $70,290 $31,990 
(1)During the nine months ended September 30, 2022, we acquired a business, and its related intangible assets were assigned to the Corporate Finance segment.
Intangible assets with finite lives are amortized over their estimated useful lives. We recorded amortization expense of $2.3 million and $7.3 million for the three and nine months ended September 30, 2022, respectively, and $2.9 million and $8.5 million for the three and nine months ended September 30, 2021, respectively.
We estimate our future amortization expense for our intangible assets with finite lives to be as follows:
Year
As of
September 30, 2022 (1)
2022 (remaining)$2,277 
20235,844 
20243,692 
20253,047 
20261,988 
Thereafter3,725 
 $20,573 
(1)Actual amortization expense to be reported in future periods could differ from these estimates as a result of new intangible asset acquisitions, impairments, changes in useful lives, or other relevant factors or changes.
Intercompany Intellectual Property Licensing Agreement
During the three months ended September 30, 2022, a U.S. subsidiary of the Company (the “Licensor”) entered into an intellectual property license agreement with certain foreign subsidiaries of the Company in consideration of royalty payments that have been partially prepaid (the "License Agreement"). The prepaid royalties remitted to the Licensor are taxable in the U.S. for the year ended December 31, 2022 and represent intangible assets in the foreign subsidiaries that are eliminated in consolidation. The impact on the U.S. current income tax provision was mainly offset by a deferred foreign income tax benefit related to the future tax deductions arising from amortization of intangible assets in the foreign subsidiaries. The License Agreement provides sufficient future taxable income in the U.S. to fully utilize the Company’s existing foreign tax credits in the U.S., which were previously subject to a valuation allowance. The impact on the tax rate for the three and nine months ended September 30, 2022 was a combined $8.3 million tax benefit.
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7. Financial Instruments
The table below presents the carrying amounts and estimated fair values of our financial instruments by hierarchy level as of September 30, 2022 and December 31, 2021:
September 30, 2022
Hierarchy Level
(Fair Value)
Carrying
Amount
Level 1Level 2Level 3
Liabilities
Acquisition-related contingent consideration (1)(2)
$12,847 $— $— $12,847 
2023 Convertible Notes (3)
314,756 — 519,300 — 
Total$327,603 $— $519,300 $12,847 
December 31, 2021
Hierarchy Level
(Fair Value)
Carrying
Amount
Level 1Level 2Level 3
Liabilities   
Acquisition-related contingent consideration (1)
$15,110 $— $— $15,110 
2023 Convertible Notes (3)
297,158 — 466,619 — 
Total$312,268 $— $466,619 $15,110 
(1)The short-term portion is included in “Accounts payable, accrued expenses and other” and the long-term portion is included in “Other liabilities” on the Condensed Consolidated Balance Sheets.
(2)During the nine months ended September 30, 2022, we acquired a business that was assigned to our Corporate Finance segment and recorded an acquisition-related contingent consideration liability.
(3)The carrying value as of September 30, 2022 includes unamortized deferred debt issuance costs. The carrying value as of December 31, 2021 includes unamortized deferred debt issuance costs and debt discount.
The fair values of financial instruments not included in the tables above are estimated to be equal to their carrying values as of September 30, 2022 and December 31, 2021.
We estimate the fair value of our 2023 Convertible Notes based on their last actively traded prices. The fair value of our 2023 Convertible Notes is classified within Level 2 of the fair value hierarchy because it is traded in less active markets.
We estimate the fair value of acquisition-related contingent consideration using either a probability-weighted discounted cash flow model or a Monte Carlo pricing model. These fair value estimates represent Level 3 measurements as they are based on significant inputs not observed in the market and reflect our own assumptions. Significant increases (or decreases) in these unobservable inputs in isolation would result in significantly lower (or higher) fair values. We reassess the fair value of our acquisition-related contingent consideration at each reporting period based on additional information as it becomes available.
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The change in our liability for acquisition-related contingent consideration for our Level 3 financial instruments is as follows:
Contingent Consideration
Balance at December 31, 2021$15,110 
Additions5,370 
Accretion expense (1)
(979)
Payments(4,430)
Foreign currency translation adjustment (2)
(115)
Balance at March 31, 2022$14,956 
Accretion expense (1)
1,112 
Payments(2,240)
Foreign currency translation adjustment (2)
(465)
Balance at June 30, 2022$13,363 
Accretion expense (1)
730 
Payments(1,000)
Foreign currency translation adjustment and other (2)
(246)
Balance at September 30, 2022$12,847 
Contingent Consideration
Balance at December 31, 2020$20,118 
Accretion expense (1)
1,289 
Payments(1,000)
Foreign currency translation adjustment (2)
(612)
Balance at March 31, 2021$19,795 
Additions1,093 
Accretion expense (1)
676 
Payments(4,122)
Foreign currency translation adjustment (2)
264 
Remeasurement gain (3)
(3,095)
Balance at June 30, 2021$14,611 
Accretion expense (1)
116 
Foreign currency translation adjustment (2)
(159)
Balance at September 30, 2021$14,568 
(1)Accretion expense is included in SG&A expenses on the Condensed Consolidated Statements of Comprehensive Income.
(2)Foreign currency translation adjustments are included in "Other comprehensive loss, net of tax" on the Condensed Consolidated Statements of Comprehensive Income.
(3)Remeasurement gain or loss resulting from a change in the fair value of an acquisition's contingent consideration liability is recorded in SG&A expenses on the Condensed Consolidated Statements of Comprehensive Income.
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8. Debt
The table below presents the components of the Company’s debt: 
September 30, 2022December 31, 2021
2023 Convertible Notes
$316,222 $316,245 
Total debt316,222 316,245 
Less: deferred debt discount (1)
— (16,724)
Less: deferred debt issuance costs(1,466)(2,363)
Long-term debt, net (1)(2)
$314,756 $297,158 
Additional paid-in capital$— $35,304 
Discount attribution to equity— (1,175)
Equity component, net (1)
$— $34,129 
(1)Pursuant to the adoption of ASU 2020-06, we derecognized the conversion option of $34.1 million, net of tax, previously attributable to the equity component of the 2023 Convertible Notes. Similarly, the related debt discount is no longer amortized into income as interest expense over the life of the instrument; therefore, we recorded a $16.4 million increase to "Long-term debt, net" on the Condensed Consolidated Balance Sheet as of September 30, 2022.
(2)There were no current portions of long-term debt as of September 30, 2022 and December 31, 2021. The 2023 Convertible Notes due on August 15, 2023 are classified as long-term debt as of September 30, 2022 because we have the ability and intent to refinance them on a long-term basis under our $550.0 million Credit Facility, which matures on November 30, 2023.
2023 Convertible Notes
On August 20, 2018, we issued the 2023 Convertible Notes in an aggregate principal amount of $316.3 million. The 2023 Convertible Notes bear interest at a fixed rate of 2.0% per year, payable semiannually in arrears on February 15 and August 15 of each year. The 2023 Convertible Notes will mature on August 15, 2023, unless earlier converted or repurchased. As of December 31, 2021, upon conversion, the 2023 Convertible Notes could be settled, at our election, in cash, shares of our common stock or a combination of cash and shares of our common stock. Effective January 1, 2022, pursuant to the terms of the Indenture, the principal amount of the 2023 Convertible Notes being converted is required to be paid in cash and only the premium due upon conversion, if any, is permitted to be settled at our election in shares, cash or a combination of shares and cash. The 2023 Convertible Notes are senior unsecured obligations of the Company.
The 2023 Convertible Notes are convertible at maturity at a conversion rate of 9.8643 shares of our common stock per $1,000 principal amount of the 2023 Convertible Notes (equivalent to a conversion price of approximately $101.38 per share of common stock). Holders may convert their 2023 Convertible Notes at any time prior to the close of business on the business day immediately preceding May 15, 2023 only under the following circumstances: (1) during any calendar quarter commencing after the calendar quarter ending on September 30, 2018 (and only during such calendar quarter), if the last reported sale price of our common stock for at least 20 trading days (whether or not consecutive) during a period of 30 consecutive trading days ending on, and including, the last trading day of the immediately preceding calendar quarter is greater than or equal to 130% of the conversion price on each applicable trading day; (2) during the five business day period after any five consecutive trading day period (the “Measurement Period”) in which the trading price (as defined in the Indenture) per $1,000 principal amount of the 2023 Convertible Notes for each trading day of the Measurement Period was less than 98% of the product of the last reported sale price of our common stock and the conversion rate in effect on each such trading day; or (3) upon the occurrence of specified corporate events. On or after May 15, 2023, until the close of business on the business day immediately preceding the maturity date of August 15, 2023, holders may convert their 2023 Convertible Notes at any time, regardless of the foregoing circumstances.
The 2023 Convertible Notes were convertible in each of the quarters ended September 30, 2021 through September 30, 2022. The number of shares issued upon conversion of the 2023 Convertible Notes in each period was immaterial. The circumstances required to allow the holders to convert their 2023 Convertible Notes prior to maturity were met as of September 30, 2022; therefore, holders may convert their notes at any time beginning on October 1, 2022 and ending on December 31, 2022. Based on the Company's stock price on September 30, 2022, the if-converted value of the 2023 Convertible Notes exceeded the principal amount by $200.7 million.
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We may not redeem the 2023 Convertible Notes prior to the maturity date.
If we undergo a fundamental change (as defined in the Indenture), subject to certain conditions, holders may require us to repurchase for cash all or part of their 2023 Convertible Notes in principal amounts of $1,000 or a multiple thereof. The fundamental change repurchase price will be equal to 100% of the principal amount of the 2023 Convertible Notes to be repurchased, plus accrued and unpaid interest, if any, to, but excluding, the fundamental change repurchase date. In addition, in certain circumstances, we may be required to increase the conversion rate for any 2023 Convertible Notes converted in connection with a make-whole fundamental change (as defined in the Indenture).
Prior to the adoption of ASU 2020-06, the Company separated the 2023 Convertible Notes into liability and equity components. The debt discount and debt issuance costs attributable to the liability component were amortized to interest expense over the term of the 2023 Convertible Notes using the effective interest rate method. The Company adopted ASU 2020-06 on January 1, 2022 using the modified retrospective method, which resulted in accounting for the 2023 Convertible Notes as a single liability and the debt discount is no longer amortized into income as interest expense. See Note 2, “New Accounting Standards” for additional information about the adoption of ASU 2020-06.
Contractual interest expense for the 2023 Convertible Notes was $1.6 million and $4.7 million for the three and nine months ended September 30, 2022 and 2021, respectively. Amortization of the debt discount on the 2023 Convertible Notes prior to the adoption of ASU 2020-06 was $2.4 million and $7.1 million for the three and nine months ended September 30 2021, respectively.
Credit Facility
On June 26, 2015, we entered into a credit agreement, which provides for a $550.0 million senior secured bank revolving credit facility (“Original Credit Facility”) maturing on June 26, 2020. In November 2018, we amended and restated the credit agreement to the Original Credit Facility (the "Amended and Restated Credit Facility"), to, among other things, extend the maturity to November 30, 2023 and incurred an additional $1.7 million of debt issuance costs. On February 4, 2022, we entered into the first amendment to the Amended and Restated Credit Facility (the "First Amendment to the Amended and Restated Credit Facility," and together with the Amended and Restated Credit Facility, the “Credit Facility”). At the Company’s option, borrowings under the Credit Facility in United States dollars ("USD"), euro ("EUR") and British pound ("GBP") will bear interest at either the one- or three-month London Interbank Offered Rate ("LIBOR") or, in the case of USD borrowings, an alternative base rate, in each case plus the applicable margin. Due to the cessation by the ICE Benchmark Administration Limited of the publication on a representative basis of EUR LIBOR and GBP LIBOR as of December 31, 2021, EUR LIBOR is no longer available under our Credit Agreement and one-, three- and six-month GBP LIBOR is available under a "synthetic" methodology until December 31, 2022. The Credit Agreement permits the Company and Bank of America, N.A., as administrative agent thereunder, to agree to a new benchmark rate to replace EUR LIBOR and GBP LIBOR, subject to the negative consent of the Required Lenders (as defined therein). Prior to the incurrence of any borrowings under the Credit Facility in EUR or, after December 31, 2022, GBP, we will need to agree to a replacement benchmark rate for each applicable currency in accordance with the terms of the Credit Agreement. The alternative base rate means a fluctuating rate per annum equal to the highest of (1) the rate of interest in effect for such day as the prime rate announced by Bank of America, (2) the federal funds rate plus the sum of 50 basis points, and (3) the one-month USD LIBOR plus 100 basis points. Borrowings under the Credit Facility in Canadian dollars bear interest at an annual rate equal to the Canadian Dealer Offered Rate plus an applicable margin. Borrowings under the Credit Facility in Australian dollars bear interest at an annual rate equal to the Bank Bill Swap Reference Bid Rate plus an applicable margin. The applicable margin will fluctuate between 1.25% per annum and 2.00% per annum, in the case of LIBOR borrowings, or between 0.25% per annum and 1.00% per annum, in the case of base rate borrowings, in each case, based upon the Company’s Consolidated Total Net Leverage Ratio (as defined in the Credit Facility) at such time. The lenders under the Credit Facility have a security interest in substantially all of the assets of the Company and substantially all of its domestic subsidiaries.
Under the Credit Facility, we are required to pay a commitment fee rate that fluctuates between 0.20% and 0.35% per annum and a letter of credit fee rate that fluctuates between 1.25% and 2.00% per annum, in each case, based upon the Company’s Consolidated Total Net Leverage Ratio.
There were no borrowings outstanding under the Credit Facility as of September 30, 2022 and December 31, 2021. As of September 30, 2022, $0.4 million of the borrowing limit under the Credit Facility was utilized (and, therefore, unavailable) for letters of credit.
There were $0.5 million and $0.9 million of unamortized debt issuance costs related to the Credit Facility as of September 30, 2022 and December 31, 2021, respectively. These amounts are included in “Other assets” on our Condensed Consolidated Balance Sheets.
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Long-Term Debt Maturities
Our maturity analysis for our remaining future undiscounted cash flows for the principal portion of our long-term debt assumes that payments will be made based on the current payment schedule and excludes any additional revolving line of credit borrowings or repayments subsequent to September 30, 2022 and prior to the November 30, 2023 maturity date of our Credit Facility. We estimate future undiscounted cash flows for the principal portion of our long-term debt to be $316.2 million in 2023.
9. Leases
We lease office space and equipment under non-cancelable operating leases. We recognize operating lease expense on a straight-line basis over the lease term, which may include renewal or termination options that are reasonably certain of exercise. Leases with an initial term of 12 months or less are not recorded on the Condensed Consolidated Balance Sheets and are expensed on a straight-line basis. Most leases include one or more options to renew, with renewal terms that can extend the lease term up to seven years. The exercise of lease renewal options is at our sole discretion. Certain of our lease agreements include rental payments that are adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.
The table below summarizes the carrying amount of our operating lease assets and liabilities:
LeasesClassificationSeptember 30, 2022December 31, 2021
Assets
  Operating lease assetsOperating lease assets$195,339 $215,995 
Total lease assets$195,339 $215,995 
Liabilities
Current
  Operating lease liabilities
Accounts payable, accrued expenses and other$33,340 $30,828 
Noncurrent
  Operating lease liabilitiesNoncurrent operating lease liabilities213,449 236,026 
Total lease liabilities$246,789 $266,854 
The table below summarizes total lease costs:
Three Months Ended September 30,Nine Months Ended September 30,
Lease Cost2022202120222021
Operating lease costs$11,874 $14,476 $36,328 $40,965 
Short-term lease costs441 398 1,573 1,361 
Variable lease costs3,456 3,368 9,434 9,579 
Sublease income(224)(1,048)(610)(3,143)
Total lease cost, net$15,547 $17,194 $46,725 $48,762 
We sublease certain of our leased office spaces to third parties. Our sublease portfolio consists of leases of office space that we have vacated before the lease term expiration. Operating lease expense on vacated office space is reduced by sublease rental income, which is recorded to SG&A expenses on the Condensed Consolidated Statements of Comprehensive Income. Our sublease arrangements do not contain renewal options or restrictive covenants. We estimate future sublease rental income to be $0.3 million in the remainder of 2022, $0.9 million in 2023, $0.8 million in 2024 and $0.3 million in 2025. There is no future sublease rental income estimated for the years beyond 2025.
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The maturity analysis below summarizes the remaining future undiscounted cash flows for our operating leases and includes a reconciliation to operating lease liabilities reported on the Condensed Consolidated Balance Sheets:
As of
September 30, 2022
2022 (remaining)
$11,394 
202349,710 
202444,015 
202536,540 
202631,820 
Thereafter140,794 
   Total future lease payments314,273 
   Less: imputed interest(67,484)
Total$246,789 
The table below includes cash paid for our operating lease liabilities, other non-cash information, our weighted average remaining lease term and weighted average discount rate:
Nine Months Ended September 30,
 20222021
Cash paid for amounts included in the measurement of operating lease liabilities$38,297$45,754
Operating lease assets obtained in exchange for lease liabilities$16,644$98,472
Weighted average remaining lease term (years)
   Operating leases8.58.7
Weighted average discount rate
   Operating leases
5.5 %5.4 %
10. Commitments and Contingencies
We are subject to legal actions arising in the ordinary course of business. In management’s opinion, we believe we have adequate legal defenses and/or insurance coverage with respect to the eventuality of such actions. We are not aware of any asserted or unasserted legal proceedings or claims that we believe would have a material adverse effect on our financial condition or results of our operations.
11. Share-Based Compensation
During the nine months ended September 30, 2022, we granted 182,564 restricted share awards, 49,949 restricted stock units and 102,543 performance stock units under the FTI Consulting, Inc. 2017 Omnibus Incentive Compensation Plan, our employee equity compensation plan. Our performance stock units are presented at the maximum potential payout percentage of 150% of target shares granted. These awards are recorded as equity on the Condensed Consolidated Balance Sheets. During the nine months ended September 30, 2022, 17,025 shares of restricted stock and no stock options were forfeited prior to the completion of the applicable vesting requirements. Additionally, 12,198 performance stock units were forfeited during the nine months ended September 30, 2022 as the award targets were not achieved.
Total share-based compensation expense, net of forfeitures is detailed in the following table:
 Three Months Ended September 30,Nine Months Ended September 30,
Income Statement Classification2022202120222021
Direct cost of revenues$3,510 $2,441 $11,456 $10,172 
Selling, general and administrative expenses2,227 2,830 9,450 9,762 
Total share-based compensation expense$5,737 $5,271 $20,906 $19,934 
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12. Stockholders’ Equity
On June 2, 2016, our Board of Directors authorized a stock repurchase program of up to $100.0 million (the “Repurchase Program”). On each of May 18, 2017, December 1, 2017, February 21, 2019 and February 20, 2020, our Board of Directors authorized an additional $100.0 million. On each of July 28, 2020 and December 3, 2020, our Board of Directors authorized an additional $200.0 million, increasing the Repurchase Program to an aggregate authorization of $900.0 million. No time limit has been established for the completion of the Repurchase Program, and the Repurchase Program may be suspended, discontinued or replaced by the Board of Directors at any time without prior notice. As of September 30, 2022, we had $143.5 million available under the Repurchase Program to repurchase additional shares.
The following table details our stock repurchases under the Repurchase Program:
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Shares of common stock repurchased and retired128 — 149 422 
Average price paid per share$159.87 $— $157.48 $109.37 
Total cost$20,430 $— $23,528 $46,124 
As we repurchase our common shares, we reduce stated capital on our Condensed Consolidated Balance Sheets for the $0.01 of par value of the shares repurchased, with the excess purchase price over par value recorded as a reduction to additional paid-in capital. If additional paid-in capital is reduced to zero, we record the remainder of the excess purchase price over par value as a reduction of retained earnings.
Common stock outstanding was 34.4 million shares and 34.3 million shares as of September 30, 2022 and December 31, 2021, respectively. Common stock outstanding includes unvested restricted stock awards, which are considered issued and outstanding under the terms of the restricted stock award agreements.
13. Segment Reporting
We manage our business in five reportable segments: Corporate Finance, FLC, Economic Consulting, Technology and Strategic Communications.
Our Corporate Finance segment focuses on the strategic, operational, financial, transactional and capital needs of our clients around the world. Our clients include companies, boards of directors, investors, private equity sponsors, lenders, and other financing sources and creditor groups, as well as other parties-in-interest. We deliver a wide range of services centered around three core offerings: business transformation & strategy, transactions and turnaround & restructuring.
Our FLC segment provides law firms, companies, government entities, private equity firms and other interested parties with a multidisciplinary and independent range of services in risk and investigations and disputes, including cybersecurity, and a focus on highly regulated industries such as our construction & environmental solutions and health solutions services. These services are supported by our data & analytics solutions, which help our clients analyze large, disparate sets of data related to their business operations and support our clients during regulatory inquiries and commercial disputes. We deliver a wide range of services centered around five core offerings: construction & environmental solutions, data & analytics, disputes, health solutions and risk and investigations.
Our Economic Consulting segment, including subsidiary Compass Lexecon LLC, provides law firms, companies, government entities and other interested parties with analyses of complex economic issues for use in international arbitration, legal and regulatory proceedings, and strategic decision making and public policy debates around the world. We deliver a wide range of services centered around three core offerings: antitrust & competition economics, financial economics and international arbitration.    
Our Technology segment provides companies, law firms, private equity firms and government entities with a comprehensive global portfolio of consulting and services to address legal and regulatory risk, including e-discovery, information governance, privacy and security and corporate legal operations solutions. We deliver a full spectrum of services centered around three core offerings: corporate legal operations, e-discovery services and expertise, and information governance, privacy & security services.
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Our Strategic Communications segment develops and executes communications strategies to help management teams, boards of directors, law firms, governments and regulators manage change and mitigate risk surrounding transformational and disruptive events, including transactions, investigations, disputes, crises, regulation and legislation. We deliver a wide range of services centered around three core offerings: corporate reputation, financial communications and public affairs.
We evaluate the performance of our operating segments based on Adjusted Segment EBITDA, a GAAP financial measure. We define Adjusted Segment EBITDA as a segment’s share of consolidated operating income before depreciation, amortization of intangible assets, remeasurement of acquisition-related contingent consideration, special charges and goodwill impairment charges. We define Total Adjusted Segment EBITDA, which is a non-GAAP financial measure, as the total of Adjusted Segment EBITDA for all segments, which excludes unallocated corporate expenses. We use Adjusted Segment EBITDA as a basis to internally evaluate the financial performance of our segments because we believe it reflects current core operating performance and provides an indicator of the segment’s ability to generate cash.
The table below presents revenues and Adjusted Segment EBITDA for our reportable segments:
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Revenues    
Corporate Finance$265,370 $250,321 $795,766 $707,495 
FLC159,948 145,264 478,092 446,831 
Economic Consulting193,183 172,543 523,201 525,122 
Technology84,915 64,657 243,181 222,762 
Strategic Communications72,449 69,443 214,237 197,781 
Total revenues$775,865 $702,228 $2,254,477 $2,099,991 
Adjusted Segment EBITDA    
Corporate Finance$51,532 $55,635 $160,021 $133,248 
FLC18,162 16,620 52,126 64,054 
Economic Consulting32,913 29,917 75,754 87,195 
Technology13,213 7,835 34,940 47,951 
Strategic Communications12,947 15,489 40,133 39,388 
Total Adjusted Segment EBITDA$128,767 $125,496 $362,974 $371,836 
The table below reconciles net income to Total Adjusted Segment EBITDA:
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Net income$77,267 $69,480 $188,016 $196,758 
Add back:  
Income tax provision15,836 19,155 46,156 54,394 
Interest income and other(7,771)(5,175)(10,418)(5,297)
Interest expense2,378 5,073 7,468 15,164 
Unallocated corporate expenses30,470 25,974 99,524 82,041 
Segment depreciation expense8,273 8,130 24,909 23,394 
Amortization of intangible assets2,314 2,859 7,319 8,512 
Remeasurement of acquisition-related contingent consideration— — — (3,130)
Total Adjusted Segment EBITDA$128,767 $125,496 $362,974 $371,836 
    
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Item 2.Management's Discussion and Analysis of Financial Condition and Results of Operations
The following is a discussion and analysis of our consolidated financial condition, results of operations, and liquidity and capital resources for the three and nine months ended September 30, 2022 and 2021, 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, 2021 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.
BUSINESS OVERVIEW
FTI Consulting, Inc. ("FTI Consulting," "we," "us" or the "Company") is a global business advisory firm dedicated to helping organizations manage change, mitigate risk and resolve disputes: financial, legal, operational, political & regulatory, reputational and transactional. Individually, each of our segments and practices is staffed with experts recognized for the depth of their knowledge and a track record of making an impact. Collectively, FTI Consulting offers a comprehensive suite of services designed to assist clients across the business cycle, from proactive risk management to rapid response to unexpected events and dynamic environments.
We report financial results for the following five reportable segments:
Our Corporate Finance & Restructuring (“Corporate Finance”) segment focuses on the strategic, operational, financial, transactional and capital needs of our clients around the world. Our clients include companies, boards of directors, investors, private equity sponsors, lenders, and other financing sources and creditor groups, as well as other parties-in-interest. We deliver a wide range of services centered around three core offerings: business transformation & strategy, transactions and turnaround & restructuring.
Our Forensic and Litigation Consulting (“FLC”) segment provides law firms, companies, government entities, private equity firms and other interested parties with a multidisciplinary and independent range of services in risk and investigations and disputes, including cybersecurity, and a focus on highly regulated industries such as our construction & environmental solutions and health solutions services. These services are supported by our data & analytics solutions, which help our clients analyze large, disparate sets of data related to their business operations and support our clients during regulatory inquiries and commercial disputes. We deliver a wide range of services centered around five core offerings: construction & environmental solutions, data & analytics, disputes, health solutions and risk and investigations.
Our Economic Consulting segment, including subsidiary Compass Lexecon LLC, provides law firms, companies, government entities and other interested parties with analyses of complex economic issues for use in international arbitration, legal and regulatory proceedings, and strategic decision making and public policy debates around the world. We deliver a wide range of services centered around three core offerings: antitrust & competition economics, financial economics and international arbitration.
Our Technology segment provides companies, law firms, private equity firms and government entities with a comprehensive global portfolio of consulting and services to address legal and regulatory risk, including e-discovery, information governance, privacy and security and corporate legal operations solutions. We deliver a full spectrum of services centered around three core offerings: corporate legal operations, e-discovery services and expertise, and information governance, privacy & security services.
Our Strategic Communications segment develops and executes communications strategies to help management teams, boards of directors, law firms, governments and regulators manage change and mitigate risk surrounding transformational and disruptive events, including transactions, investigations, disputes, crises, regulation and legislation. We deliver a wide range of services centered around three core offerings: corporate reputation, financial communications and public affairs.
We derive substantially all of our revenues from providing professional services to both U.S. and global clients. Most of our services are rendered under time and expense contract arrangements, which require the client to pay us based on the number of hours worked at contractually agreed-upon rates. Under this arrangement, we typically bill our clients for reimbursable expenses, including those relating to travel, out-of-pocket expenses, outside consultants and other outside service costs. Certain contracts are rendered under fixed-fee arrangements, which require the client to pay a fixed fee in exchange for a predetermined set of professional services. Fixed-fee arrangements may require certain clients to pay us a recurring retainer. Our contract
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arrangements may also contain success fees or performance-based arrangements in which our fees are based on the attainment of contractually defined objectives with our client. This type of success fee may supplement a time and expense or fixed-fee arrangement. Success fee revenues may cause variations in our revenues and operating results due to the timing of when achieving the performance-based criteria becomes probable. Seasonal factors, such as the timing of our employees’ and clients’ vacations and holidays, may impact the timing of our revenues across our segments.
In our Technology segment, certain clients are billed based on the amount of data storage used or the volume of information processed. Unit-based revenues are defined as revenues billed on a per item, per page or another unit-based method and include revenues from data processing and hosting. Unit-based revenues include revenues associated with the software products that are made available to customers via a web browser (“on-demand”). On-demand revenues are charged on a unit or monthly basis and include, but are not limited to, processing and review related functions.
Our financial results are primarily driven by:
the number, size and type of engagements we secure;
the rate per hour or fixed charges we charge our clients for services;
the utilization rates of the revenue-generating professionals we employ;
the timing of revenue recognition related to revenues subject to certain performance-based contingencies;
the number of revenue-generating professionals;
the types of assignments we are working on at different times;
the length of the billing and collection cycles; and
the geographic locations of our clients or locations in which services are rendered.
We define acquisition growth as revenues of acquired companies in the first 12 months following the effective date of an acquisition. When significant, we identify the impact of acquisition-related revenue growth. Our definition of organic growth is the change in revenues, excluding the impact of all such acquisitions.
When significant, we identify the estimated impact of foreign currency (“FX”) driven by our businesses with functional currencies other than the U.S. dollar (“USD”). The estimated impact of FX on the period-to-period performance results is calculated as the difference between the prior period results, multiplied by the average FX exchange rates to USD in the current period and the prior period results, multiplied by the average FX exchange rates to USD in the prior period.
Non-GAAP Financial Measures
In the accompanying analysis of financial information, we sometimes use information derived from consolidated and segment financial information that may not be presented in our financial statements or prepared in accordance with generally accepted accounting principles in the U.S. ("GAAP"). Certain of these financial measures are considered not in conformity with GAAP ("non-GAAP financial measures") under the SEC rules. Specifically, we have referred to the following non-GAAP financial measures:
Total Segment Operating Income
Adjusted EBITDA
Total Adjusted Segment EBITDA
Adjusted EBITDA Margin
Adjusted Net Income
Adjusted Earnings per Diluted Share
Free Cash Flow
We have included the definitions of Segment Operating Income and Adjusted Segment EBITDA, which are GAAP financial measures, below in order to more fully define the components of certain non-GAAP financial measures in the accompanying analysis of financial information. As described in Note 13, “Segment Reporting” in Part I, Item 1, of this
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Quarterly Report on Form 10-Q, we evaluate the performance of our operating segments based on Adjusted Segment EBITDA, and Segment Operating Income is a component of the definition of Adjusted Segment EBITDA.
We define Segment Operating Income as a segment’s share of consolidated operating income. We define Total Segment Operating Income, which is a non-GAAP financial measure, as the total of Segment Operating Income for all segments, which excludes unallocated corporate expenses. We use Segment Operating Income for the purpose of calculating Adjusted Segment EBITDA. We define Adjusted Segment EBITDA as a segment’s share of consolidated operating income before depreciation, amortization of intangible assets, remeasurement of acquisition-related contingent consideration, special charges and goodwill impairment charges. We use Adjusted Segment EBITDA as a basis to internally evaluate the financial performance of our segments because we believe it reflects current core operating performance and provides an indicator of the segment’s ability to generate cash.
We define Total Adjusted Segment EBITDA, which is a non-GAAP financial measure, as the total of Adjusted Segment EBITDA for all segments, which excludes unallocated corporate expenses. We define Adjusted EBITDA, which is a non-GAAP financial measure, as consolidated net income before income tax provision, other non-operating income (expense), depreciation, amortization of intangible assets, remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges, gain or loss on sale of a business and losses on early extinguishment of debt. We believe that these non-GAAP financial measures, when considered together with our GAAP financial results and GAAP financial measures, provide management and investors with a more complete understanding of our operating results, including underlying trends. In addition, EBITDA is a common alternative measure of operating performance used by many of our competitors. It is used by investors, financial analysts, rating agencies and others to value and compare the financial performance of companies in our industry. Therefore, we also believe that these non-GAAP financial measures, considered along with corresponding GAAP financial measures, provide management and investors with additional information for comparison of our operating results with the operating results of other companies. We define Adjusted EBITDA Margin, which is a non-GAAP financial measure, as Adjusted EBITDA as a percentage of total revenues.
We define Adjusted Net Income and Adjusted Earnings per Diluted Share (“Adjusted EPS”), which are non-GAAP financial measures, as net income and earnings per diluted share ("EPS"), respectively, excluding the impact of remeasurement of acquisition-related contingent consideration, special charges, goodwill impairment charges, losses on early extinguishment of debt, non-cash interest expense on convertible notes and the gain or loss on sale of a business. We use Adjusted Net Income for the purpose of calculating Adjusted EPS. Management uses Adjusted EPS to assess total Company operating performance on a consistent basis. We believe that these non-GAAP financial measures, when considered together with our GAAP financial results and GAAP financial measures, provide management and investors with an additional understanding of our business operating results, including underlying trends.
We define Free Cash Flow, which is a non-GAAP financial measure, as net cash provided by (used in) operating activities less cash payments for purchases of property and equipment. We believe this non-GAAP financial measure, when considered together with our GAAP financial results, provides management and investors with an additional understanding of the Company’s ability to generate cash for ongoing business operations and other capital deployment.
Non-GAAP financial measures are not defined in the same manner by all companies and may not be comparable with other similarly titled measures of other companies. Non-GAAP financial measures should be considered in addition to, but not as a substitute for or superior to, the information contained in our Condensed Consolidated Statements of Comprehensive Income and Condensed Consolidated Statements of Cash Flows. Reconciliations of these non-GAAP financial measures to the most directly comparable GAAP financial measures are included elsewhere in this report.
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EXECUTIVE HIGHLIGHTS
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
 (dollar amounts in thousands,
except per share data)
(dollar amounts in thousands,
 except per share data)
Revenues$775,865 $702,228 $2,254,477 $2,099,991 
Net income$77,267 $69,480 $188,016 $196,758 
Adjusted EBITDA$98,974 $100,260 $265,587 $292,035 
Earnings per common share — diluted$2.15 $1.96 $5.25 $5.58 
Adjusted earnings per common share — diluted$2.15 $2.02 $5.25 $5.64 
Net cash provided by (used in) operating activities$128,292 $196,946 $(40,439)$155,920 
Total number of employees7,518 6,690 7,518 6,690 
Third Quarter 2022 Executive Highlights
Revenues
Revenues for the three months ended September 30, 2022 increased $73.6 million, or 10.5%, to $775.9 million, as compared to the three months ended September 30, 2021, which included a 4.3% estimated negative impact from FX. Excluding the estimated impact from FX, revenues increased $103.7 million, or 14.8%, due to higher realization, which includes the recognition of revenues previously deferred, and higher demand across all our business segments.

Net income
Net income for the three months ended September 30, 2022 increased $7.8 million, or 11.2%, to $77.3 million, as compared to the three months ended September 30, 2021. The increase in net income was primarily due to higher revenues, a lower effective tax rate, an increase in FX remeasurement gains and lower interest expense, which was partially offset by an increase in compensation, including the impact of a 12.4% increase in total headcount, and higher selling, general and administrative ("SG&A") expenses compared to the same quarter in the prior year.
Adjusted EBITDA
Adjusted EBITDA for the three months ended September 30, 2022 decreased $1.3 million, or 1.3%, to $99.0 million, as compared to the three months ended September 30, 2021. Adjusted EBITDA Margin of 12.8% for the three months ended September 30, 2022 compared to 14.3% for the three months ended September 30, 2021. The decrease in Adjusted EBITDA was primarily due to an increase in compensation expenses, including the impact of a 12.4% increase in total headcount, and higher SG&A expenses, which was partially offset by an increase in revenues compared to the same quarter in the prior year.
EPS and Adjusted EPS
EPS for the three months ended September 30, 2022 increased $0.19 to $2.15 compared to $1.96 for the three months ended September 30, 2021. The increase in EPS was primarily due to higher net income as described above.
Adjusted EPS increased $0.13 to $2.15 for the three months ended September 30, 2022 compared to $2.02 for the three months ended September 30, 2021. Adjusted EPS for the three months ended September 30, 2021 excluded $2.4 million of non-cash interest expense related to the 2.0% convertible senior notes due 2023 (the "2023 Convertible Notes"), which increased Adjusted EPS by $0.06.
The Company adopted Accounting Standards Update ("ASU") 2020-06 ("ASU 2020-06") and no longer recognizes non-cash interest expense on the 2023 Convertible Notes, effective January 1, 2022. As a result, there was no adjustment between EPS and Adjusted EPS for non-cash interest expense on the 2023 Convertible Notes for the three months ended September 30, 2022. See Note 2, “New Accounting Standards” for additional information about the adoption of ASU 2020-06.
Liquidity and Capital Allocation
Net cash provided by operating activities for the three months ended September 30, 2022 decreased $68.7 million to $128.3 million compared with $196.9 million for the three months ended September 30, 2021. The decrease in net cash provided by operating activities was largely due to an increase in compensation, primarily related to headcount growth, as well as delays in billings and a decrease in cash collections compared to the same quarter in the prior year. Days sales outstanding
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(“DSO”) was 106 days at September 30, 2022 and 100 days at September 30, 2021. Our cash balances were unfavorably impacted by FX translation.
Free Cash Flow was an inflow of $115.0 million and $172.2 million for the three months ended September 30, 2022 and 2021, respectively. The decrease for the three months ended September 30, 2022 was primarily due to lower net cash provided by operating activities, as described above, partially offset by a decrease in net cash used for purchases of property and equipment.
Coronavirus Disease 2019 ("COVID-19")
COVID-19 did not materially adversely impact the Company as a whole for the three months ended September 30, 2022. Nevertheless, COVID-19’s impact on our business and the health and welfare of our employees and clients varied across our segments, practices and regions and continues to be difficult to predict and quantify, especially due to uncertainty arising from the continuing evolution of COVID-19 variants, the efficacy of vaccinations against new variants, regional variances in the availability of vaccines and the roll-out of vaccination programs, regional differences in vaccine hesitancy, requirements that our clients may impose relating to the vaccination status of our employees and contractors who serve such clients, and possible future vaccine mandates that may be imposed by governments that could apply to us, our employees and clients. We expect that adverse impacts from COVID-19 could continue to arise. Adverse impacts from COVID-19 could include, but are not limited to, delays associated with entering into or performing client engagements, postponements of litigation and investigations assignments due to court suspensions or closures or other delays, terminations of engagements, failure to attract new or retain existing clients, delays of in-person back-to-work efforts for our employees or clients, increased employee turnover or a reduction in the pool of qualified employee candidates available to staff engagements or hire, and adverse health outcomes for our employee population.
Headcount
Our total headcount increased 10.9% from 6,780 as of December 31, 2021 to 7,518 as of September 30, 2022. The following table includes the net billable headcount additions for the nine months ended September 30, 2022:
Billable HeadcountCorporate
Finance
FLCEconomic ConsultingTechnologyStrategic
Communications
Total
December 31, 20211,702 1,496 921 468 814 5,401 
Additions, net55 17 29 28 42 171 
March 31, 20221,757 1,513 950 496 856 5,572 
Additions (reductions), net12 (4)(15)11 21 25 
June 30, 20221,769 1,509 935 507 877 5,597 
Additions, net131 105 63 41 74 414 
September 30, 20221,900 1,614 998 548 951 6,011 
Percentage change in headcount from
December 31, 2021
11.6 %7.9 %8.4 %17.1 %16.8 %11.3 %

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CONSOLIDATED RESULTS OF OPERATIONS
Segment and Consolidated Operating Results: 
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
 (in thousands, except per share data)(in thousands, except per share data)
Revenues    
Corporate Finance$265,370 $250,321 $795,766 $707,495 
FLC159,948 145,264 478,092 446,831 
Economic Consulting193,183 172,543 523,201 525,122 
Technology84,915 64,657 243,181 222,762 
Strategic Communications72,449 69,443 214,237 197,781 
Total revenues$775,865 $702,228 $2,254,477 $2,099,991 
Segment operating income    
Corporate Finance$47,948 $52,316 $148,936 $126,718 
FLC16,570 15,101 47,126 59,599 
Economic Consulting31,674 28,455 72,056 82,891 
Technology9,833 4,416 25,005 38,315 
Strategic Communications12,155 14,219 37,623 35,537 
Total segment operating income118,180 114,507 330,746 343,060 
Unallocated corporate expenses(30,470)(25,974)(99,524)(82,041)
Operating income87,710 88,533 231,222 261,019 
Other income (expense)   
Interest income and other7,771 5,175 10,418 5,297 
Interest expense(2,378)(5,073)(7,468)(15,164)
 5,393 102 2,950 (9,867)
Income before income tax provision93,103 88,635 234,172 251,152 
Income tax provision15,836 19,155 46,156 54,394 
Net income$77,267 $69,480 $188,016 $196,758 
Earnings per common share — basic$2.29 $2.07 $5.57 $5.88 
Earnings per common share — diluted$2.15 $1.96 $5.25 $5.58 
Reconciliation of Net Income to Adjusted EBITDA: 
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
 (in thousands)(in thousands)
Net income$77,267 $69,480 $188,016 $196,758 
Add back:
Income tax provision15,836 19,155 46,156 54,394 
Interest income and other(7,771)(5,175)(10,418)(5,297)
Interest expense2,378 5,073 7,468 15,164 
Depreciation and amortization8,949 8,867 27,045 25,631 
Amortization of intangible assets2,315 2,860 7,320 8,515 
Remeasurement of acquisition-related contingent consideration— — — (3,130)
Adjusted EBITDA$98,974 $100,260 $265,587 $292,035 
 
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Reconciliation of Net Income and EPS to Adjusted Net Income and Adjusted EPS: 
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
 (in thousands, except per share data)(in thousands, except per share data)
Net income$77,267 $69,480 $188,016 $196,758 
Add back:
Remeasurement of acquisition-related contingent consideration— — — (3,130)
Non-cash interest expense on convertible notes
— 2,412 — 7,141 
Tax impact of non-cash interest expense on
    convertible notes
— (627)— (1,857)
Adjusted Net Income$77,267 $71,265 $188,016 $198,912 
Earnings per common share — diluted$2.15 $1.96 $5.25 $5.58 
Add back:    
Remeasurement of acquisition-related contingent consideration— — — (0.09)
Non-cash interest expense on convertible notes
— 0.08 — 0.20 
Tax impact of non-cash interest expense on
    convertible notes
— (0.02)— (0.05)
Adjusted earnings per common share — diluted$2.15 $2.02 $5.25 $5.64 
Weighted average number of common shares
      outstanding — diluted
35,918 35,362 35,825 35,265 
Reconciliation of Net Cash Provided by (Used in) Operating Activities to Free Cash Flow:
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
 (in thousands)(in thousands)
Net cash provided by (used in) operating activities$128,292 $196,946 $(40,439)$155,920 
Purchases of property and equipment(13,316)(24,745)(38,951)(52,470)
Free Cash Flow$114,976 $172,201 $(79,390)$103,450 
Three Months Ended September 30, 2022 Compared with Three Months Ended September 30, 2021
Revenues and operating income
See “Segment Results” for an expanded discussion of revenues, gross profit and SG&A expenses.
Unallocated corporate expenses
Unallocated corporate expenses for the three months ended September 30, 2022 increased $4.5 million, or 17.3%, to $30.5 million compared with $26.0 million for the three months ended September 30, 2021. The increase was primarily due to higher consulting expenses for corporate initiatives, such as system implementations, partially offset by a decrease in legal expenses.
Interest income and other
Interest income and other, which includes FX gains and losses, increased $2.6 million to $7.8 million for the three months ended September 30, 2022 compared with $5.2 million for the three months ended September 30, 2021. The increase was primarily due to a $7.1 million net FX gain for the three months ended September 30, 2022 compared to a $4.1 million net FX gain for the three months ended September 30, 2021.
FX gains and losses, both realized and unrealized, relate to the remeasurement or settlement of monetary assets and liabilities that are denominated in a currency other than an entity’s functional currency. These monetary assets and liabilities include cash, as well as third-party and intercompany receivables and payables.
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Interest expense
Interest expense for the three months ended September 30, 2022 decreased $2.7 million to $2.4 million compared to $5.1 million for the three months ended September 30, 2021. The decrease was primarily due to the adoption of ASU 2020-06 as described above.
Income tax provision
Our income tax provision decreased $3.3 million, or 17.3%, to $15.8 million for the three months ended September 30, 2022 from $19.2 million for the three months ended September 30, 2021. Our effective tax rate of 17.0% for the three months ended September 30, 2022 compared with 21.6% for the three months ended September 30, 2021. The tax rate for the three months ended September 30, 2022 was favorably impacted by a combined $8.3 million tax benefit from the release of the U.S. foreign tax credit valuation allowance, utilization of current year foreign tax credits, and a deferred tax benefit arising from an intellectual property license agreement between a U.S. subsidiary of the Company and certain foreign subsidiaries of the Company. The tax rate for the three months ended September 30, 2021 was favorably impacted by a one-time discrete tax adjustment related to the release of the valuation allowance on our deferred tax assets in Australia because of sustained profitability.
Nine Months Ended September 30, 2022 Compared with Nine Months Ended September 30, 2021
Revenues and operating income
See “Segment Results” for an expanded discussion of revenues, gross profit and SG&A expenses.
Unallocated corporate expenses
Unallocated corporate expenses for the nine months ended September 30, 2022 increased $17.5 million, or 21.3%, to $99.5 million compared with $82.0 million for the nine months ended September 30, 2021. The increase was primarily due to higher consulting expenses for corporate initiatives, such as system implementations, as well as an increase in travel and entertainment and legal expenses.
Interest income and other
Interest income and other, which includes FX gains and losses, increased $5.1 million to $10.4 million for the nine months ended September 30, 2022 compared with $5.3 million for the nine months ended September 30, 2021. The increase was primarily due to a $7.9 million net FX gain for the nine months ended September 30, 2022 compared to a $3.1 million net FX gain for the nine months ended September 30, 2021.
Interest expense
Interest expense for the nine months ended September 30, 2022 decreased $7.7 million to $7.5 million compared to $15.2 million for the nine months ended September 30, 2021. The decrease was primarily due to the adoption of ASU 2020-06 as described above.
Income tax provision
Our income tax provision decreased $8.2 million, or 15.1%, to $46.2 million for the nine months ended September 30, 2022 from $54.4 million for the nine months ended September 30, 2021. Our effective tax rate of 19.7% for the nine months ended September 30, 2022 compared to 21.7% for the nine months ended September 30, 2021. The tax rate for the nine months ended September 30, 2022 and 2021 was impacted by a favorable discrete tax adjustment related to share-based compensation, which had a more favorable benefit in 2022 due to more shares vesting at a higher share price of our common stock. The tax rate for the nine months ended September 30, 2022 was also favorably impacted by a combined $8.3 million tax benefit from the release of the U.S. foreign tax credit valuation allowance, utilization of current year foreign tax credits, and a deferred tax benefit arising from an intellectual property license agreement between a U.S. subsidiary of the Company and certain foreign subsidiaries of the Company. The tax rate for the nine months ended September 30, 2021 was favorably impacted by one-time discrete tax adjustments related to the future change in the United Kingdom ("U.K.") tax rate and the release of the valuation allowance on our deferred tax assets in Australia because of sustained profitability. In June 2021, the U.K. government approved the U.K. tax rate increase from 19.0% to 25.0% effective in April 2023, which required us to remeasure our deferred tax asset related to an intellectual property license between our U.S. and U.K. subsidiaries.
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SEGMENT RESULTS
Total Adjusted Segment EBITDA
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 nine months ended September 30, 2022 and 2021:
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
 (in thousands)(in thousands)
Net income$77,267 $69,480 $188,016 $196,758 
Add back:
Income tax provision15,836 19,155 46,156 54,394 
Interest income and other(7,771)(5,175)(10,418)(5,297)
Interest expense2,378 5,073 7,468 15,164 
Unallocated corporate expenses30,470 25,974 99,524 82,041 
Total segment operating income118,180 114,507 330,746 343,060 
Add back:
Segment depreciation expense8,273 8,130 24,909 23,394 
Amortization of intangible assets2,314 2,859 7,319 8,512 
Remeasurement of acquisition-related contingent consideration— — — (3,130)
Total Adjusted Segment EBITDA$128,767 $125,496 $362,974 $371,836 





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Other Segment Operating Data
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
Number of revenue-generating professionals (at
    period end):
    
Corporate Finance1,900 1,704 1,900 1,704 
FLC1,614 1,476 1,614 1,476 
Economic Consulting998 925 998 925 
Technology (1)
548 443 548 443 
Strategic Communications951 817 951 817 
Total revenue-generating professionals6,011 5,365 6,011 5,365 
Utilization rates of billable professionals: (2)
    
Corporate Finance61 %62 %62 %60 %
FLC53 %54 %55 %58 %
Economic Consulting67 %68 %70 %73 %
Average billable rate per hour: (3)
    
Corporate Finance$455 $465 $455 $457 
FLC$368 $355 $360 $350 
Economic Consulting$579 $539 $506 $510 
(1)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 634 as-needed employees during the three months ended September 30, 2022 compared with 440 as-needed employees during the three months ended September 30, 2021.
(2)We calculate the utilization rate for our billable professionals by dividing the number of hours that all of our billable professionals worked on client assignments during a period by the total available working hours for all of our billable professionals during the same period. Available hours are determined by the standard hours worked by each employee, adjusted for part-time hours, U.S. standard work weeks and local country holidays. Available working hours include vacation and professional training days, but exclude holidays. Utilization rates are presented for our segments that primarily bill clients on an hourly basis. We have not presented utilization rates for our Technology and Strategic Communications segments as most of the revenues of these segments are not generated on an hourly basis.
(3)For engagements where revenues are based on number of hours worked by our billable professionals and fixed-fee arrangements, average billable rate per hour is calculated by dividing revenues (excluding revenues from success fees, pass-through revenues and outside consultants) for a period by the number of hours worked on client assignments during the same period. We have not presented average billable rates per hour for our Technology and Strategic Communications segments as most of the revenues of these segments are not based on billable hours.
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CORPORATE FINANCE & RESTRUCTURING
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
 (dollars in thousands,
except rate per hour)
(dollars in thousands,
 except rate per hour)
Revenues$265,370 $250,321 $795,766 $707,495 
Percentage change in revenues from prior year6.0 %5.8 %12.5 %2.5 %
Operating expenses
Direct cost of revenues176,311 161,638 523,779 479,311 
Selling, general and administrative expenses39,202 34,494 117,015 95,822 
Amortization of intangible assets1,909 1,873 6,036 5,644 
 217,422 198,005 646,830 580,777 
Segment operating income47,948 52,316 148,936 126,718 
Percentage change in segment operating
    income from prior year
-8.3 %-0.1 %17.5 %-26.7 %
Add back:
Depreciation and amortization of intangible assets3,584 3,319 11,085 9,660 
Fair value remeasurement of contingent consideration— — — (3,130)
Adjusted Segment EBITDA$51,532 $55,635 $160,021 $133,248 
Gross profit (1)
$89,059 $88,683 $271,987 $228,184 
Percentage change in gross profit from prior year0.4 %2.6 %19.2 %-14.9 %
Gross profit margin (2)
33.6 %35.4 %34.2 %32.3 %
Adjusted Segment EBITDA as a percentage of revenues19.4 %22.2 %20.1 %18.8 %
Number of revenue-generating professionals (at period end)1,900 1,704 1,900 1,704 
Percentage change in number of revenue-generating
    professionals from prior year
11.5 %6.0 %11.5 %6.0 %
Utilization rate of billable professionals61 %62 %62 %60 %
Average billable rate per hour$455 $465 $455 $457 
(1)Revenues less direct cost of revenues
(2)Gross profit as a percentage of revenues
Three Months Ended September 30, 2022 Compared with Three Months Ended September 30, 2021
Revenues increased $15.0 million, or 6.0%, to $265.4 million for the three months ended September 30, 2022, which included a 3.6% estimated negative impact from FX. Acquisition-related revenues contributed $3.1 million, or 1.2% of the increase, compared to the same quarter in the prior year. Excluding the estimated impact from FX and acquisition-related revenues, revenues increased $21.0 million, or 8.4%, primarily due to higher demand for our restructuring and business transformation & strategy services, largely in North America, which was partially offset by a decline in demand for transaction services and lower success fees.
Gross profit increased $0.4 million, or 0.4%, to $89.1 million for the three months ended September 30, 2022. Gross profit margin decreased 1.9 percentage points for the three months ended September 30, 2022. The decrease in gross profit margin was primarily due to a 1 percentage point decline in utilization with an 11.5% increase in billable headcount, and lower success fees.
SG&A expenses increased $4.7 million, or 13.6%, to $39.2 million for the three months ended September 30, 2022, which included a 3.5% estimated positive impact from FX. SG&A expenses of 14.8% of revenues for the three months ended September 30, 2022 compared with 13.8% of revenues for the three months ended September 30, 2021. The increase in SG&A expenses was primarily due to higher travel and entertainment, infrastructure support, business development, and other general and administrative expenses, which was partially offset by lower bad debt.
31


Nine Months Ended September 30, 2022 Compared with Nine Months Ended September 30, 2021
Revenues increased $88.3 million, or 12.5%, to $795.8 million for the nine months ended September 30, 2022, which included a 2.5% estimated negative impact from FX. Acquisition-related revenues contributed $8.9 million, or 1.3% of the increase, compared to the same period in the prior year. Excluding the estimated impact from FX and acquisition-related revenues, revenues increased $97.3 million, or 13.8%, primarily due to increased demand for our business transformation & strategy, transactions and restructuring services, largely in North America, and higher pass-through revenues.
Gross profit increased $43.8 million, or 19.2%, to $272.0 million for the nine months ended September 30, 2022. Gross profit margin increased 1.9 percentage points for the nine months ended September 30, 2022. The increase in gross profit margin was primarily due to a 2 percentage point increase in utilization.
SG&A expenses increased $21.2 million, or 22.1%, to $117.0 million for the nine months ended September 30, 2022, which included a 2.4% estimated positive impact from FX. SG&A expenses of 14.7% of revenues for the nine months ended September 30, 2022 compared with 13.5% of revenues for the nine months ended September 30, 2021. The increase in SG&A expenses was primarily due to higher travel and entertainment, outside services, infrastructure support, and other general and administrative expenses, which was partially offset by lower bad debt.
FORENSIC AND LITIGATION CONSULTING
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
 (dollars in thousands,
except rate per hour)
(dollars in thousands,
except rate per hour)
Revenues$159,948 $145,264 $478,092 $446,831 
Percentage change in revenues from prior year10.1 %22.0 %7.0 %19.8 %
Operating expenses
Direct cost of revenues110,832 103,870 338,861 311,772 
Selling, general and administrative expenses32,304 26,044 91,370 74,813 
Amortization of intangible assets242 249 735 647 
 143,378 130,163 430,966 387,232 
Segment operating income16,570 15,101 47,126 59,599 
Percentage change in segment operating income
    from prior year
9.7 %73.0 %-20.9 %233.8 %
Add back:
Depreciation and amortization of intangible assets1,592 1,519 5,000 4,455 
Adjusted Segment EBITDA$18,162 $16,620 $52,126 $64,054 
Gross profit (1)
$49,116 $41,394 $139,231 $135,059 
Percentage change in gross profit from prior year18.7 %26.3 %3.1 %45.4 %
Gross profit margin (2)
30.7 %28.5 %29.1 %30.2 %
Adjusted Segment EBITDA as a percentage of revenues11.4 %11.4 %10.9 %14.3 %
Number of revenue-generating professionals (at period end)1,614 1,476 1,614 1,476 
Percentage change in number of revenue-generating
    professionals from prior year
9.3 %7.7 %9.3 %7.7 %
Utilization rate of billable professionals53 %54 %55 %58 %
Average billable rate per hour$368 $355 $360 $350 
(1)Revenues less direct cost of revenues
(2)Gross profit as a percentage of revenues



32


Three Months Ended September 30, 2022 Compared with Three Months Ended September 30, 2021
Revenues increased $14.7 million, or 10.1%, to $159.9 million for the three months ended September 30, 2022, which included a 2.6% estimated negative impact from FX. Excluding the estimated impact from FX, revenues increased $18.4 million, or 12.7%, primarily due to higher demand for our health solutions and investigations services, and higher realization due to the mix of client engagements, which was partially offset by lower demand for our disputes services.
Gross profit increased $7.7 million, or 18.7%, to $49.1 million for the three months ended September 30, 2022. Gross profit margin increased 2.2 percentage points for the three months ended September 30, 2022. The increase in gross profit margin was primarily due to an increase in utilization for our health solutions services and higher realization due to the mix of client engagements.
SG&A expenses increased $6.3 million, or 24.0%, to $32.3 million for the three months ended September 30, 2022, which included a 2.4% estimated positive impact from FX. SG&A expenses were 20.2% of revenues for the three months ended September 30, 2022 compared with 17.9% of revenues for the three months ended September 30, 2021. The increase in SG&A expenses was primarily driven by higher infrastructure support, travel and entertainment, compensation, bad debt, and other general and administrative expenses.
Nine Months Ended September 30, 2022 Compared with Nine Months Ended September 30, 2021
Revenues increased $31.3 million, or 7.0%, to $478.1 million for the nine months ended September 30, 2022, which included a 1.7% estimated negative impact from FX. Excluding the estimated impact from FX, revenues increased $38.9 million, or 8.7%, primarily due to higher demand for our health solutions and investigations services, and higher realization due to the mix of client engagements, which was partially offset by lower demand for our disputes and data & analytics services.
Gross profit increased $4.2 million, or 3.1%, to $139.2 million for the nine months ended September 30, 2022. Gross profit margin decreased 1.1 percentage points for the nine months ended September 30, 2022. The decrease in gross profit margin was largely related to a decline in utilization for our disputes services, which was partially offset by higher utilization in our health solutions practice.
SG&A expenses increased $16.6 million, or 22.1%, to $91.4 million for the nine months ended September 30, 2022, which included a 1.8% estimated positive impact from FX. SG&A expenses of 19.1% of revenues for the nine months ended September 30, 2022 compared with 16.7% of revenues for the nine months ended September 30, 2021. The increase in SG&A expenses was primarily driven by higher travel and entertainment, infrastructure support, compensation, bad debt, and other general and administrative expenses.
33


ECONOMIC CONSULTING
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
 (dollars in thousands,
except rate per hour)
(dollars in thousands,
except rate per hour)
Revenues$193,183 $172,543 $523,201 $525,122 
Percentage change in revenues from prior year12.0 %11.3 %-0.4 %19.7 %
Operating expenses
Direct cost of revenues140,781 123,079 387,257 383,799 
Selling, general and administrative expenses20,728 21,009 63,888 58,432 
 161,509 144,088 451,145 442,231 
Segment operating income31,674 28,455 72,056 82,891 
Percentage change in segment operating income
    from prior year
11.3 %17.1 %-13.1 %48.2 %
Add back:
Depreciation and amortization1,239 1,462 3,698 4,304 
Adjusted Segment EBITDA$32,913 $29,917 $75,754 $87,195 
Gross profit (1)
$52,402 $49,464 $135,944 $141,323 
Percentage change in gross profit from prior year5.9 %11.8 %-3.8 %21.2 %
Gross profit margin (2)
27.1 %28.7 %26.0 %26.9 %
Adjusted Segment EBITDA as a percentage of revenues17.0 %17.3 %14.5 %16.6 %
Number of revenue-generating professionals (at period end)998 925 998 925 
Percentage change in number of revenue-generating
    professionals from prior year
7.9 %5.1 %7.9 %5.1 %
Utilization rate of billable professionals67 %68 %70 %73 %
Average billable rate per hour$579 $539 $506 $510 
(1)Revenues less direct cost of revenues
(2)Gross profit as a percentage of revenues
Three Months Ended September 30, 2022 Compared with Three Months Ended September 30, 2021
Revenues increased $20.6 million, or 12.0%, to $193.2 million for the three months ended September 30, 2022, which included a 5.5% estimated negative impact from FX. Excluding the estimated impact from FX, revenues increased $30.1 million, or 17.4%, due to higher realization, primarily related to $21.4 million of revenues recognized that were previously deferred on one large client, and higher demand for our non-M&A-related antitrust services, which was partially offset by lower demand for our M&A-related antitrust services.
Gross profit increased $2.9 million, or 5.9%, to $52.4 million for the three months ended September 30, 2022. Gross profit margin decreased 1.5 percentage points for the three months ended September 30, 2022. The decrease in gross profit margin was primarily due to higher compensation as a percentage of revenues, which was partially offset by higher realization.
SG&A expenses decreased $0.3 million, or 1.3%, to $20.7 million for the three months ended September 30, 2022, which included a 6.1% estimated positive impact from FX. SG&A expenses of 10.7% of revenues for the three months ended September 30, 2022 compared with 12.2% of revenues for the three months ended September 30, 2021. The decrease in SG&A expenses was primarily driven by lower bad debt expenses, which was partially offset by higher travel and entertainment, and other general and administrative expenses.
Nine Months Ended September 30, 2022 Compared with Nine Months Ended September 30, 2021
Revenues decreased $1.9 million, or 0.4%, to $523.2 million for the nine months ended September 30, 2022, which included a 3.7% estimated negative impact from FX. Excluding the estimated impact from FX, revenues increased $17.7 million, or 3.4%, primarily due to higher demand for our non-M&A-related antitrust services and higher realization for our M&A-related antitrust services, which was partially offset by lower demand for our M&A-related antitrust services.
34


Gross profit decreased $5.4 million, or 3.8%, to $135.9 million for the nine months ended September 30, 2022. Gross profit margin decreased 0.9 percentage points for the nine months ended September 30, 2022. The decrease in gross profit margin was primarily due to a 3 percentage point decrease in utilization and a 7.9% increase in billable headcount.
SG&A expenses increased $5.5 million, or 9.3%, to $63.9 million for the nine months ended September 30, 2022, which included a 4.1% estimated positive impact from FX. SG&A expenses of 12.2% of revenues for the nine months ended September 30, 2022 compared with 11.1% of revenues for the nine months ended September 30, 2021. The increase in SG&A expenses was primarily driven by higher compensation, travel and entertainment, infrastructure support, and other general and administrative expenses.
TECHNOLOGY
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
 (dollars in thousands)(dollars in thousands)
Revenues$84,915 $64,657 $243,181 $222,762 
Percentage change in revenues from prior year31.3 %10.4 %9.2 %35.5 %
Operating expenses
Direct cost of revenues54,027 42,637 158,498 133,860 
Selling, general and administrative expenses21,055 17,604 59,678 50,587 
 75,082 60,241 218,176 184,447 
Segment operating income9,833 4,416 25,005 38,315 
Percentage change in segment operating income
    from prior year
122.7 %-48.8 %-34.7 %62.1 %
Add back:
Depreciation and amortization3,380 3,419 9,935 9,636 
Adjusted Segment EBITDA$13,213 $7,835 $34,940 $47,951 
Gross profit (1)
$30,888 $22,020 $84,683 $88,902 
Percentage change in gross profit from prior year40.3 %-5.2 %-4.7 %36.1 %
Gross profit margin (2)
36.4 %34.1 %34.8 %39.9 %
Adjusted Segment EBITDA as a percentage of revenues15.6 %12.1 %14.4 %21.5 %
Number of revenue-generating professionals (at period end) (3)
548 443 548 443 
Percentage change in number of revenue-generating
    professionals from prior year
23.7 %12.4 %23.7 %12.4 %
(1)Revenues less direct cost of revenues
(2)Gross profit as a percentage of revenues
(3)Includes personnel involved in direct client assistance and revenue-generating consultants and excludes professionals employed on an as-needed basis.
Three Months Ended September 30, 2022 Compared with Three Months Ended September 30, 2021
Revenues increased $20.3 million, or 31.3%, to $84.9 million for the three months ended September 30, 2022, which included a 3.6% estimated negative impact from FX. Excluding the estimated impact from FX, revenues increased $22.6 million, or 34.9%. The increase in revenues was primarily driven by higher demand for our managed review, consulting and hosting services, primarily associated with M&A-related “second request,” investigations and information governance, privacy and security services.
Gross profit increased $8.9 million, or 40.3%, to $30.9 million for the three months ended September 30, 2022. Gross profit margin increased 2.3 percentage points for the three months ended September 30, 2022. The increase in gross profit margin was primarily due to improved mix and profitability of our managed review and processing services, which was partially offset by a lower mix of our higher-margin hosting services.
SG&A expenses increased $3.5 million, or 19.6%, to $21.1 million for the three months ended September 30, 2022, which included a 3.9% estimated positive impact from FX. SG&A expenses of 24.8% of revenues for the three months ended September 30, 2022 compared with 27.2% of revenues for the three months ended September 30, 2021. The increase in SG&A expenses was primarily driven by higher compensation, travel and entertainment, bad debt, and other general and administrative expenses.
35


Nine Months Ended September 30, 2022 Compared with Nine Months Ended September 30, 2021
Revenues increased $20.4 million, or 9.2%, to $243.2 million for the nine months ended September 30, 2022, which included a 2.2% estimated negative impact from FX. Excluding the estimated impact from FX, revenues increased $25.2 million, or 11.3%. The increase in revenues was primarily driven by higher demand for information governance, privacy and security and investigations services.
Gross profit decreased $4.2 million, or 4.7%, to $84.7 million for the nine months ended September 30, 2022. Gross profit margin decreased 5.1 percentage points for the nine months ended September 30, 2022. The decrease in gross profit margin was primarily due to an increase in compensation as a percentage of revenues, which included the impact of a 23.7% increase in billable headcount.
SG&A expenses increased $9.1 million, or 18.0%, to $59.7 million for the nine months ended September 30, 2022, which included a 2.5% estimated positive impact from FX. SG&A expenses of 24.5% of revenues for the nine months ended September 30, 2022 compared with 22.7% of revenues for the nine months ended September 30, 2021. The increase in SG&A expenses was primarily due to higher compensation, travel and entertainment, infrastructure support, and other general and administrative expenses.
STRATEGIC COMMUNICATIONS
 Three Months Ended September 30,Nine Months Ended September 30,
 2022202120222021
 (dollars in thousands)(dollars in thousands)
Revenues$72,449 $69,443 $214,237 $197,781 
Percentage change in revenues from prior year4.3 %31.1 %8.3 %17.6 %
Operating expenses
Direct cost of revenues44,681 41,010 131,421 122,638 
Selling, general and administrative expenses15,450 13,477 44,645 37,385 
Amortization of intangible assets163 737 548 2,221 
 60,294 55,224 176,614 162,244 
Segment operating income12,155 14,219 37,623 35,537 
Percentage change in segment operating income
   from prior year
-14.5 %178.5 %5.9 %66.1 %
Add back:
Depreciation and amortization of intangible assets792 1,270 2,510 3,851 
Adjusted Segment EBITDA$12,947 $15,489 $40,133 $39,388 
Gross profit (1)
$27,768 $28,433 $82,816 $75,143 
Percentage change in gross profit from prior year-2.3 %54.3 %10.2 %27.1 %
Gross profit margin (2)
38.3 %40.9 %38.7 %38.0 %
Adjusted Segment EBITDA as a percentage of revenues17.9 %22.3 %18.7 %19.9 %
Number of revenue-generating professionals (at period end)951 817 951 817 
Percentage change in number of revenue-generating
    professionals from prior year
16.4 %6.7 %16.4 %6.7 %
(1)Revenues less direct cost of revenues
(2)Gross profit as a percentage of revenues

Three Months Ended September 30, 2022 Compared with Three Months Ended September 30, 2021
Revenues increased $3.0 million, or 4.3%, to $72.4 million for the three months ended September 30, 2022, which included a 7.9% estimated negative impact from FX. Excluding the estimated impact from FX, revenues increased $8.5 million, or 12.2%, primarily due to higher demand for our corporate reputation services, which was largely driven by our crisis & issues management offerings.
Gross profit decreased $0.7 million, or 2.3%, to $27.8 million for the three months ended September 30, 2022. Gross profit margin decreased 2.6 percentage points for the three months ended September 30, 2022. The decrease in gross profit margin was driven by higher compensation as a percentage of revenues, largely due to the impact of a 16.4% increase in billable headcount.
36


SG&A expenses increased $2.0 million, or 14.6%, to $15.5 million for the three months ended September 30, 2022, which included a 6.3% estimated positive impact from FX. SG&A expenses of 21.3% of revenues for the three months ended September 30, 2022 compared with 19.4% of revenues for the three months ended September 30, 2021. The increase in SG&A expenses was primarily due to higher travel and entertainment, infrastructure support, and other general and administrative expenses, which was partially offset by lower outside services expenses.
Nine Months Ended September 30, 2022 Compared with Nine Months Ended September 30, 2021
Revenues increased $16.5 million, or 8.3%, to $214.2 million for the nine months ended September 30, 2022, which included a 5.5% estimated negative impact from FX. Excluding the estimated impact from FX, revenues increased $27.4 million, or 13.9%, primarily due to higher demand for our corporate reputation services.
Gross profit increased $7.7 million, or 10.2%, to $82.8 million for the nine months ended September 30, 2022. Gross profit margin increased 0.7 percentage points for the nine months ended September 30, 2022. The increase in gross profit margin was driven by lower compensation as a percentage of revenues.
SG&A expenses increased $7.3 million, or 19.4%, to $44.6 million for the nine months ended September 30, 2022, which included a 4.7% estimated positive impact from FX. SG&A expenses of 20.8% of revenues for the nine months ended September 30, 2022 compared with 18.9% of revenues for the nine months ended September 30, 2021. The increase in SG&A expenses was primarily due to higher infrastructure support, travel and entertainment, and other general and administrative expenses, which was partially offset by lower outside services expenses.
CRITICAL ACCOUNTING ESTIMATES
Our discussion and analysis of our financial condition and results of operations are based on our condensed consolidated financial statements, which we have prepared in accordance with GAAP. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. Note 1 to the Consolidated Financial Statements included in Part II, Item 8, of our Annual Report on Form 10-K for the year ended December 31, 2021 describes the significant accounting policies and methods used in preparation of the Condensed Consolidated Financial Statements in this Quarterly Report on Form 10-Q. We evaluate our estimates, including those related to revenues, goodwill and intangible assets, income taxes and contingencies, on an ongoing basis. Our estimates are based on current facts and circumstances, historical experience and various other assumptions that we believe are reasonable, which form the basis for making judgments about the values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions. The accounting estimates that reflect our more significant judgments, and which we believe are the most critical to aid in fully understanding and evaluating our reported financial results, include the following:
Revenue Recognition
Goodwill and Intangible Assets
There were no material changes to our critical accounting estimates from the information provided in “Critical Accounting Estimates” in the Management's Discussion and Analysis of Financial Condition and Results of Operations, in Part II, Item 7, of our Annual Report on Form 10-K for the year ended December 31, 2021, or from the information provided in Part II, Item 8, of our Annual Report on Form 10-K for the year ended December 31, 2021.
SIGNIFICANT NEW ACCOUNTING PRONOUNCEMENTS
See Note 2, “New Accounting Standards” in Part I, Item 1, of this Quarterly Report on Form 10-Q.
37


LIQUIDITY AND CAPITAL RESOURCES
Liquidity
Our annual cash flows from operations generally exceed our cash needs for capital expenditures and debt service requirements. We typically finance our day-to-day operations, capital expenditures, acquisitions and share repurchases through cash flows from operations. During the first quarter of our fiscal year, our cash needs generally exceed our cash flows from operations due to the payment of annual incentive compensation. Our operating cash flows generally exceed our cash needs subsequent to the second quarter of each year. We believe that our cash flows from operations, supplemented by short-term borrowings under our senior secured bank revolving credit facility ("Credit Facility"), as necessary, will provide adequate cash to fund our long-term cash needs for at least the next 12 months, including the maturity of our 2023 Convertible Notes.
Our operating assets and liabilities consist primarily of billed and unbilled accounts receivable, notes receivable from employees, accounts payable, accrued expenses and accrued compensation expenses. The timing of billings and collections of receivables, as well as compensation and vendor payments, affects the changes in these balances.
Results of operations for our non-U.S. subsidiaries are translated from the designated functional currency to our reporting currency of the USD. Revenues and expenses are translated at average exchange rates for each month, while assets and liabilities are translated at balance sheet date exchange rates. Resulting net translation adjustments are recorded as a component of stockholders’ equity in “Accumulated other comprehensive loss.”
Uncertainties and Trends Affecting Liquidity
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 exacerbation of, or additional or prolonged disruptions caused by, COVID-19 that could result in a material adverse impact on our business, other events beyond our control, 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, including economic and workforce disruptions arising from COVID-19, 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 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 needs in excess of the identified currently available sources 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:
our future profitability;
the quality of our accounts receivable;
our relative levels of debt and equity;
the volatility and overall condition of the capital markets; and
the market prices of our securities.
Any new debt funding, if available, may be on terms less favorable to us than our Credit Facility or the 2023 Convertible Notes. See “Forward-Looking Statements” in Part I, Item 2, of this Quarterly Report on Form 10-Q, and the information contained under the heading “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2021. 
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Cash Flows
 Nine Months Ended September 30,
20222021
Cash Flows(dollars in thousands)
Net cash provided by (used in) operating activities$(40,439)$155,920 
Net cash used in investing activities$(45,677)$(62,274)
Net cash used in financing activities$(36,949)$(34,978)
Effect of exchange rate changes on cash and cash equivalents$(44,373)$(11,094)
DSO (1)
106 100 
(1)DSO is a performance measure used to assess how quickly revenues are collected by the Company. We calculate DSO at the end of each reporting period by dividing net accounts receivable reduced by billings in excess of services provided, by revenues for the quarter, adjusted for changes in foreign exchange rates. We multiply the result by the number of days in the quarter.

Nine Months Ended September 30, 2022 Compared with Nine Months Ended September 30, 2021
Net cash used in operating activities of $40.4 million for the nine months ended September 30, 2022 compared with net cash provided by operating activities of $155.9 million for the nine months ended September 30, 2021. The increase of $196.4 million, or 125.9%, in net cash used in operating activities was primarily due to an increase in salaries related to headcount growth, higher operating expenses and higher annual bonus payments, which was partially offset by an increase in cash collected resulting from higher revenues compared to the same period in the prior year. DSO was 106 and 100 days as of September 30, 2022 and 2021, respectively.
Net cash used in investing activities of $45.7 million for the nine months ended September 30, 2022 compared with $62.3 million for the nine months ended September 30, 2021. The decrease of $16.6 million, or 26.7%, in net cash used in investing activities was primarily due to a $13.5 million decline in capital expenditures and a $3.1 million decrease in payments for the acquisition of businesses as compared to the same period in the prior year.
Net cash used in financing activities of $36.9 million for the nine months ended September 30, 2022 compared with $35.0 million for the nine months ended September 30, 2021. The increase of $2.0 million, or 5.6%, in net cash used in financing activities was primarily due to a decline in net borrowings under our Credit Facility of $25.0 million, which was partially offset by a decrease of $22.6 million in payments for common stock repurchases under the Repurchase Program as compared to the same period in the prior year.
The unfavorable effect of exchange rate changes on cash and cash equivalents increased $33.3 million for the nine months ended September 30, 2022 to $44.4 million compared to $11.1 million for the nine months ended September 30, 2021.
Principal Sources of Capital Resources
As of September 30, 2022, our capital resources included $327.0 million of cash and cash equivalents and available borrowing capacity of $549.6 million under the $550.0 million revolving line of credit under our Credit Facility. As of September 30, 2022, we had no outstanding borrowings under our Credit Facility and $0.4 million of outstanding letters of credit, which reduced the availability of borrowings under the Credit Facility. We use letters of credit primarily in lieu of security deposits for our leased office facilities. The $550.0 million revolving line of credit under our Credit Facility includes a $75.0 million sublimit for borrowings in currencies other than USD, including the euro ("EUR"), British pound ("GBP"), Australian dollar and Canadian dollar.
The availability of borrowings, as well as issuances and extensions of letters of credit, under our Credit Facility is subject to specified conditions. We may choose to repay outstanding borrowings under the Credit Facility at any time before maturity without premium or penalty. Borrowings under the Credit Facility in USD, EUR and GBP bear interest at an annual rate equal to the London Interbank Offered Rate ("LIBOR"), plus an applicable margin or, in the case of USD borrowings, an alternative base rate plus an applicable margin. Due to the cessation by the ICE Benchmark Administration Limited of the publication on a representative basis of EUR LIBOR and GBP LIBOR as of December 31, 2021, EUR LIBOR is no longer available under our Credit Agreement and one-, three- and six-month GBP LIBOR is available under a "synthetic" methodology until December 31, 2022. The Credit Agreement permits FTI Consulting and Bank of America, N.A., as administrative agent thereunder, to agree to a new benchmark rate to replace EUR LIBOR and GBP LIBOR, subject to the negative consent of the Required Lenders (as defined therein). Prior to the incurrence of any borrowings under the Credit Facility in EUR or, after December 31, 2022, in
39


GBP, we will need to agree to a replacement benchmark rate for each applicable currency in accordance with the terms of the Credit Agreement. The Credit Facility is guaranteed by substantially all of our domestic subsidiaries and is secured by a first priority security interest in substantially all of the assets of FTI Consulting and such domestic subsidiaries. Subject to certain conditions, at any time prior to maturity, we will be able to invite existing and new lenders to increase the size of the facility up to a maximum of $700.0 million.
The amended and restated credit agreement entered into in November 2018, as further amended by the first amendment to the amended and restated credit agreement dated as of February 4, 2022 (as amended by the first amendment, the "Credit Agreement"), governing the Credit Facility and our other indebtedness outstanding from time to time contains or may contain covenants that, among other things, may limit our ability to: incur additional indebtedness; create liens; pay dividends on our capital stock, make distributions or repurchases of our capital stock or make specified other restricted payments; consolidate, merge or sell all or substantially all of our assets; guarantee obligations of other entities or our foreign subsidiaries; enter into hedging agreements; enter into transactions with affiliates or related persons; or engage in any business other than consulting-related businesses. In addition, the Credit Agreement includes a financial covenant that requires us not to exceed a maximum consolidated total net leverage ratio (the ratio of funded debt (less unrestricted cash up to $150.0 million) to Consolidated EBITDA, as defined in the Credit Agreement). As of September 30, 2022, we were in compliance with the covenants contained in the Credit Agreement and the indenture, dated as of August 20, 2018, as amended by the first supplemental indenture, dated as of January 1, 2022, between us and U.S. Bank National Association, as trustee, governing the 2023 Convertible Notes. See Note 8, "Debt" in Part I, Item 1, of this Quarterly Report on Form 10-Q for a further discussion of the 2023 Convertible Notes.
Principal Uses of Capital Resources
Future Capital Requirements
We anticipate that our future capital requirements will principally consist of funds required for:
operating and general corporate expenses relating to the operation of our businesses;
capital expenditures, primarily for information technology equipment and information or financial systems, office furniture and leasehold improvements;
debt service requirements, including interest payments on our long-term debt and repayment of the 2023 Convertible Notes principal and conversion premium;
compensation to designated executive management and senior managing directors under our various long-term incentive compensation programs;
discretionary funding of the Repurchase Program;
contingent obligations related to our acquisitions;
potential acquisitions of businesses; and
other known future contractual obligations.
Capital Expenditures
During the nine months ended September 30, 2022, we spent $39.0 million in capital expenditures to support our organization, including direct support for specific client engagements. For the remainder of 2022, we currently expect additional capital expenditures to support our organization in an aggregate amount of between $13 million and $16 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.
Share Repurchase Program
During the nine months ended September 30, 2022, we made $23.5 million in payments for common stock repurchases under the Repurchase Program. We had $143.5 million remaining under the Repurchase Program to repurchase additional shares as of September 30, 2022.
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Payments for Acquisition of Businesses
During the nine months ended September 30, 2022, we acquired a business that was assigned to the Corporate Finance segment for an aggregate of $6.7 million, net of cash received. We also recorded a liability of $5.6 million for acquisition-related contingent consideration.
Future Contractual Obligations
Our future contractual obligations as of September 30, 2022 include both current and non-current obligations. We have short-term obligations related to the 2023 Convertible Notes, which will mature on August 15, 2023, unless earlier converted or repurchased. Accrued interest of $6.6 million is classified as a current liability and the principal portion of the 2023 Convertible Notes of $316.2 million is classified as a non-current liability on the Condensed Consolidated Balance Sheets. The 2023 Convertible Notes are classified as long-term debt as of September 30, 2022 because we have the ability and intent to refinance them on a long-term basis under our $550.0 million Credit Facility, which matures on November 30, 2023. As of September 30, 2022, there were no outstanding borrowings under our Credit Facility. For more information on our 2023 Convertible Notes and 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 September 30, 2022 and prior to the November 30, 2023 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 $33.3 million and non-current obligations of $213.4 million.
These amounts reflect future unconditional payments and are based on the terms of the relevant agreements, appropriate classification of items under GAAP currently in effect and certain assumptions such as interest rates. Future events could cause actual payments to differ from these amounts.
Forward-Looking Statements
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), that involve uncertainties and risks. Forward-looking statements include statements concerning our plans, initiatives, projections, prospects, policies 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, including U.S. and foreign tax laws, environmental, social and governance ("ESG")-related issues, climate change-related matters, scientific or technological developments, and other information that is not historical. Forward-looking statements often contain words such as “estimates,” “expects,” “anticipates,” “projects,” “plans,” “intends,” “believes,” "commits," “aspires,” “forecasts,” "future," "goal," "seeks" and variations of such words or similar expressions. All forward-looking statements, including, without limitation, management’s financial guidance and examination of operating trends, are based upon our historical performance and our current plans, estimates, intentions and expectations at the time we make them, and various assumptions. There can be no assurance that management’s plans, expectations, intentions, aspirations, beliefs, goals, estimates, forecasts and projections will result or be achieved. Our actual financial results, performance or achievements and outcomes could differ materially from those expressed in, or implied by, any forward-looking statements. Any references to standards of measurement and performance made regarding our climate change-, ESG- or other sustainability-related plans, goals, commitments, intentions, aspirations, forecasts or projections, or expectations are developing and based on assumptions, and no assurance can be given that any such plan, goal, commitment, intention, aspiration, forecast or projection, or expectation can or will be achieved. The inclusion of any forward-looking information should not be regarded as a representation by us or any other person that the future plans, estimates, forecasts, intentions, aspirations, beliefs or expectations contemplated by us will be achieved. Given these risks, uncertainties and other factors, you should not place undue reliance on any forward-looking statements.
There are a number of risks and uncertainties that could cause our actual results to differ materially from the forward-looking statements contained in, or implied by, this Quarterly Report on Form 10-Q. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this Quarterly Report on Form 10-Q include those set forth under the heading “Risk Factors” in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2021, as well as in other information that we file with the SEC from time to time. Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this Quarterly Report on Form 10-Q include, but are not limited to, the following:
impact of COVID-19 and related events that are beyond our control, including possible effects on our business, financial condition and results of operations, clients and vendors, employees and contractors, and employee attrition and headcount growth, which could affect our segments and practices, the type of services they provide and the
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geographic regions in which we conduct business, differently and adversely, as well as heighten risks related to or otherwise negatively impact the effectiveness of cybersecurity, information technology, financial reporting and our other corporate functions;
changes in demand for our services;
our ability to recruit and retain qualified professionals and senior management, including segment, industry and regional leaders;
conflicts resulting in our inability to represent certain clients;
our former employees joining or forming competing businesses;
our ability to manage our headcount needs and our professionals’ utilization and billing rates and maintain or increase the pricing of our services and products;
our ability to identify suitable acquisition candidates, negotiate favorable terms, take advantage of opportunistic acquisition situations and integrate the operations of acquisitions, as well as the costs of integration;
our ability to adapt to and manage the risks associated with operating in non-U.S. markets;
our ability to replace key personnel, including former executives, officers, senior managers and practice and regional leaders who have highly specialized skills and experience;
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;
legislation or judicial rulings, including legislation or rulings regarding data privacy and the discovery process;
periodic fluctuations in revenues, operating income and cash flows;
damage to our reputation as a result of claims involving the quality of our services, failures of our internal information technology systems controls or adverse publicity relating to certain clients or engagements;
fee discounting or renegotiation, lower pricing, less advantageous contract terms and unexpected termination of client engagements;
competition for clients and key personnel;
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;
our ability to manage growth;
risk of non-payment of receivables;
the amount and terms of our outstanding indebtedness;
uncertainty from the expected discontinuance of LIBOR and transition to any other interest rate benchmark;
risks relating to the obsolescence, replacement or the protection of our information and financial systems and software, proprietary software products, intellectual property rights and trade secrets, which could adversely affect our ability to retain or win clients, conduct business, preserve or enhance our reputation, maintain business continuity or report financial results;
foreign currency disruptions and currency fluctuations between the U.S. dollar and foreign currencies;
risks related to the implementation and operation of new financial management or other systems;
U.S. and foreign tax law changes, including the enactment of proposed U.S. tax legislation into law, which could increase our effective tax rate and cash tax expenditures;
physical risks related to climate change, including rising temperatures, severe storms, energy disruptions and rising sea levels, among others, which could adversely impact our ability to conduct business or maintain business
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continuity, including by affecting our access to our leased office space in affected geographies and the integrity of our information technology systems;
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
fluctuations in the mix of our services and the geographic locations in which our clients are located or our services are rendered.
There may be other factors that may cause our actual results to differ materially from our forward-looking statements. All forward-looking statements attributable to us or persons acting on our behalf apply only as of the date of this Quarterly Report on Form 10-Q and are expressly qualified in their entirety by the cautionary statements included herein. We undertake no obligation to publicly update or revise any forward-looking statements to reflect subsequent events or circumstances and do not intend to do so.
Item 3.Quantitative and Qualitative Disclosures About Market Risk
For information regarding our exposure to certain market risks, see “Quantitative and Qualitative Disclosures About Market Risk” in Part II, Item 7A, of our Annual Report on Form 10-K for the year ended December 31, 2021. There have been no material changes in our market risk exposure during the period covered by this Quarterly Report on Form 10-Q.
Item 4.Controls and Procedures
Evaluation of Disclosure Controls and Procedures. An evaluation of the effectiveness of the design and operation of our “disclosure controls and procedures” (as defined in Rule 13a-15(e) under the Exchange Act), as of the end of the period covered by this Quarterly Report on Form 10-Q, was made under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer. Based upon this evaluation, our Chief Executive Officer and Chief Financial Officer have concluded that our disclosure controls and procedures (a) were effective to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is timely recorded, processed, summarized and reported and (b) included, without limitation, controls and procedures designed to ensure that information required to be disclosed by us in reports filed or submitted under the Exchange Act is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.
Changes in Internal Control over Financial Reporting. There have not been any changes in our internal control over financial reporting that occurred during the three months ended September 30, 2022 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
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PART II—OTHER INFORMATION
Item 1.Legal Proceedings
From time to time in the ordinary course of business, we are subject to claims, asserted or unasserted, or named as a party to lawsuits or investigations. Litigation, in general, and intellectual property and securities litigation in particular, can be expensive and disruptive to normal business operations. Moreover, the results of legal proceedings cannot be predicted with any certainty and in the case of more complex legal proceedings such as intellectual property and securities litigation, the results are difficult to predict at all. We are not aware of any asserted or unasserted legal proceedings or claims that we believe would have a material adverse effect on our financial condition or results of our operations.
Item 1A.Risk Factors
There have been no material changes in any risk factors previously disclosed in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2021 filed with the United States Securities and Exchange Commission ("SEC") on February 24, 2022. We may disclose changes to risk factors or disclose additional factors from time to time in our future filings with the SEC. Additional risks and uncertainties not presently known to us or that we currently deem immaterial also may impair our business operations.
Item 2.Unregistered Sales of Equity Securities and Use of Proceeds
Unregistered sales of equity securities.
None.
Repurchases of our common stock.
The following table provides information with respect to purchases we made of our common stock during the three months ended September 30, 2022: 
 Total
Number of
Shares
Purchased
 Average
Price
Paid per
Share
Total Number of
Shares
Purchased as
Part of Publicly
Announced
Program (1)
 Approximate
Dollar Value
That May Yet Be
Purchased
Under the
Program
 (in thousands, except per share data)
July 1 through July 31, 2022
(2)
$184.99 — $163,960 
August 1 through August 31, 202270 $160.95 70 
(4)
$152,708 
September 1 through September 30, 202262 
(3)
$158.52 58 
(5)
$143,528 
133   128   
(1)On June 2, 2016, our Board of Directors authorized a stock repurchase program of up to $100.0 million (the “Repurchase Program”). On each of May 18, 2017, December 1, 2017, February 21, 2019 and February 20, 2020, our Board of Directors authorized an additional $100.0 million. On each of July 28, 2020 and December 3, 2020, our Board of Directors authorized an additional $200.0 million, increasing the Repurchase Program to an aggregate authorization of $900.0 million. No time limit has been established for the completion of the Repurchase Program, and the Repurchase Program may be suspended, discontinued or replaced by the Board of Directors at any time without prior notice. During the quarter ended September 30, 2022, we repurchased an aggregate of 127,791 shares of our common stock under the Repurchase Program at an average price of $159.87 per share for a total cost of approximately $20.4 million.
(2)Includes 1,249 shares of common stock withheld to cover payroll tax withholdings related to the lapse of restrictions on restricted stock.
(3)Includes 3,835 shares of common stock withheld to cover payroll tax withholdings related to the lapse of restrictions on restricted stock.
(4)During the month ended August 31, 2022, we repurchased and retired 69,900 shares of common stock, at an average price per share of $160.95, for an aggregate cost of $11.3 million.
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(5)During the month ended September 30, 2022, we repurchased and retired 57,891 shares of common stock, at an average price per share of $158.55, for an aggregate cost of $9.2 million.
Item 3.Defaults Upon Senior Securities
None.
Item 4.Mine Safety Disclosures
Not applicable.
Item 5.Other Information
None.
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Item 6.Exhibits
Exhibit
Number
Description
  
3.1
  
3.2
  
3.3
  
3.4
  
3.5
31.1†
31.2†
  
32.1†**
32.2†**
101The following financial information from the Quarterly Report on Form 10-Q of FTI Consulting, Inc., included herewith, and formatted in Inline XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets as of September 30, 2022 and December 31, 2021; (ii) Condensed Consolidated Statements of Comprehensive Income for the three and nine months ended September 30, 2022 and 2021; (iii) Condensed Consolidated Statements of Stockholders’ Equity for the three and nine months ended September 30, 2022 and 2021; (iv) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021; and (v) Notes to the Condensed Consolidated Financial Statements, tagged as blocks of text.
104The cover page from the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2022, formatted in Inline XBRL (included as Exhibit 101).
Filed herewith.
**This certification is deemed not filed for purposes of Section 18 of the Exchange Act, or otherwise subject to the liability of that section, nor shall it be deemed incorporated by reference into any filing under the Securities Act of 1933, as amended, or the Exchange Act.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
Date: October 27, 2022
 
FTI CONSULTING, INC.
   
By: /s/ Brendan Keating
  Brendan Keating
  Chief Accounting Officer and
Controller
  (principal accounting officer)
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