Executive Summary / Key Takeaways

• Resilience Through Strategic Dissonance: While FTI Consulting faces severe headwinds in Economic Consulting (Compass Lexecon) and Technology segments, the company's diversified portfolio is delivering record performance elsewhere—Corporate Finance & Restructuring posted an 18.6% Q3 revenue surge and Forensic and Litigation Consulting grew EBITDA over 60% year-to-date, demonstrating that FTI's breadth is not just a safety net but a strategic weapon.

• The Compass Lexecon Crisis as Inflection Point: The U.S. competition practice dislocation, causing a 22% Q3 revenue decline and negative segment EBITDA, represents both FTI's largest near-term risk and its most significant opportunity. Management's aggressive $234 million in forgivable loans to retain and attract talent in 2025 alone signals conviction that this is a temporary, not structural, impairment.

• Talent Investment as Margin Sacrifice Strategy: FTI is deliberately compressing margins—funding $162 million in forgivable loans in Q1, $72 million in Q2—to rebuild its Economic Consulting bench while simultaneously adding 79 Senior Managing Directors across segments. This creates a clear near-term earnings drag but builds a higher-quality revenue base that should generate superior returns as new professionals ramp.

• Technology Leadership Amid Market Disruption: Despite a 14.8% Q3 revenue decline in the Technology segment due to M&A second-request drought, FTI maintains its industry-leading position in complex data processing and AI adoption. The segment's early leadership in machine learning and tools like Ariadne and IQ.AI positions it to capture disproportionate share when regulatory scrutiny normalizes.

• Valuation Hinges on Execution, Not Multiples: Trading at $165.03 with a 21.1x P/E and 13.9x EV/EBITDA, FTI's valuation appears reasonable for a professional services firm, but the real question is whether management can deliver on its promise of 11 consecutive years of adjusted EPS growth while navigating what it calls "the most significant headwinds I've seen in 11 years."

Setting the Scene: The Academic Roots of a Professional Services Powerhouse

FTI Consulting, incorporated in Washington, D.C. in 1982, began not in a boardroom but in academia. Its Compass Lexecon business traces directly to scholars providing economic testimony in legal proceedings—a lineage that shaped the firm's DNA around deep expertise and intellectual capital rather than scale-driven efficiency. This origin story matters because it explains why FTI's competitive moat has never been about cost leadership but about assembling the foremost experts in complex, high-stakes advisory work.

The modern FTI emerged from a deliberate transformation that began around 2014-2015. During this period, the Strategic Communications segment executed a successful turnaround that quickly returned it to strong growth, while Corporate Finance & Restructuring embarked on a decade-long journey that would see revenue more than triple and adjusted EBITDA more than quadruple. This wasn't accidental. Management made bold bets on underperforming businesses, expanding from creditor rights in the U.K. to a leading insolvency practice, supporting Germany's Andersch team through COVID-19 bankruptcy moratoriums to create a platform for broader growth, and transforming FTI from a distant player in Australian restructuring to a top-tier competitor.

Today, FTI operates through five segments serving companies, boards, investors, law firms, and governments worldwide. The business model is straightforward: deploy highly credentialed professionals at premium rates to solve complex problems in restructuring, litigation, economic analysis, technology, and communications. But the economics are nuanced. Revenue growth depends on both market demand and the firm's ability to capture share through talent acquisition. Margins depend on utilization, realized bill rates, and the delicate balance between investing in future capabilities and harvesting current profits. This tension between investment and extraction defines the 2025 story.

Technology, Products, and Strategic Differentiation: The Expertise-Technology Fusion

FTI's differentiation lies not in software licensing but in the integration of technology with world-class expertise. The Forensic and Litigation Consulting segment exemplifies this fusion. After years of flat adjusted EBITDA, FLC invested strategically to build prominent financial services, cybersecurity, national security, and data analytics practices. These investments began showing powerful results in recent quarters, with Q3 delivering 15.4% revenue growth and year-to-date adjusted EBITDA up over 60%.

The "why" behind this performance is critical. FLC's data analytics team sits on the leading edge of AI application, developing tools like Ariadne and IQ.AI that enhance large-scale investigations. This isn't about replacing billable hours with automation—it's about creating capabilities that win bigger, more complex engagements. Higher realized bill rates for risk and investigations, data analytics, and construction solutions, combined with increased demand in EMEA, drove Q3 growth. The segment is winning some of the biggest jobs in the market because it can process massive data sets and extract insights faster and more reliably than competitors.

The Technology segment, despite its 14.8% Q3 revenue decline, maintains a crucial competitive position. Management emphasizes that FTI has achieved "the fastest organic growth rate in its industry for several years" and is an early adopter of advanced technologies like machine learning and AI. The current headwind—lower demand for M&A-related second request services—stems from a sharp drop-off in Q4 2024 that has persisted through 2025. However, this market dynamic actually strengthens FTI's long-term position. When regulatory scrutiny eases and M&A activity recovers, FTI's established leadership and AI-enhanced capabilities should capture disproportionate share. The segment's focus on the toughest, most complicated jobs creates a barrier to entry that protects pricing power when demand returns.

Strategic Communications demonstrates how technology-enabled expertise creates durable advantages. Two-thirds of Senior Managing Directors in this segment are new within the last five years, promoted during both strong and weak periods. This multiyear commitment to building power in high-stakes areas like public affairs, corporate reputation, crisis communications, and cyber communications has delivered double-digit revenue growth and 34% adjusted EBITDA growth year-to-date. The segment's ability to support clients with critical crisis communications and cybersecurity issues—leveraging FLC's technical capabilities—creates cross-selling opportunities that pure-play communications firms cannot replicate.

Financial Performance & Segment Dynamics: A Tale of Two Halves

FTI's Q3 2025 results present a starkly bifurcated picture that directly supports the central thesis. Consolidated revenue grew 3.3% year-over-year to $956.2 million, but this modest headline masks dramatic divergence beneath the surface. The company is simultaneously experiencing its strongest segment performance in years and its most severe headwinds in over a decade.

Corporate Finance & Restructuring: The Growth Engine
This segment delivered a record quarter with $404.9 million in revenue, up 18.6% year-over-year. The composition reveals strategic depth: restructuring revenue up 18%, transactions up 30%, and transformation and strategy up 10%. Year-to-date, restructuring revenue is up 11% and transactions revenue up 16% despite a slight global decline in transaction volumes—clear evidence of market share gains. Adjusted segment EBITDA margin expanded to 23.8% from 17.0% a year ago, driven by a 6 percentage point increase in utilization and higher realized bill rates.

This performance matters because it validates FTI's strategy of investing in vertical expertise. Adding talent in healthcare and airlines has enabled the firm to win major jobs in these industries. The U.K. insolvency business, built from a creditor rights foundation, is now a significant growth engine. Germany's Andersch team, supported through COVID-19 headwinds, is becoming a platform for broader European expansion. These aren't opportunistic wins; they're the harvest of deliberate, multiyear investments in talent and market presence.

Forensic and Litigation Consulting: The Margin Expansion Story
FLC's $194.7 million in Q3 revenue (up 15.4%) generated $42.6 million in adjusted segment EBITDA, with margin expanding to 21.9% from 11.8% a year ago. Year-to-date adjusted EBITDA is up over 60% on double-digit revenue growth. This margin expansion is structural, not cyclical. It reflects higher realized bill rates across risk and investigations, data analytics, and construction solutions, plus increased EMEA demand. The segment's financial services practice, which added 15 new Senior Managing Directors and Managing Directors in 2025, is winning some of the biggest anti-money laundering jobs in the market. Even as FCPA cases and monitorships slow due to regulatory posture changes, the practice is thriving on state-level regulatory scrutiny and internal compliance demands.

Economic Consulting: The Crisis
The Compass Lexecon dislocation is the single largest drag on FTI's performance. Q3 revenue fell 22.0% to $173.1 million, and the segment posted a negative 2.6% adjusted EBITDA margin versus positive 15.9% a year ago. Year-to-date adjusted EBITDA has collapsed from $93.7 million to $24.1 million. Management attributes approximately two-thirds of the decline to talent transition and one-third to market conditions, particularly weakness in EMEA antitrust work.

The financial impact is more severe than headcount numbers suggest. The company funded $162 million in forgivable loans in Q1 and $72 million in Q2, primarily to retain existing and attract new Economic Consulting professionals. These loans amortize as expenses before new hires generate revenue, creating a P&L valley. The segment's utilization fell 10 percentage points year-over-year, and billable headcount declined 8.2%. Yet management insists this is stabilization from a cost perspective, with a gradual return to revenue growth expected over several quarters. The key question is whether the 28 new senior hires in 2025—a record—can ramp quickly enough to offset legacy revenue run-off.

Technology: The Cyclical Downturn
The Technology segment's $94.1 million Q3 revenue (down 14.8%) reflects a market-wide drought in M&A second-request work. The federal premerger notification program recorded just 89 transactions in March 2025, the lowest monthly total in nearly five years. Nearly all of the year-to-date revenue decline stems from this single factor. While painful, this cyclicality actually strengthens FTI's competitive position. As management notes, "slow markets tend to favor more capable competitors" because weaker players cut corners on quality. FTI's early AI adoption and leadership in complex data processing position it to capture disproportionate share when activity normalizes.

Strategic Communications: The Turnaround Validation
This segment's $89.4 million Q3 revenue (up 7.4%) and 18.9% adjusted EBITDA margin demonstrate successful execution of a multiyear investment strategy. Year-to-date revenue is up double-digit and adjusted EBITDA up 34%. The growth is driven by higher demand for corporate reputation services, particularly in crisis, people and transformation, and cyber services. This performance matters because it shows FTI can successfully turn around underperforming businesses through sustained talent investment—a template for what management is attempting in Economic Consulting.

Competitive Context: Where FTI Leads and Lags

FTI's competitive positioning must be understood segment by segment, as each faces different rivals and dynamics. The company's overall $3.7 billion revenue scale places it among the larger specialized consulting firms, but its 3.3% growth rate lags more focused competitors.

Corporate Finance & Restructuring: Market Share Gainer
In restructuring, FTI competes against boutiques like AlixPartners and divisions of the Big Four. FTI's advantage is its integrated model—combining restructuring with forensic investigation, economic analysis, and strategic communications. The U.K. insolvency expansion and German Andersch platform demonstrate an ability to build leading positions from modest beginnings. Year-to-date restructuring revenue growth of 11% during a period of flat-to-down market activity confirms significant share gains. The 30% Q3 growth in transactions revenue, despite declining global volumes, shows similar momentum. FTI's scale and global reach allow it to serve multinational clients that boutiques cannot, while its expertise depth prevents the Big Four from commoditizing the work.

Forensic and Litigation Consulting: The Expertise Moat
FLC competes with Huron Consulting (HURN) and ICF International (ICFI) in healthcare and regulatory investigations, and with CRA International (CRAI) in economic aspects of litigation. FTI's advantage is the integration of cybersecurity, national security, and data analytics with traditional forensic accounting. The financial services practice's ability to win major anti-money laundering work despite reduced federal FCPA enforcement shows the moat's durability. While HURN's 16.8% Q3 growth and ICFI's 13.8% commercial growth outpace FTI's consolidated rate, neither matches FLC's 60% EBITDA expansion, suggesting FTI is capturing higher-value work. The segment's 21.9% margin compares favorably to HURN's overall operating margin of 12.4% and ICFI's 8.3%, reflecting superior pricing power from expertise differentiation.

Economic Consulting: Temporary Disruption or Structural Decline?
Compass Lexecon's competition is primarily CRAI and academic economists. FTI's leadership insists it remains "by far the leading brand in the industry" with 66 professionals named to Lexology's 2025 competition guide—more than any rival. The global scale across U.S., Europe, Latin America, and China is unmatched. However, CRAI's 10.8% Q3 growth and maintained profitability highlight FTI's underperformance. The key question is whether the talent departures reflect FTI-specific issues or broader market pressures. Management's argument—that attracting 28 new senior hires in 2025 proves the franchise remains attractive—will be validated only when these professionals generate revenue. The $234 million in forgivable loans is a costly bet that this is a temporary dislocation, not a permanent impairment.

Technology: Leadership in a Downturn
The Technology segment competes with Relativity and other e-discovery platforms, as well as the Big Four's technology arms. FTI's claim of "fastest organic growth in the industry in the last 5 years" is credible given its scale and early AI adoption. The current 14.8% revenue decline is industry-wide, not FTI-specific. When M&A activity recovers, FTI's AI-enhanced capabilities and reputation for handling the most complex matters should enable it to gain share from smaller, less capitalized competitors. The segment's 14.5% EBITDA margin, while down from 14.9% a year ago, remains healthy for a business facing severe cyclical pressure.

Capital Structure and Financial Flexibility
FTI's balance sheet provides a competitive advantage that peers cannot match. With $146 million in cash and $390 million in available borrowing capacity under its $900 million credit facility (expandable to $1.2 billion), FTI has substantial dry powder.

The investment-grade rating from S&P Global (SPGI), achieved in October 2024, lowered borrowing costs and reflects financial stability. Net debt/EBITDA is approximately 1.5x, conservative for a professional services firm. This financial strength enabled $770.9 million in share repurchases during the first nine months of 2025, with the board authorizing an additional $500 million after Q3. While HURN and CRAI also buy back stock, FTI's scale of repurchases—over 20% of its market cap in nine months—demonstrates both confidence and capacity that smaller competitors lack.

Outlook, Guidance, and Execution Risk

Management's guidance for 2025—revenue between $3.685 billion and $3.735 billion and adjusted EPS between $8.20 and $8.70—implies the 11th consecutive year of adjusted EPS growth. This is remarkable given the headwinds. The guidance assumes the fourth quarter will be seasonally weaker, that Economic Consulting has stabilized from a cost perspective but will take several quarters to return to revenue growth, and that Technology will remain pressured through year-end.

The critical execution variable is talent ramp timing. Management emphasizes that new senior hires in Economic Consulting require a "multi-quarter type of thing to get the realization on all the new people." The process involves marketing the talent, winning initial leads, deploying senior time, and eventually securing the large junior-staffed engagements that drive profitability. This timeline creates a P&L valley that could extend into early 2026. However, the template from Strategic Communications—where multiyear investment during slow periods enabled the current double-digit growth—provides a roadmap.

In Corporate Finance & Restructuring, management expects continued strength in restructuring, driven by liability management exercise (LME) cases coming back for second rounds of bankruptcy and tariff-induced stress creating new opportunities. The transactions business should benefit from any M&A market recovery, with FTI's expanded service offerings (merger integration, carve-outs, tax structure, human capital) capturing more wallet share per deal.

FLC's outlook remains positive despite regulatory uncertainty. While reduced federal FCPA enforcement has slowed some work, increased state-level scrutiny and strong anti-money laundering demand are offsetting. The segment's ability to pivot across regulatory regimes demonstrates its resilience.

Technology's recovery depends on M&A activity and regulatory scrutiny normalizing. Management is "not expecting great margins out of this business anytime in the rest of this year" but believes "the margins will come back" when the market turns. The segment's AI leadership should accelerate recovery when it occurs.

Risks and Asymmetries: What Could Break the Thesis

The central thesis—that talent investment during adversity will create a stronger, more resilient FTI—faces several material risks.

Economic Consulting Dislocation Could Be Deeper Than Expected
If the 28 new senior hires fail to generate revenue at expected rates, or if additional departures occur, the segment could remain a drag beyond 2026. Management admits they "can't commit to this having been a bottoming out yet." The $234 million in forgivable loans represents a sunk cost if the talent doesn't perform. CRAI's continued growth suggests the market remains viable, implying FTI's issues are execution-related. However, if the problem is structural—clients shifting away from economic consulting toward other forms of advisory—the investment could be wasted.

M&A Market and Regulatory Environment
The Technology segment's 14.8% decline stems from a market-wide M&A slowdown and reduced regulatory scrutiny. If these conditions persist into 2026, the segment's profitability could deteriorate further. Management's belief that "slow markets tend to favor more capable competitors" is logical but unproven. If pricing pressure intensifies and FTI is forced to match competitor rates to retain clients, margins could compress more than expected.

AI Disruption of the Billable Hour Model
While management argues that FTI's expert-driven model is less vulnerable to AI commoditization than "25:1 leverage businesses with primarily junior people," the risk remains that AI could reduce the volume of work in areas like document review and data processing. The company's tools like Ariadne and IQ.AI enhance investigations, but if clients begin demanding AI-driven efficiency gains that reduce billable hours, FTI's revenue model could face structural pressure. The early-stage nature of AI's financial impact—"we haven't found much tremendous impact yet on our internal operations and cost out"—means the risk is not yet quantifiable.

Regulatory and Political Shifts
Changes in antitrust enforcement, FCPA prosecution, or bankruptcy laws could materially impact multiple segments. The company's exposure to government policy is moderate but real. A shift toward lighter regulatory enforcement could reduce demand for FLC's investigations and Technology's second-request services, while stricter enforcement could boost Economic Consulting but potentially reduce M&A activity.

Valuation Context: Reasonable Price for Uncertain Execution

At $165.03 per share, FTI trades at 21.1x trailing earnings and 13.9x EV/EBITDA, with an enterprise value of $5.96 billion (1.61x revenue). These multiples appear reasonable for a professional services firm with FTI's scale and diversification, particularly given the balance sheet strength and cash generation.

Cash Flow Metrics Tell a Stronger Story
The company generated $395.1 million in operating cash flow and $397.7 million in free cash flow over the trailing twelve months, representing a 10.7% free cash flow yield on enterprise value. This is substantially stronger than Huron Consulting's 5.8% FCF yield and ICF International's 8.5%. FTI's ability to generate cash even while investing heavily in talent demonstrates the durability of its earnings.

Peer Comparison Reveals Relative Value

• Huron Consulting (HURN): Trades at 27.8x earnings, 17.1x EV/EBITDA, with faster growth (16.8% Q3) but lower margins (12.4% operating margin) and higher leverage (1.31x debt/equity). FTI's lower multiple reflects its current headwinds but also offers better cash flow yield.
• ICF International (ICFI): Trades at 15.8x earnings, 10.1x EV/EBITDA, with solid growth but lower margins (8.3% operating) and government concentration risks. FTI's diversification justifies a premium.
• CRA International (CRAI): Trades at 22.4x earnings, 14.4x EV/EBITDA, with 10.8% growth and 9.3% operating margins. FTI's scale and cash flow are superior, though CRAI's current execution is cleaner.
• Exponent (EXPO): Trades at 36.3x earnings, 28.2x EV/EBITDA, with 19.7% net margins but slower growth (8%) and narrower focus. FTI's valuation appears modest by comparison.

Balance Sheet Provides Downside Protection
With $146 million in cash, $390 million in available credit, and investment-grade status, FTI has substantial liquidity to weather prolonged headwinds. The 0.44x debt/equity ratio is conservative, and the company was in compliance with its 3.5x maximum leverage covenant as of September 30, 2025. This financial flexibility is a competitive advantage that enables the talent investment strategy while peers with higher leverage (HURN at 1.31x, CRAI at 0.96x) may need to cut costs.

The Key Valuation Question
The market appears to be pricing FTI as a mature professional services firm with temporary headwinds. The 21.1x P/E multiple is below the peer average of ~25x for faster-growing competitors. If management successfully executes the Economic Consulting turnaround and Technology segment recovery, the multiple should expand toward peer levels, providing 20-30% upside beyond earnings growth. If execution falters, the downside is cushioned by the balance sheet and cash generation.

Conclusion: Paying for Execution Premium

FTI Consulting's 2025 story is one of deliberate strategic dissonance—accepting near-term margin compression and segment volatility to build a more resilient, higher-quality business for the long term. The company's ability to deliver record performance in Corporate Finance & Restructuring and Forensic and Litigation Consulting while navigating the most severe headwinds in a decade demonstrates the power of its diversified model and talent-centric strategy.

The central thesis hinges on two execution variables: the timeline for Economic Consulting's recovery and the duration of the Technology segment's cyclical downturn. Management's track record of successful turnarounds (Strategic Communications) and bold market share gains (U.K. insolvency, German Andersch) provides credibility to their confidence. The $234 million invested in forgivable loans isn't a defensive move—it's an offensive bet that FTI can attract the best talent even during adversity and that this talent will generate superior returns as markets normalize.

For investors, the risk/reward is asymmetric. The downside is limited by a strong balance sheet, consistent cash generation, and reasonable valuation multiples. The upside depends on execution but could be substantial if Economic Consulting returns to even half its historical profitability and Technology recovers with its AI leadership intact. The stock's 21.1x P/E multiple doesn't price in this recovery, creating opportunity for those willing to endure near-term volatility.

The ultimate question is whether FTI's talent investment during adversity will follow the Strategic Communications playbook—multiyear investment followed by sustained outperformance—or whether the Economic Consulting dislocation proves deeper and more structural. Management's guidance for 11 consecutive years of adjusted EPS growth suggests they believe it's the former. The next two quarters will reveal whether that confidence is justified.