FCN Q1 Earnings Call: FTI Consulting Misses on Revenue as Uncertainty Weighs on Outlook

Business advisory firm FTI Consulting (NYSE: FCN) missed Wall Street’s revenue expectations in Q1 CY2025, with sales falling 3.3% year on year to $898.3 million. Its non-GAAP profit of $2.29 per share was 27.7% above analysts’ consensus estimates.

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StockStory’s Take

FTI Consulting’s first quarter performance reflected mixed dynamics across its business segments, with leadership attributing results to continued strength in forensic and litigation consulting, but acknowledging notable headwinds in economic consulting and technology. CEO Steven Gunby pointed to confidential but “critical” assignments in the Forensic and Litigation Consulting group, while also highlighting operational adjustments and targeted headcount reductions to address lower demand in other areas.

Looking ahead, management expressed caution about the persistence of regulatory and macroeconomic uncertainty, which they expect to impact client activity and demand for advisory services. Gunby described the current environment as “filled with uncertainty” and noted, “if the thrust of this administration is to cut back regulatory enforcement on a number of key areas, that can have a pretty big effect on us.” FTI plans to revisit guidance after assessing second quarter results, reflecting the range of possible outcomes facing the business this year.

Key Insights from Management’s Remarks

FTI Consulting’s leadership offered a detailed breakdown of segment performance, emphasizing the interplay between shifting client needs, regulatory environments, and internal operational changes. The quarter’s deviations from Wall Street expectations were largely due to lower demand in macro-sensitive areas and the timing of major client assignments, while cost controls and one-time items supported profitability.

• Forensic and Litigation Consulting momentum: The group delivered a record quarter, benefiting from large confidential assignments and higher demand for risk, investigation, and data analytics services, particularly in cyber and regulatory compliance. Gunby noted increased visibility of FTI’s expertise in these areas as a key driver.
• Economic Consulting headwinds: Departures from Compass Lexicon and reduced M&A activity led to revenue and profit pressure. Management explained that new hires—often requiring upfront investment—will take time to contribute meaningfully, resulting in a near-term hit to the bottom line, though long-term prospects remain positive.
• Technology segment volatility: The technology business experienced lower M&A-related demand, partly offset by growth in investigations. Management cautioned that recent increases in M&A-related work are unlikely to continue, citing a broader market slowdown and reduced federal premerger activity.
• Restructuring and transaction services: Corporate Finance and Restructuring saw lower revenue from transformation and strategy services, but pockets of strength in transaction services and international markets like Germany. Leadership highlighted the unpredictable impact of macroeconomic and policy shifts, including tariffs, on these services.
• Cost management and investment: The company undertook targeted headcount actions across segments, generating salary and benefit savings. However, these savings are largely being offset by ongoing investments in talent and forgivable loans, especially for new academic recruits in Economic Consulting.

Drivers of Future Performance

Management’s outlook for the year remains cautious, with ongoing uncertainty in regulatory policy, client spending, and M&A activity shaping their expectations. The company is balancing cost controls with continued investments in talent and service capabilities.

• Regulatory and policy uncertainty: Shifts in U.S. regulatory enforcement and the impact of new tariffs could affect demand for advisory services, particularly in forensic consulting and restructuring.
• M&A and restructuring trends: Persistent weakness in M&A is likely to continue weighing on the technology and economic consulting segments, while recent signs of increased restructuring activity may offer some offsetting opportunities.
• Talent investments: Ongoing hiring and integration of new academic affiliates are expected to pressure margins in the near term but are positioned as critical to sustaining long-term growth and competitive advantage.

Top Analyst Questions

• James Yaro (Goldman Sachs): Asked about the impact of tariffs on different business lines; management responded that effects are not yet fully known but could influence restructuring and supply chain advisory activity.
• James Yaro (Goldman Sachs): Inquired about potential effects of regulatory policy changes on forensic consulting; executives stated that reduced enforcement could be material but is not yet visible in results.
• James Yaro (Goldman Sachs): Sought clarification on the status of annual guidance; management confirmed guidance remains unchanged until at least the next quarter’s update.
• Tobey Sommer (Truist): Asked about the scale and margin effects of Compass Lexicon departures; management indicated that revenue headwinds will be more pronounced in future quarters, with margin pressure from upfront investments in new hires.
• Andrew Nicholas (William Blair): Queried bifurcation in restructuring between liability management and bankruptcy; management highlighted that increased working capital stress from tariffs is driving demand for traditional restructuring services.

Catalysts in Upcoming Quarters

In the coming quarters, the StockStory team will monitor (1) the pace and quality of new client assignments in the Forensic and Litigation Consulting segment, (2) signs of stabilization or recovery in M&A and restructuring activity, and (3) the financial impact of talent investment and headcount actions, particularly in the Economic Consulting group. Macro policy developments and regulatory shifts will also remain key variables shaping FTI Consulting’s performance.

FTI Consulting currently trades at a forward P/E ratio of 20.4×. At this valuation, is it a buy or sell post earnings? Find out in our free research report.

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