FTI Consulting Balances Strong Growth With Margin Strain

FTI Consulting ((FCN)) has held its Q1 earnings call. Read on for the main highlights of the call.

FTI Consulting’s latest earnings call painted a mixed but generally upbeat picture, as strong top-line growth and standout performances in Corporate Finance and Strategic Communications were offset by margin pressure and a sharp setback at Compass Lexecon. Management struck a confident tone on long-term opportunity, though investors were reminded that near-term profitability faces headwinds from higher costs and a multi-quarter rebuild in Economic Consulting.

Broad-Based Revenue Growth Supports Full-Year Outlook

FTI reported Q1 2026 revenues of $983.3 million, up 9.5% year over year, or 6.8% excluding currency effects, putting the firm close to double-digit expansion. Management reaffirmed full-year 2026 revenue guidance of $3.94 billion to $4.10 billion, signaling confidence that current momentum and pipeline strength can be sustained despite segment-level volatility.

Corporate Finance Delivers Powerful Upside

Corporate Finance emerged as the growth engine, with revenues jumping 19.2% to $409.5 million and segment operating income more than doubling to $85.2 million. Adjusted segment EBITDA margin improved sharply to 21.6%, driven by robust demand in turnaround and restructuring, transactions and transformation work, and a near doubling of million‑plus dollar engagements.

Strategic Communications Posts Record Quarter

Strategic Communications delivered record revenues of $103.0 million, up 18.4% year over year, as clients leaned on the firm for high-stakes, event-driven assignments. Operating income climbed to $20.8 million and adjusted EBITDA margin expanded to 21.3%, reflecting a richer mix of crisis, cyber, transaction and activism mandates that typically carry higher margins.

Technology Benefits From Litigation, AI and Privacy Demand

The Technology segment posted revenues of $102.3 million, up 5.3% as clients sought help with litigation, information governance, privacy and security issues. Adjusted EBITDA reached $11.8 million, or 11.6% of revenues, and management highlighted the unit’s positioning to capture growing AI-related work, with sequential revenue up 3.3% as demand broadens.

Cash Flow Trend Improves as Buybacks Ramp Up

Net cash used in operating activities improved materially to $310 million from $455.2 million a year earlier, easing concerns around working capital and bonus payments. FTI also remained active in returning capital to shareholders, repurchasing 787,098 shares for $126.8 million at an average price of $161.11 and leaving roughly $354.9 million on its existing authorization.

Shrinking Share Count Supports EPS

Weighted average shares outstanding fell 14.6% to 30.3 million from 35.5 million, amplifying earnings per share despite lower net income. GAAP EPS rose to $1.90 from $1.74 in the prior year, with management underscoring buybacks as a key lever in its capital allocation strategy and an important counterweight to margin pressure.

Talent Investment Fuels Global Expansion

FTI continued to lean into strategic hiring, bringing on 85 senior professionals in 2025 and adding 29 senior managing director or affiliate hires so far in 2026 across Australia, the Middle East and key adjacent offerings. The company stressed that these investments in cyber, transactions and restructuring capabilities, alongside planned ramp-up in junior hiring in the second half, are central to sustaining long-term growth.

Compass Lexecon Weighs on Results

Economic Consulting, led by Compass Lexecon, was the notable drag, with revenues slipping 2.3% to $175.6 million and adjusted EBITDA swinging to a $5.9 million loss. Management was candid that it will take multiple quarters to rebuild the business and restore profitability, framing the current downturn as a combination of softer demand and internal execution challenges.

Margin Compression Hits Adjusted EBITDA

Despite higher revenues, company-wide adjusted EBITDA fell to $96.8 million, with margin contracting to 9.8% from 12.8% a year earlier as compensation and other direct costs climbed. The disconnect between robust growth and weaker profitability underscored the cost of talent investments and the impact of underperforming segments on consolidated margins.

Tax Rate and Earnings Growth Under Pressure

Net income declined to $57.6 million from $61.8 million, with earnings further constrained by a higher effective tax rate of 26.6% versus 23.3% in the prior-year quarter. While GAAP EPS improved, management noted that adjusted comparisons are less flattering, with prior-year adjusted EPS at $2.29, highlighting that earnings quality has softened even as reported EPS ticks higher.

Rising SG&A and Direct Costs Squeeze Profitability

Selling, general and administrative expenses rose to $222.3 million, or 22.6% of revenues, from $184.3 million, largely reflecting higher legal costs, compensation and travel and entertainment spending. Direct costs increased to $676.5 million from $608.9 million as variable compensation, salaries and forgivable loan amortization rose, underscoring the near-term cost of supporting growth and talent upgrades.

Forensic and Litigation Consulting Faces Margin Strain

Forensic and Litigation Consulting revenues edged up 1.2% to $192.9 million but profitability deteriorated, with segment operating income falling to $23.1 million and adjusted EBITDA margin dropping to 13.1%. Management cited lumpy, timing-driven engagements, elevated hiring-related expenses and higher bad debt as the main factors crimping margins, reinforcing the volatility inherent in this business line.

Leverage Rises as Net Debt Climbs

Total debt net of cash surged to $556.7 million at March 31, 2026, compared with just $8.9 million a year earlier and $99.9 million at year-end 2025, driven by annual bonus payouts and share repurchases. While the balance sheet remains manageable, the step-up in net leverage is a key metric for investors watching how aggressively FTI funds buybacks and growth investments.

Adjusted EPS Trails Prior-Year Benchmark

Although headline GAAP EPS improved, management acknowledged that the underlying performance looks weaker against an adjusted baseline, as last year’s quarter excluded a sizable special charge. With Q1 2025 adjusted EPS at $2.29 versus this year’s $1.90, the narrative shifts from earnings growth to one of revenue-driven expansion still catching up to higher cost levels.

Guidance Affirms Growth, Flags Cost and Compass Risks

FTI reaffirmed its 2026 outlook for revenues between $3.94 billion and $4.10 billion and EPS of $8.90 to $9.60, while targeting a full-year effective tax rate of 22% to 24%. Management cautioned that Economic Consulting will need several quarters to recover and that 2026 SG&A will run about $60 million above 2025, with second-quarter SG&A peaking slightly above Q1, even as the company continues buybacks and balances a higher net debt position.

FTI’s earnings call offered a compelling growth story tempered by clear profitability challenges, leaving investors to weigh strong demand and strategic hiring against near-term margin compression and the turnaround at Compass Lexecon. With guidance intact and key segments performing well, the stock narrative hinges on whether management can translate today’s revenue strength and talent investments into cleaner earnings growth over the coming quarters.