FTI's Litigation Cloud and the EMEA Air Pocket

Record revenue meets a profit miss as a new legal cost, a Middle East pause, and buyback-fueled leverage reshape the story.

FCN · Earnings Call · 2026-07-30

Record Revenues, a Well-Acknowledged Miss

FTI Consulting opened its Q2 call with an unusual admission: a record quarter that still disappointed. Revenue hit ~$983M, up 9% year-over-year and a new high, but adjusted EBITDA fell to $104.5M (10.5% margin) from $111.6M (11.8%) a year earlier, and GAAP EPS of $1.99 came in $0.17 below adjusted EPS purely on the new legal charge. CEO Steve Gunby was direct: “we reported revenues for the second quarter that were, once again, a record. At the same time, our bottom-line performance was somewhat below our expectations” — Steven Gunby, Chief Executive Officer (CEO) · 2026-07-30. Management's framing: most of the surprise is temporary, and the company reaffirmed its revenue band of $3.94–$4.1B while trimming EPS guidance to $8.70–$9.30 (adjusted $9.10–$9.70).

The New Cost Line: Extraordinary Litigation

The most genuinely new theme in FCN's keyword trajectory — appearing at the top of the 20263 list with no comparable momentum in the prior 11 quarters — is extraordinary litigation. CFO Angela Nam, in her first call since joining, disclosed a turn in the company's long-running suit against a former employee: “The second quarter marked an inflection point in the company's litigation against a former employee, originally filed in 2023, ... the court allowed a third amended complaint, which expanded the case to include additional defendants, including a competing firm and new claims” — Angela Nam, Chief Financial Officer (CFO) · 2026-07-30. The $6.6M charge booked in unallocated corporate SG&A, plus expected costs in the second half, explains the $0.40 gap between GAAP and adjusted EPS guidance. Management argues the transparency is shareholder-friendly because the underlying operating engine is intact — a deliberate strategy of separating noise from run-rate performance.

Middle East, the U.K., and the Air-Pocket Math

The other driver of the miss is geographic. EMEA grew on the top line but below internal aspirations, split between two very different problems. The U.K. is a "zigs and zags" timing issue — a gap between cases ending and new cases beginning, squeezed further by European summer vacations that delay any immediate rebound. The Middle East is the harder one:

The Middle East has serious geopolitical disruption, and I think the world as a whole is having trouble predicting just how long that geopolitical disruption is going to last.
Steven Gunby, Chief Executive Officer (CEO) · 2026-07-30

Gunby stressed the team there is excellent and that quality usually wins over extended periods, but "we clearly do not yet have any definitive sense of when that business will turn." That uncertainty — plus the high aspirations tied to a wave of senior talent hires that haven't yet converted to revenue — is why FCN held a wide revenue range rather than narrowing it.

Buybacks Rear the Balance Sheet — AI and Econ Offer the Upside

The buyback machine keeps running: 2.6M shares repurchased at an average $150.84, for $390.9M, with ~$344M remaining. The cumulative effect is dramatic. Effective net cash collapsed from a +$660M peak (2024Q4) to −$557M today, and interest coverage fell from over 80x to roughly 13x — still comfortable, but a real change in balance-sheet posture, funded by buybacks and the forgivable loans used to attract senior talent. The silver linings: Econ finally inflected. After two years of drag — a theme persistent across recent calls — Compass Lexecon grew revenue $13.2M and adjusted EBITDA $14.7M sequentially, with strong sequential improvement in Econ driven by OpenAI's antitrust win, Anglo American's Brazilian nickel divestment, and the Amadeus–IDEMIA biometrics deal. Management now expects Econ to be a tailwind rather than a drag in 2H. And AI — another recurring theme — is producing concrete client wins rather than abstract optimism. “The main places where we're seeing the benefit is more on the revenue side.” — Steve Gunby, Chief Executive Officer · 2026-02-26 One Tech example: analyzing 45,000 images and videos (versus the old 45,000 emails) in a day to steer litigation strategy — work requiring senior judgment that reinforces FTI's high-end positioning. The prior-quarter refrain was that the Econ damage was two-thirds talent transition and one-third market: “If I had to guess on the first one, it'd probably be, I'm guessing, 2/3 to the talent transition and 1/3 towards market conditions” — Steve Gunby, Chief Executive Officer (CEO) · 2025-10-23. This quarter's sequential improvement suggests that transition is burning off. The stock, meanwhile, sits 17% below its April peak — the market is pricing the noise. The underlying engine, with 7% y/y top-line growth (10% ex-Econ), looks largely intact.