FTI CONSULTING, INC (FCN) FY 2021 MD&A

ITEM 7.    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 each of the two years in the period ended December 31, 2021 and significant factors that could affect our prospective financial condition and results of operations. This discussion should be read in conjunction with our consolidated financial statements and notes included in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report. For a similar discussion and analysis of our results for the year ended December 31, 2020 compared with our results for the year ended December 31, 2019, refer to Part II, Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations” of our Annual Report for the year ended December 31, 2020, filed with the United States ("U.S.") Securities and Exchange Commission (“SEC”) on February 25, 2021. Historical results and any discussion of prospective results may not indicate our future performance.

Business Overview

FTI Consulting 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, 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 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 arrangements may also contain success fees or performance-based arrangements in which our fees are based on the attainment

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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 some other 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. 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 20, “Segment Reporting” in Part II, Item 8, “Financial Statements and Supplementary Data” of this Annual Report, 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.

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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 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 Consolidated Statements of Comprehensive Income and 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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Full Year 2021 Executive Highlights

Financial Highlights

(1)This includes acquisition-related revenues. We define acquisition growth as revenues of acquired companies in the first 12 months following the effective date of an acquisition. Our definition of organic growth is the change in revenues, excluding the impact of all such acquisitions.

(2)Excluded from non-GAAP financial measures.

Revenues

Revenues for the year ended December 31, 2021 increased $314.9 million, or 12.8%, as compared with the year ended December 31, 2020, which included a 2.0% estimated positive impact from FX. Acquisition-related revenues contributed $11.5 million, or 0.5% of the increase, compared with 2020. Excluding the estimated impact from FX and the acquisition-related revenues, revenues increased $253.6 million, or 10.3%, primarily due to increased demand for all of our segments, particularly in Economic Consulting, FLC and Technology.

Special Charges

There were no special charges recorded during the year ended December 31, 2021. For the year ended December 31, 2020, we recorded special charges of $7.1 million, which consisted of $4.7 million of lease abandonment and other relocation costs associated with the consolidation of office space in New York, New York, and $2.4 million of employee severance and other employee-related costs in our FLC segment.

Net income

Net income for the year ended December 31, 2021 increased $24.3 million, or 11.5%, as compared with the year ended December 31, 2020. The increase in net income was primarily due to an increase in revenues, FX remeasurement gains and the absence of the above mentioned special charges, which was partially offset by higher compensation expenses, which includes the impact of a 6.6% increase in billable headcount and higher variable compensation, higher selling, general and administrative ("SG&A") expenses and a higher effective tax rate.

Adjusted EBITDA

Adjusted EBITDA for the year ended December 31, 2021 increased $21.7 million, or 6.5%, as compared with the year ended December 31, 2020. Adjusted EBITDA was 12.8% of revenues for the year ended December 31, 2021 compared with 13.5% of revenues for the year ended December 31, 2020. The increase in Adjusted EBITDA was due to an increase in revenues, which was partially offset by higher compensation expenses, which includes the impact of a 6.6% increase in billable headcount and higher variable compensation, as well as higher SG&A expenses.

EPS and Adjusted EPS

EPS for the year ended December 31, 2021 increased $0.98 to $6.65 compared with $5.67 for the year ended December 31, 2020. The increase in EPS was primarily due to the higher net income described above and a decline in diluted weighted average shares outstanding.

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Adjusted EPS for the year ended December 31, 2021 increased $0.77 to $6.76 compared with $5.99 for the year ended December 31, 2020. Adjusted EPS for the year ended December 31, 2021 excludes $9.6 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 $0.20, which was partially offset by $3.1 million in fair value remeasurement related to acquisition-related contingent consideration, which decreased Adjusted EPS by $0.09. Adjusted EPS for the year ended December 31, 2020 excluded the $7.1 million special charge and $9.1 million of non-cash interest expense related to the 2023 Convertible Notes, which increased Adjusted EPS by $0.14 and $0.18, respectively.

Liquidity and Capital Allocation

Net cash provided by operating activities for the year ended December 31, 2021 increased $28.4 million to $355.5 million compared with $327.1 million for the year ended December 31, 2020. The increase in net cash provided by operating activities was primarily due to higher cash collections resulting from increased revenues combined with lower income tax payments largely due to the reversal of a significant deferred tax asset in the U.S. The increase was partially offset by higher compensation expense primarily related to headcount growth and an increase in other operating expenses. Days sales outstanding (“DSO”) was 94 days as of December 31, 2021 compared with 95 days as of December 31, 2020.

On June 2, 2016, our Board of Directors authorized a stock repurchase program of up to $100.0 million (the “Repurchase Program”). A portion of net cash provided by operating activities was used to repurchase and retire approximately 0.4 million shares of our common stock under our Repurchase Program for an average price per share of $109.37, at a total cost of $46.1 million during the year ended December 31, 2021. We had $167.1 million remaining under the Repurchase Program to repurchase additional shares as of December 31, 2021.

Free Cash Flow was an inflow of $286.9 million and $292.2 million for the years ended December 31, 2021 and 2020, respectively. The decrease was primarily due to an increase in net cash used for purchases of property and equipment.

Other Strategic Activities

During the year ended December 31, 2021, we acquired certain assets of The Rhodes Group, a leading construction consulting firm with offices in Pittsburgh, Pennsylvania and Houston, Texas.

Also during the year ended December 31, 2021, we entered into a definitive agreement to acquire BOLD, a leading restructuring, transactions, digital and transformation advisory firm in the Netherlands. The acquisition closed during the first quarter of 2022.

Coronavirus Disease 2019 ("COVID-19") Pandemic

The COVID-19 pandemic created global volatility, economic uncertainty and general market disruption, and it has impacted each of our segments, practices and regions differently. During the year ended December 31, 2021, the COVID-19 pandemic continued to impact our ability to deliver certain services due to, for example, travel restrictions, court closures, backlogs at courts and government moratoriums on restructuring, which is varied in each region. Although we have not been materially adversely impacted by illness in our employee population, the COVID-19 pandemic itself and the potential evolution of more contagious or dangerous variants, coupled with vaccine hesitancy and the delay associated with developing vaccines targeted to new variants, could increase the risk that our employees may experience negative health outcomes, impair employee retention or headcount growth, and adversely affect our ability to service clients or win new engagements, which differs by segment, position and geography and is difficult to quantify. Governmental or client vaccine mandates could also impair our ability to perform services and attract and retain clients. In addition, vaccine hesitancy by some employees could delay or derail in-person back-to-work efforts, reduce the pool of qualified employment candidates that are available to staff engagements or to hire, negatively impact our ability to provide client services or win engagements, and result in more adverse health outcomes for our employee population. Evolving business practices, including those related to remote work, as well as fiscal and monetary policies have mitigated the negative economic impact of the pandemic in certain key geographies, such as in North America. The COVID-19 pandemic and its impact on our business and the health and welfare of our employees continues to be difficult to predict, especially due to uncertainty arising from the potential continuing evolution of COVID-19 variants, the development and efficacy of vaccinations against variants and the roll-out of vaccination programs around the world, including vaccine mandates imposed by governments that could apply to us and our employees and requirements imposed by our clients relating to the vaccination status of our employees who serve such clients.

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Headcount

Our total headcount increased 7.3% from 6,321 as of December 31, 2020 to 6,780 as of December 31, 2021. The following table includes the net billable headcount additions for the year ended December 31, 2021:

(1)There were 38 revenue-generating professionals added during the year ended December 31, 2021 related to the acquisition of certain assets of a business within the FLC segment.

RESULTS OF OPERATIONS

Segment and Consolidated Operating Results:

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Reconciliation of Net Income to Adjusted EBITDA:

Reconciliation of Net Income and EPS to Adjusted Net Income and Adjusted EPS:

Reconciliation of Net Cash Provided by Operating Activities to Free Cash Flow:

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Year Ended December 31, 2021 Compared with December 31, 2020

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 increased $10.0 million, or 10.6%, to $104.5 million in 2021 from $94.5 million in 2020. Excluding the impact of special charges recorded in 2020, unallocated corporate expenses increased by $10.4 million, or 11.0%. The increase was primarily due to higher compensation due to headcount growth and higher infrastructure support costs to support growth in the business.

Interest income and other

Interest income and other, which includes FX gains and losses, increased to a $6.2 million gain for the year ended December 31, 2021, compared with a $0.4 million loss for the year ended December 31, 2020. The increase was primarily due to a $6.5 million increase in net FX gains.

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.

Interest expense

Interest expense increased $0.5 million, or 2.5%, to $20.3 million in 2021 from $19.8 million in 2020.

Income tax provision

Our income tax provision increased $11.2 million, or 21.7%, to $63.0 million in 2021, compared with $51.8 million in 2020. Our effective tax rate was 21.1% for 2021 as compared with 19.7% for 2020. The lower effective tax rate in 2020 was primarily due to intellectual property license agreements entered into between subsidiaries, resulting in a $11.2 million tax benefit. In addition, in 2021, a larger percentage of income was generated in higher tax jurisdictions than in 2020.

A portion of the increase in the 2021 effective tax rate was offset by the following favorable tax adjustments: a $5.1 million benefit related to the release of the valuation allowance on our deferred tax assets in Australia because of sustained profitability and a $3.2 million benefit related to the remeasurement of our deferred tax asset related to an intellectual property license between our U.S. and United Kingdom ("U.K.") subsidiaries due to a future change in the U.K. tax rate. In June 2021, the U.K. government approved a U.K. tax rate increase from 19.0% to 25.0% effective in April 2023.

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 years ended December 31, 2021 and 2020:

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Other Segment Operating Data

(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 518 and 331 as-needed employees during the years ended December 31, 2021 and 2020, respectively.

(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, 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

(1)Revenues less direct cost of revenues.

(2)Gross profit as a percentage of revenues.

Year Ended December 31, 2021 Compared with December 31, 2020

Revenues increased $28.8 million, or 3.2%, from 2020 to 2021, which included a 2.0% estimated positive impact from FX. Acquisition-related revenues contributed $3.0 million, or 0.3%, of the increase, compared with 2020. Excluding the estimated impact from FX and acquisition-related revenues, revenues increased $7.8 million, or 0.9%, primarily due to increased demand and realized bill rates across transactions and business transformation services in North America and Europe, the Middle East and Africa, which was partially offset by decreased demand and realized bill rates for restructuring services.

Gross profit decreased $44.8 million, or 13.5%, from 2020 to 2021. Gross profit margin decreased 5.9 percentage points from 2020 to 2021. The decrease in gross profit margin was largely due to a 4 percentage point decline in utilization and lower realized bill rates, primarily due to restructuring services, as well as an unfavorable business mix.

SG&A expenses increased $14.3 million, or 12.0%, from 2020 to 2021. SG&A expenses of 14.2% of revenues in 2021 compared with 13.1% in 2020. The increase in SG&A expenses was primarily due to higher infrastructure support costs, as well as rent and occupancy and compensation expenses, which was partially offset by lower acquisition-related expenses.

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FORENSIC AND LITIGATION CONSULTING

(1)Revenues less direct cost of revenues.

(2)Gross profit as a percentage of revenues.

Year Ended December 31, 2021 Compared with December 31, 2020

Revenues increased $84.6 million, or 16.9%, from 2020 to 2021, which included a 1.5% estimated positive impact from FX. Acquisition-related revenues contributed $8.5 million, or 1.7% of the increase, compared with 2020. Excluding the estimated impact from FX and acquisition-related revenues, revenues increased $68.7 million, or 13.7%, primarily due to higher demand for our investigations, disputes and health solutions services.

Gross profit increased $49.5 million, or 40.3%, from 2020 to 2021. Gross profit margin increased 5.0 percentage points from 2020 to 2021. The increase in gross profit margin was largely related to a 5 percentage point increase in utilization, primarily in our disputes, investigations and health solutions services, which was partially offset by higher variable compensation as a percentage of revenues.

SG&A expenses increased $10.2 million, or 10.7%, from 2020 to 2021. SG&A expenses of 17.9% of revenues in 2021 compared with 18.9% in 2020. The increase in SG&A expenses was primarily driven by higher infrastructure support and rent and occupancy costs, as well as an increase in variable compensation and other general and administrative expenses, which was partially offset by lower bad debt.

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ECONOMIC CONSULTING

(1)Revenues less direct cost of revenues.

(2)Gross profit as a percentage of revenues.

Year Ended December 31, 2021 Compared with December 31, 2020

Revenues increased $98.3 million, or 16.4%, from 2020 to 2021, which included a 2.1% estimated positive impact from FX. Excluding the estimated impact from FX, revenues increased $85.6 million, or 14.3%. The increase was primarily due to higher demand for our non-mergers and acquisitions ("M&A")-related antitrust services, along with higher demand and realized bill rates for financial economics and international arbitration services, which was partially offset by lower realized bill rates and demand for M&A-related antitrust services.

Gross profit increased $24.1 million, or 14.6%, from 2020 to 2021. Gross profit margin decreased 0.4 percentage points from 2020 to 2021. The decrease in gross profit margin was primarily due to higher variable compensation and contractor expenses, which was partially offset by a 4 percentage point improvement in utilization.

SG&A expenses decreased $1.3 million, or 1.7%, from 2020 to 2021. SG&A expenses of 11.1% of revenues in 2021 compared with 13.1% in 2020. The decrease in SG&A expenses was primarily driven by lower bad debt, which was partially offset by the unfavorable impact from FX and higher infrastructure support costs.

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TECHNOLOGY

(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.

Year Ended December 31, 2021 Compared with December 31, 2020

Revenues increased $64.4 million, or 28.9%, from 2020 to 2021, which included a 2.1% estimated positive impact from FX. Excluding the estimated impact from FX, revenues increased $59.8 million, or 26.8%. The increase was driven by increased demand across all practices associated with litigation, investigations and M&A-related “second request” services.

Gross profit increased $22.4 million, or 25.3%, from 2020 to 2021. Gross profit margin decreased 1.1 percentage points from 2020 to 2021. The decrease in gross profit margin was due to decreased utilization of our consulting services associated with high levels of hiring activity, partially offset by favorable mix and profitability of our managed review services.

SG&A expenses increased $10.6 million, or 18.5%, from 2020 to 2021. SG&A expenses of 23.6% of revenues in 2021 compared with 25.7% in 2020. The increase in SG&A expenses was primarily due to higher compensation, infrastructure support, rent and occupancy costs and other general and administrative expenses.

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STRATEGIC COMMUNICATIONS

(1)Revenues less direct cost of revenues.

(2)Gross profit as a percentage of revenues.

Year Ended December 31, 2021 Compared with December 31, 2020

Revenues increased $38.9 million, or 17.0%, from 2020 to 2021, which included a 3.2% estimated positive impact from FX. Excluding the estimated impact from FX, revenues increased $31.7 million or 13.9%. The increase was primarily due to growth in project- and retainer-based revenues, driven by higher demand for our corporate reputation and public affairs services.

Gross profit increased $21.0 million, or 25.8%, from 2020 to 2021. Gross profit margin increased 2.7 percentage points from 2020 to 2021. The increase in gross profit margin was driven by lower compensation as a percentage of revenues.

SG&A expenses increased $5.3 million, or 11.9%, from 2020 to 2021. SG&A expenses of 18.7% of revenues in 2021 compared with 19.6% in 2020. The increase in SG&A expenses was primarily driven by higher infrastructure support, outside services and other general and administrative expenses.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity

For the years ended December 31, 2021, 2020 and 2019, our cash flows from operations exceeded our cash needs for capital expenditures and debt service requirements. We generally finance our day-to-day operations, capital expenditures, acquisitions and share repurchases through cash flows from operations. 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.

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.

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Uncertainties and Trends Affecting Liquidity

Our conclusion that we will be able to fund our cash requirements for 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, the COVID-19 pandemic that could result in a material adverse impact on our business, other events beyond our control, or the impact of any future acquisitions, unexpected significant changes in 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 disruptions, arising from the COVID-19 pandemic worsen or other events beyond our control, or if other economic or business conditions change from those currently prevailing or from those now anticipated, or if unexpected circumstances 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 raise additional debt or equity funding to meet those needs. Our ability to 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 information under the heading “Risk Factors” in Part I, Item 1A of this Annual Report.

Cash Flows

(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.

Year Ended December 31, 2021 Compared with December 31, 2020

Net cash provided by operating activities increased $28.4 million, or 8.7%, from 2020 to 2021. The increase in net cash provided by operating activities was primarily due to higher cash collections combined with lower income tax payments largely due to the reversal of a significant deferred tax asset in the U.S., which was partially offset by an increase in compensation, primarily related to headcount growth and higher annual bonus payments, as well as other operating expenses. DSO was 94 days as of December 31, 2021 and 95 days as of December 31, 2020.

Net cash used in investing activities increased $19.0 million, or 31.6%, from 2020 to 2021. The increase in net cash used in investing activities was primarily due to an increase of $33.7 million in capital expenditures, mainly related to leasehold improvement costs for our new office space in New York, New York, offset by a decrease of $14.8 million in payments for acquisitions of businesses, net of cash received.

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Net cash used in financing activities decreased $298.4 million, or 82.9%, from 2020 to 2021. The decrease in net cash used in financing activities was primarily due to a decrease of $307.5 million in payments for common stock repurchases under the Repurchase Program.

Principal Sources of Capital Resources

As of December 31, 2021, our capital resources included $494.5 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 December 31, 2021, 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 the 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 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 (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 December 31, 2021, 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.

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, office furniture and leasehold improvements;

•debt service requirements, including interest payments on our long-term debt;

•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;

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•potential acquisitions of businesses; and

•other known future contractual obligations.

Capital Expenditures

During 2021, we spent $68.6 million in capital expenditures to support our organization, including the leasehold improvement costs for the New York office space and direct support for specific client engagements. During 2022, we currently expect to make capital expenditures to support our organization in an aggregate amount between $44 million and $54 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 year ended December 31, 2021, we made $46.1 million in payments for common stock repurchases under the Repurchase Program. We had $167.1 million remaining under the Repurchase Program to repurchase additional shares as of December 31, 2021.

Payments for Acquisition of Businesses

During the year ended December 31, 2021, we acquired certain assets of businesses that were assigned to the Corporate Finance and FLC segments for an aggregate of $10.4 million. We also recorded a liability of $1.1 million for an acquisition-related contingent consideration.

Future Contractual Obligations

Our future obligations as of December 31, 2021 include both current and long-term obligations. We have a current obligation of $6.3 million and long-term obligations of $322.6 million related to our 2023 Convertible Notes, including current and long-term interest, and Credit Facility. For more information on our 2023 Convertible Notes and Credit Facility, refer to Note 14, "Debt" in Part II, Item 8. Future contractual obligations related to our long-term 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 December 31, 2021 and prior to the November 30, 2023 maturity date of our Credit Facility. Under our operating leases as noted in Note 15, “Leases” in Part II, Item 8, we have a current obligation of $30.8 million and long-term obligations of $236.0 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.

Critical Accounting Estimates

General. Our discussion and analysis of our financial condition and results of operations are based on our 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. 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 value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions.

We believe that the following critical accounting estimates reflect our more significant judgments used in the preparation of our consolidated financial statements.

Revenue Recognition. Revenues are recognized when we satisfy a performance obligation by transferring services promised in a contract to a customer and in an amount that reflects the consideration that we expect to receive in exchange for those services. Performance obligations in our contracts represent distinct or separate services that we provide to our customers. If, at the outset of an arrangement, we determine that a contract with enforceable rights and obligations does not exist, revenues are deferred until all criteria for an enforceable contract are met.

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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").

•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.

In our Technology segment, we generate unit-based revenues that are recognized at agreed-upon per unit rates for the amount of data stored or processed, the number of concurrent users accessing the information, or the number of pages or images processed for a client.

Reimbursable expenses, including those relating to travel, out-of-pocket expenses, outside consultants and other outside service costs, are generally included in revenues, and an equivalent amount of reimbursable expenses is included in costs of services in the period in which the expense is incurred.

Timing of revenue recognition often differs from the timing of billing to our customers. Generally, we transfer goods or services to a customer before the customer pays consideration or payment is due. If we have an unconditional right to invoice and receive payment for goods or services already provided, we record billed and unbilled receivables on our Consolidated Balance Sheets. Our contract terms generally include a requirement of payment within 30 days when no contingencies exist. Payment terms and conditions vary depending on the jurisdiction, market and type of service, and whether regulatory or other third-party approvals are required. At times, we may execute contracts in a form provided by customers that might include different payment terms and contracts may be negotiated at the client’s request.

Goodwill and Intangible Assets. Goodwill represents the purchase price of acquired businesses in excess of the fair market value of net assets acquired at the date of acquisition. Intangible assets may include customer relationships, trademarks and acquired software.

We test our goodwill and indefinite-lived intangible assets for impairment annually as of the first day of the fourth quarter and whenever events or changes in circumstances indicate that the carrying value of an asset may not be recoverable. On a quarterly basis, we monitor the key drivers of fair value to detect events or other changes that would warrant an interim impairment test. Important factors we consider that could trigger an interim impairment review include, but are not limited to, the following:

•significant underperformance relative to expected historical or projected future operating results;

•a significant change in the manner of our use of the acquired asset or the strategy for our overall business;

•a significant market decline related to negative industry or economic trends; and/or

•our market capitalization relative to net carrying value.

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We assess our goodwill for impairment at the reporting unit level. A reporting unit is an operating segment or a business one level below that operating segment if discrete financial information is available and regularly reviewed by the chief operating decision makers.

Our annual goodwill impairment test may be conducted using a qualitative assessment or a quantitative assessment. Under GAAP, we have an unconditional option to bypass the qualitative assessment and perform a quantitative impairment test. We determine whether to perform a qualitative assessment first or to bypass the qualitative assessment and proceed with the quantitative goodwill impairment test for each of our reporting units based on the excess of fair value over carrying value from the most recent quantitative tests and other events or changes in circumstances that could impact the fair value of the reporting units.

In the qualitative assessment, we consider various factors, events or circumstances, including macroeconomic conditions, industry and market considerations, cost factors, overall financial performance and other relevant reporting unit specific events. If, based on the qualitative assessment, we determine that it is not “more likely than not” that the fair value of a reporting unit is less than its carrying value, we do not prepare a quantitative impairment test. If we determine otherwise, we will prepare a quantitative assessment for potential goodwill impairment.

In the quantitative assessment, we compare the estimated fair value of the reporting unit with the carrying amount of that reporting unit. We estimate fair value using a combination of an income approach (based on discounted cash flows) and market approaches, using appropriate weighting factors. If the fair value exceeds the carrying amount, goodwill is not impaired. However, if the carrying value exceeds the fair value of the reporting unit, an impairment loss shall be recognized in an amount equal to that excess, limited to the total amount of goodwill allocated to that reporting unit.

The cash flows employed in the income approach are based on our most recent forecasts, budgets and business plans, as well as various growth rate assumptions for years beyond the current business plan period, discounted using an estimated weighted average cost of capital (“WACC”), which reflects an assessment of the risk inherent in the future revenue streams and cash flows. The WACC consists of (1) a risk-free rate of return, (2) an equity risk premium that is based on the historical rate of return for equity securities of publicly traded companies, (3) the current after-tax market rate of return on debt of companies with business characteristics similar to our reporting units and (4) a company-specific risk premium. We weight the cost of equity and debt by the relative market value percentages of our equity and debt. In the market approach, we utilize market multiples derived from comparable guideline companies and comparable market transactions to the extent available. These valuations are based on estimates and assumptions, including projected future cash flows, determination of appropriate comparable guideline companies and the determination of whether a premium or discount should be applied to such comparable guideline companies.

The process of evaluating the potential impairment of goodwill is highly subjective and requires significant judgment and estimates. There can be no assurance that the estimates and assumptions used in our goodwill impairment testing will prove to be accurate predictions of the future. If our assumptions regarding forecasted cash flows are not achieved or market conditions significantly deteriorate, we may be required to record goodwill impairment charges in future periods, whether in connection with our next annual impairment test or prior to that, if a triggering event occurs outside of the quarter during which the annual goodwill impairment test is performed. It is not possible at this time to determine if any future impairment charge would result or, if it does, whether such charge would be material.

Intangible assets with finite lives are amortized over their estimated useful lives and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. These events or changes in circumstances may include a significant deterioration of operating results, changes in business plans or changes in anticipated future cash flows. If an impairment indicator is present, we evaluate recoverability of assets to be held and used by a comparison of the carrying value of the assets with future undiscounted net cash flows expected to be generated by the assets. We group assets at the lowest level for which there are identifiable cash flows that are largely independent of the cash flows generated by other asset groups. If the total of the expected undiscounted future cash flows is less than the carrying amount of the asset group, we estimate the fair value of the asset group to determine whether an impairment loss should be recognized.

Significant New Accounting Pronouncements

See Note 2, “New Accounting Standards” in Part II, Item 8 of this Annual Report.

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