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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, 2022 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, 2021 compared with our results for the year ended December 31, 2020, 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, 2021, filed with the United States (“U.S.”) Securities and Exchange Commission (“SEC”) on February 24, 2022. Historical results and any discussion of prospective results may not indicate our future performance.

Business Overview

FTI Consulting, Inc., including its consolidated subsidiaries (collectively, the “Company,” “we,” “our” or “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 & Strategy, Transactions and Turnaround & Restructuring.

Our Forensic and Litigation Consulting (“FLC”) segment provides law firms, companies, boards of directors, government entities, private equity firms and other interested parties with a multidisciplinary and independent range of services in risk and investigations and disputes, including cybersecurity, and a focus on highly regulated industries such as our Construction & Environmental Solutions and Health Solutions Services. These services are supported by our data & analytics technology-enabled 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 digital insights and risk management consulting services. Our professionals help organizations better address risk as the growing volume and variety of enterprise data intersects with legal, regulatory and compliance needs. We deliver a wide range of expert solutions driven by investigations, litigation, M&A, antitrust and competition, and compliance and risk through three core offerings: Corporate Legal Department Consulting, 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

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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 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 another 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. When significant, we identify the impact of acquisition-related revenue growth. 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

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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.

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 2022 Executive Highlights

Financial Highlights

Year Ended December 31,

(dollar amounts in thousands, except per share amounts)

Earnings per common share — diluted $ 6.58 $ 6.65 -1.1 %

Adjusted earnings per common share — diluted $ 6.77 $ 6.76 0.1 %

(1)Excluded from non-GAAP financial measures

Revenues

Revenues for the year ended December 31, 2022 increased $252.7 million, or 9.1%, as compared with the year ended December 31, 2021, which included a 3.1% estimated negative impact from FX. Excluding the estimated impact from FX, revenues increased $339.8 million, or 12.2%, primarily due to increased demand for our Corporate Finance, FLC, Technology and Strategic Communications segments.

Special Charges

For the year ended December 31, 2022, we recorded a special charge of $8.3 million, which consisted of employee severance and other employee-related costs associated with programmatic headcount reductions primarily in our FLC and Corporate Finance segments to realign our workforce with current business demand. All of these amounts will be paid in cash in the next 12 months.

The following table details the special charges by segment:

(in thousands)

Corporate Finance $ 2,444

Economic Consulting 31

Strategic Communications 369

Segment special charge 7,564

Unallocated Corporate 776

Total special charges $ 8,340

There were no special charges recorded during the year ended December 31, 2021.

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Net income

Net income for the year ended December 31, 2022 increased $0.5 million, or 0.2%, as compared with the year ended December 31, 2021. The increase in net income was primarily due to higher revenues, which was partially offset by an increase in billable compensation expenses, which includes the impact of a 12.3% increase in billable headcount, resulting in higher gross profit. The increase in gross profit was more than offset by higher selling, general and administrative (“SG&A”) expenses, primarily due to an increase in travel and entertainment expenses as our professionals have increasingly resumed business travel, as well as higher non-billable compensation expenses, which includes the impact of a 14.0% increase in non-billable headcount, an increase in outside services and an $8.3 million special charge, resulting in lower operating income. This was offset by a $10.2 million decrease in interest expense largely due to the Company’s adoption of Accounting Standards Update (“ASU”) 2020-06 (“ASU 2020-06”) on January 1, 2022, as we no longer recognize non-cash interest expense related to the 2.0% convertible senior notes due 2023 (the "2023 Convertible Notes").

Adjusted EBITDA

Adjusted EBITDA for the year ended December 31, 2022 increased $3.5 million, or 1.0%, as compared with the year ended December 31, 2021. Adjusted EBITDA Margin of 11.8% of revenues for the year ended December 31, 2022 compared with 12.8% of revenues for the year ended December 31, 2021. Higher revenues were partially offset by an increase in billable compensation expenses, which includes the impact of a 12.3% increase in billable headcount, resulting in higher gross profit. The increase in gross profit was nearly offset by higher SG&A expenses, primarily due to an increase in travel and entertainment expenses as our professionals have increasingly resumed business travel, as well as higher non-billable compensation expenses, which includes the impact of a 14.0% increase in non-billable headcount, and an increase in outside services, resulting in higher Adjusted EBITDA. Adjusted EBITDA for the year ended December 31, 2022 excludes the $8.3 million special charge.

EPS and Adjusted EPS

EPS for the year ended December 31, 2022 decreased $0.07 to $6.58 compared with $6.65 for the year ended December 31, 2021. The decrease in EPS was primarily due to an increase in diluted weighted average shares outstanding, which was partially offset by the higher net income described above.

Adjusted EPS for the year ended December 31, 2022 increased $0.01 to $6.77 compared with $6.76 for the year ended December 31, 2021. Adjusted EPS for the year ended December 31, 2022 excludes the $8.3 million special charge, which increased Adjusted EPS by $0.19. Adjusted EPS for the year ended December 31, 2021 excluded $9.6 million of non-cash interest expense related to the 2023 Convertible Notes, which increased Adjusted EPS by $0.20, which was partially offset by $3.1 million in fair value remeasurement of acquisition-related contingent consideration, which decreased Adjusted EPS by $0.09.

The Company adopted ASU 2020-06 and no longer recognizes non-cash interest expense on the 2023 Convertible Notes, effective January 1, 2022. As a result, there was no adjustment between EPS and Adjusted EPS for non-cash interest expense on the 2023 Convertible Notes for the year ended December 31, 2022. See Note 2, “New Accounting Standards” for additional information about the adoption of ASU 2020-06.

Liquidity and Capital Allocation

Net cash provided by operating activities for the year ended December 31, 2022 decreased $166.7 million to $188.8 million compared with $355.5 million for the year ended December 31, 2021. The decrease in net cash provided by operating activities was primarily due to higher compensation, operating expenses, including travel and entertainment expenses as our employees have increasingly resumed business travel, and income taxes paid, which was partially offset by an increase in cash collected compared to the prior year. Days sales outstanding (“DSO”) was 97 days as ofDecember 31, 2022 and 94 days as of December 31, 2021.

A portion of net cash provided by operating activities was used to repurchase and retire approximately 0.6 million shares of our common stock under our Repurchase Program for an average price per share of $154.23, at a total cost of $88.6 million during the year ended December 31, 2022. We had $478.5 million remaining under the Repurchase Program to repurchase additional shares as of December 31, 2022.

Free Cash Flow was an inflow of $135.7 million and $286.9 million for the years ended December 31, 2022 and 2021, respectively. The decrease in Free Cash Flow for the year ended December 31, 2022 was primarily due to lower net cash provided by operating activities, as described above, which was partially offset by a decrease in net cash used for purchases of property and equipment.

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Other Strategic Activities

During the year ended December 31, 2022, we acquired a leading restructuring, transactions, digital and transformation advisory firm in the Netherlands.

Coronavirus Disease 2019 (“COVID-19”)

COVID-19 did not materially adversely impact the Company as a whole for the year ended December 31, 2022; however, we experienced an increase in SG&A expenses in 2022, largely due to higher travel and entertainment expenses as our professionals have increasingly resumed business travel in many regions. To the extent that the impacts of COVID-19 continue, any such impact on our business and the health and welfare of our employees and clients would vary across our segments, practices and regions and may be out of our control. Any future impacts from COVID-19 continue to be difficult to predict and quantify, especially due to uncertainty arising from various factors, including the continuing evolution of COVID-19 variants, the efficacy of vaccinations against new variants, regional variances in the availability and efficacy of vaccines, regional differences in vaccine hesitancy, requirements that our clients may impose relating to the vaccination status of our employees and contractors who serve such clients, and possible future vaccine mandates that may be imposed by governments that could apply to us, our employees and clients. Adverse impacts from COVID-19 could include, but are not limited to, delays associated with entering into or performing client engagements, postponements of litigation and investigations assignments due to court suspensions or closures or other delays, terminations of engagements, failure to attract new or retain existing clients, delays of in-person back-to-work efforts for our employees or clients, increased employee turnover or a reduction in the pool of qualified employee candidates available to staff engagements or hire, and adverse health outcomes for our employee population. In parts of Asia, travel restrictions continued to have an adverse impact on our business.

Headcount

The following table includes the net headcount additions by segment and in total for the year ended December 31, 2022. The net additions reflect programmatic headcount reductions, primarily in our FLC and Corporate Finance segments, described in the “Special Charges” section above:

Billable Headcount

(1)There were 41 revenue-generating professionals added during the year ended December 31, 2022 related to the acquisition of a business within the Corporate Finance segment.

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RESULTS OF OPERATIONS

Segment and Consolidated Operating Results:

Year Ended December 31,

(in thousands, except per share data)

Revenues

Segment operating income

Other income (expense)

Earnings per common share — basic $ 6.99 $ 7.02

Earnings per common share — diluted $ 6.58 $ 6.65

Reconciliation of Net Income to Adjusted EBITDA:

Year Ended December 31,

(in thousands)

Add back:

Interest income and other (3,918) (6,193)

Amortization of intangible assets 9,643 10,823

Special charges 8,340 —

Remeasurement of acquisition-related contingent consideration — (3,130)

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

Year Ended December 31,

(in thousands, except per share data)

Add back:

Remeasurement of acquisition-related contingent consideration — (3,130)

Special charges 8,340 —

Tax impact of special charges (1,584) —

Non-cash interest expense on convertible notes — 9,586

Tax impact of non-cash interest expense on convertible notes — (2,492)

Earnings per common share — diluted $ 6.58 $ 6.65

Add back:

Remeasurement of acquisition-related contingent consideration — (0.09)

Special charges 0.23 —

Tax impact of special charges (0.04) —

Non-cash interest expense on convertible notes — 0.27

Tax impact of non-cash interest expense on convertible notes — (0.07)

Adjusted earnings per common share — diluted $ 6.77 $ 6.76

Weighted average number of common shares outstanding — diluted 35,783 35,337

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

Year Ended December 31,

(in thousands)

Net cash provided by operating activities $ 188,794 $ 355,483

Purchases of property and equipment (53,098) (68,569)

Year Ended December 31, 2022 Compared with December 31, 2021

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 $20.4 million, or 19.5%, to $124.8 million compared with $104.5 million for 2021. Excluding the impact of special charges recorded in 2022, unallocated corporate expenses increased by $19.6 million, or 18.8%. The increase was primarily due to higher consulting expenses for corporate initiatives, such as system implementations, as well as an increase in travel and entertainment and legal expenses.

Interest income and other

Interest income and other, which includes FX gains and losses, decreased $2.3 million to $3.9 million for the year ended December 31, 2022, compared with $6.2 million for the year ended December 31, 2021. The decrease was primarily due to a $2.4 million decrease in net FX gains and a $1.0 million increase in other expenses, primarily related to the release of a pre-acquisition indemnification receivable, which was partially offset by a $1.1 million increase in interest income.

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.

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Interest expense

Interest expense decreased $10.2 million, or 50.5%, to $10.0 million in 2022 compared with $20.3 million in 2021. The decrease was primarily due to the adoption of ASU 2020-06 as described above.

Income tax provision

Our income tax provision decreased $0.7 million, or 1.2%, to $62.2 million in 2022 from $63.0 million in 2021. Our effective tax rate of 20.9% for 2022 compared to 21.1% for 2021. The lower effective tax rate in 2022 was primarily due to a combined $9.6 million tax benefit from the release of the U.S. foreign tax credit valuation allowance, utilization of current year foreign tax credits, and a deferred tax benefit arising from an intellectual property license agreement between a U.S. subsidiary of the Company and certain foreign subsidiaries of the Company.

A portion of the decrease in the 2022 effective tax rate was offset by the following 2021 favorable one-time tax adjustments, which did not recur. During 2021, we recognized 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.

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, 2022 and 2021:

Year Ended December 31,

(in thousands)

Add back:

Interest income and other (3,918) (6,193)

Add back:

Amortization of intangible assets 9,642 10,818

Segment special charges 7,564 —

Remeasurement of acquisition-related contingent consideration — (3,130)

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Other Segment Operating Data

Year Ended December 31,

Number of revenue-generating professionals (at period end):

Strategic Communications 970 814

Total revenue-generating professionals 6,063 5,401

Utilization rates of billable professionals: (2)

Corporate Finance 61 % 59 %

Economic Consulting 68 % 72 %

Average billable rate per hour: (3)

Economic Consulting $ 508 $ 509

(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 561 and 518 as-needed employees during the years ended December 31, 2022 and 2021, 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 and fixed-fee arrangements, 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

Year Ended December 31,

(dollars in thousands, except rate per hour)

Percentage change in revenues from prior year 15.9 %

Operating expenses

Special charges 2,444 —

Amortization of intangible assets 7,976 7,485

Percentage change in segment operating income from prior year 34.0 %

Add back:

Depreciation and amortization of intangible assets 14,698 12,847

Special charges 2,444 —

Fair value remeasurement of contingent consideration — (3,130)

Percentage change in gross profit from prior year 28.9 %

Gross profit margin (2) 33.9 % 30.5 %

Adjusted Segment EBITDA as a percentage of revenues 19.5 % 16.6 %

Number of revenue-generating professionals (at period end) 1,946 1,702

Utilization rate of billable professionals 61 % 59 %

Average billable rate per hour $ 460 $ 452

(1)Revenues less direct cost of revenues

(2)Gross profit as a percentage of revenues

Year Ended December 31, 2022 Compared with December 31, 2021

Revenues increased $149.6 million, or 15.9%, from 2021 to 2022, which included a 2.7% estimated negative impact from FX. Acquisition-related revenues contributed $12.5 million, or 1.3% of the increase. Excluding the estimated impact from FX and acquisition-related revenues, revenues increased $162.2 million, or 17.3%, primarily due to increased demand and realization across our business transformation, restructuring and transactions services, primarily in North America.

Gross profit increased $82.9 million, or 28.9%, from 2021 to 2022. Gross profit margin increased 3.4 percentage points from 2021 to 2022. The increase in gross profit margin was largely due to a 2 percentage point increase in utilization and higher realization, which was partially offset by an increase in compensation, primarily attributable to a 14.3% increase in billable headcount.

SG&A expenses increased $30.4 million, or 22.8%, from 2021 to 2022, which included a 2.6% estimated positive impact from FX. SG&A expenses of 15.0% of revenues in 2022 compared with 14.2% in 2021. The increase in SG&A expenses was primarily due to higher travel and entertainment, infrastructure support, as well as a prior year fair value remeasurement of acquisition-related contingent consideration, and an increase in other general and administrative expenses.

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FORENSIC AND LITIGATION CONSULTING

Year Ended December 31,

(dollars in thousands, except rate per hour)

Percentage change in revenues from prior year 9.2 %

Operating expenses

Special charges 4,614 —

Amortization of intangible assets 977 894

Percentage change in segment operating income from prior year -17.7 %

Add back:

Depreciation and amortization of intangible assets 6,509 5,902

Special charges 4,614 —

Percentage change in gross profit from prior year 8.7 %

Gross profit margin (2) 29.3 % 29.5 %

Adjusted Segment EBITDA as a percentage of revenues 10.3 % 12.4 %

Number of revenue-generating professionals (at period end) 1,584 1,496

Utilization rate of billable professionals 54 % 56 %

Average billable rate per hour $ 361 $ 350

(1)Revenues less direct cost of revenues

(2)Gross profit as a percentage of revenues

Year Ended December 31, 2022 Compared with December 31, 2021

Revenues increased $53.6 million, or 9.2%, to $638.5 million from 2021 to 2022, which included a 1.9% estimated negative impact from FX. Excluding the estimated impact from FX, revenues increased $64.8 million, or 11.1%, primarily due to higher realization across all services due to the mix of client engagements and higher demand for our health solutions and investigations services, which was partially offset by lower demand for our disputes services.

Gross profit increased $14.9 million, or 8.7%, from 2021 to 2022. Gross profit margin decreased 0.1 percentage points from 2021 to 2022. The decrease in gross profit margin was primarily due to a 2 percentage point decline in utilization, which was partially offset by lower compensation as a percentage of revenues.

SG&A expenses increased $22.1 million, or 21.1%, from 2021 to 2022, which included a 2.0% estimated positive impact from FX. SG&A expenses of 19.9% of revenues in 2022 compared with 17.9% in 2021. The increase in SG&A expenses was primarily driven by higher travel and entertainment, infrastructure support, compensation, marketing and business development and other general and administrative expenses.

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ECONOMIC CONSULTING

Year Ended December 31,

(dollars in thousands, except rate per hour)

Percentage change in revenues from prior year -0.3 %

Operating expenses

Selling, general and administrative expenses 86,012 77,368

Special charges 31 —

Percentage change in segment operating income from prior year -11.9 %

Add back:

Depreciation and amortization 4,881 5,724

Special charges 31 —

Percentage change in gross profit from prior year -2.4 %

Gross profit margin (2) 26.5 % 27.1 %

Adjusted Segment EBITDA as a percentage of revenues 14.8 % 16.8 %

Number of revenue-generating professionals (at period end) 1,007 921

Utilization rate of billable professionals 68 % 72 %

Average billable rate per hour $ 508 $ 509

(1)Revenues less direct cost of revenues

(2)Gross profit as a percentage of revenues

Year Ended December 31, 2022 Compared with December 31, 2021

Revenues decreased $2.2 million, or 0.3%, to $695.2 million from 2021 to 2022, which included a 4.0% estimated negative impact from FX. Excluding the estimated impact from FX, revenues increased $26.0 million, or 3.7%, primarily due to higher demand for our non-M&A-related antitrust services and higher realization for our M&A-related antitrust services, which was partially offset by lower demand for our M&A-related antitrust services.

Gross profit decreased $4.6 million, or 2.4%, from 2021 to 2022. Gross profit margin decreased 0.6 percentage points from 2021 to 2022. The decrease in gross profit margin was primarily due to a 4 percentage point decline in utilization and an increase in compensation, primarily attributable to a 9.3% increase in billable headcount.

SG&A expenses increased $8.6 million, or 11.2%, from 2021 to 2022, which included a 4.5% estimated positive impact from FX. SG&A expenses of 12.4% of revenues in 2022 compared with 11.1% in 2021. The increase in SG&A expenses was primarily driven by higher infrastructure support, compensation, travel and entertainment, and other general and administrative expenses.

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TECHNOLOGY

Year Ended December 31,

(dollars in thousands)

Percentage change in revenues from prior year 11.4 %

Operating expenses

Selling, general and administrative expenses 79,835 67,912

Special charges 106 —

Percentage change in segment operating income from prior year -22.1 %

Add back:

Special charges 106 —

Percentage change in gross profit from prior year 2.3 %

Gross profit margin (2) 35.4 % 38.6 %

Adjusted Segment EBITDA as a percentage of revenues 14.6 % 19.4 %

Number of revenue-generating professionals (at period end) (3) 556 468

(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, 2022 Compared with December 31, 2021

Revenues increased $32.6 million, or 11.4%, to $320.0 million from 2021 to 2022, which included a 2.4% estimated negative impact from FX. Excluding the estimated impact from FX, revenues increased $39.6 million, or 13.8%, primarily due to an increase in demand for our investigations and information governance services.

Gross profit increased $2.5 million, or 2.3%, to $113.4 million from 2021 to 2022. Gross profit margin decreased 3.1 percentage points from 2021 to 2022. The decrease in gross profit margin was primarily due to an increase in compensation, primarily attributable to an 18.8% increase in billable headcount.

SG&A expenses increased $11.9 million, or 17.6%, from 2021 to 2022, which included a 2.7% estimated positive impact from FX. SG&A expenses were 24.9% of revenues for 2022 compared with 23.6% of revenues in 2021. The increase in SG&A expenses was primarily due to higher compensation, travel and entertainment, infrastructure support, and other general and administrative expenses.

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STRATEGIC COMMUNICATIONS

Year Ended December 31,

(dollars in thousands)

Percentage change in revenues from prior year 7.1 %

Operating expenses

Selling, general and administrative expenses 60,716 50,114

Special charges 369 —

Amortization of intangible assets 689 2,439

Percentage change in segment operating income from prior year -5.5 %

Add back:

Depreciation and amortization of intangible assets 3,269 4,605

Special charges 369 —

Percentage change in gross profit from prior year 6.4 %

Gross profit margin (2) 37.9 % 38.2 %

Adjusted Segment EBITDA as a percentage of revenues 17.7 % 20.3 %

Number of revenue-generating professionals (at period end) 970 814

(1)Revenues less direct cost of revenues

(2)Gross profit as a percentage of revenues

Year Ended December 31, 2022 Compared with December 31, 2021

Revenues increased $19.0 million, or 7.1%, from 2021 to 2022, which included a 5.9% estimated negative impact from FX. Excluding the estimated impact from FX, revenues increased $34.7 million, or 13.0%. The increase was primarily due to growth driven by higher demand for our corporate reputation and financial communications services.

Gross profit increased $6.5 million, or 6.4%, from 2021 to 2022. Gross profit margin decreased 0.3 percentage points from 2021 to 2022. The decrease in gross profit margin was primarily driven by higher compensation as a percentage of revenues.

SG&A expenses increased $10.6 million, or 21.2%, from 2021 to 2022, which included a 5.1% estimated positive impact from FX. SG&A expenses of 21.2% of revenues in 2022 compared with 18.7% in 2021. The increase in SG&A expenses was primarily driven by higher infrastructure support, travel and entertainment, compensation and other general and administrative expenses.

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LIQUIDITY AND CAPITAL RESOURCES

Liquidity

For the years ended December 31, 2022, 2021 and 2020, our cash flows from operations exceeded our cash needs for capital expenditures and debt service requirements. We typically 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 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, including the payment of our 2023 Convertible Notes at maturity on August 15, 2023, unless earlier converted or repurchased.

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.

Results of operations for our non-U.S. subsidiaries are translated from the designated functional currency to our reporting currency of the USD. Revenues and expenses are translated at average exchange rates for each month, while assets and liabilities are translated at balance sheet date exchange rates. Resulting net translation adjustments are recorded as a component of stockholders’ equity in “Accumulated other comprehensive loss.”

Uncertainties and Trends Affecting Liquidity

Our conclusion that we will be able to fund our cash requirements for at least the next 12 months by using existing capital resources and cash generated from operations does not take into account events beyond our control, such as any worsening effects of COVID-19 that could result in a material adverse impact on our business, the impact of any future acquisitions or unexpected significant changes in the 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 such as economic and workforce disruptions arise, including related to COVID-19 or any future public health crisis, or economic or business conditions change from those currently prevailing or from those now anticipated, or if unexpected circumstances or other events beyond our control 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 borrow under our Credit Facility or raise additional debt or equity funding to meet those needs. Our ability to borrow or 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.

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Cash Flows

Year Ended December 31,

Cash Flows (dollars in thousands)

Net cash provided by operating activities $ 188,794 $ 355,483

Net cash used in investing activities $ (60,061) $ (79,093)

Net cash used in financing activities $ (106,012) $ (61,674)

(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, 2022 Compared with December 31, 2021

Net cash provided by operating activities of $188.8 million for 2022 compared with $355.5 million for 2021. The decrease of $166.7 million, or 46.9%, in net cash provided by operating activities was primarily due to higher compensation, operating expenses and income taxes paid, which was partially offset by an increase in cash collected compared to the prior year. DSO was 97 days as ofDecember 31, 2022 and 94 days as of December 31, 2021.

Net cash used in investing activities of $60.1 million for 2022 compared with $79.1 million for 2021. The decrease of $19.0 million, or 24.1%, in net cash used in investing activities was primarily due to a $15.5 million decline in capital expenditures, primarily related to leasehold improvement costs in 2021 for our new office space in New York, New York, which did not recur in 2022, and a $3.7 million decrease in payments for the acquisition of businesses as compared to the prior year.

Net cash used in financing activities of $106.0 million for 2022 compared with $61.7 million for 2021. The increase of $44.3 million, or 71.9%, in net cash used in financing activities was primarily due to an increase of $39.3 million in payments for common stock repurchases under the Repurchase Program as compared to the prior year.

The unfavorable effect of exchange rate changes on cash and cash equivalents increased $10.3 million for 2022 to $25.5 million compared with $15.2 million for 2021.

Principal Sources of Capital Resources

As of December 31, 2022, our capital resources included $491.7 million of cash and cash equivalents and available borrowing capacity of $899.6 million under the $900.0 million revolving line of credit under our Credit Facility. As of December 31, 2022, 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 our Credit Facility. We use letters of credit primarily in lieu of security deposits for our leased office facilities. The $900.0 million revolving line of credit under our Credit Facility includes a $125.0 million sublimit for borrowings in currencies other than USD, including the euro (“EUR”), British pound (“GBP”), Australian dollar (“AUD”), Canadian dollar (“CAD”), Swiss franc (“CHF”) and Japanese yen (“JPY”).

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 bear interest at a rate equal to, in the case of: (i) USD, at our option, Adjusted Term Secured Overnight Financing Rate (“SOFR”) or Adjusted Daily Simple SOFR, (ii) EUR, Euro Interbank Offered Rate, (iii) GBP, Sterling Overnight Index Average Reference Rate, (iv) AUD, Bank Bill Swap Reference Bid Rate, (v) CAD, Canadian Dollar Offered Rate, (vi) CHF, Swiss Average Rate Overnight and (vii) JPY, Tokyo Interbank Offered Rate, in each case, plus an applicable margin or, in the case of USD borrowings, an alternative base rate plus an applicable margin. The Credit Facility is guaranteed by substantially all of our wholly-owned 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 $1.2 billion.

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The second amended and restated credit agreement entered into on November 21, 2022 (the “Credit Agreement”) governing the Credit Facility and our other indebtedness outstanding from time to time contains 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 $300.0 million) to Consolidated EBITDA, as defined in the Credit Agreement). As of December 31, 2022, 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. See Note 14, “Debt” in Part II, Item 8 for a further discussion of 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 and information or financial systems, office furniture and leasehold improvements;

•debt service requirements, including interest payments on our long-term debt and payment of the 2023 Convertible Notes principal and conversion premium at maturity or upon earlier conversion or repurchase;

•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;

•potential acquisitions of businesses; and

•other known future contractual obligations.

Capital Expenditures

During 2022, we spent $53.1 million in capital expenditures to support our organization, including direct support for specific client engagements. During 2023, we currently expect to make capital expenditures to support our organization in an aggregate amount of between $54 million and $66 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.

Stock Repurchase Program

During the year ended December 31, 2022, we made $85.4 million in payments for common stock repurchases under the Repurchase Program. We had $478.5 million remaining under the Repurchase Program to repurchase additional shares as of December 31, 2022.

Payments for Acquisition of Businesses

During the year ended December 31, 2022, we acquired a business that was assigned to the Corporate Finance segment for an aggregate of $6.7 million, net of cash received. We also recorded a liability of $5.6 million for acquisition-related contingent consideration.

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Future Contractual Obligations

Our future contractual obligations as of December 31, 2022 include both current and non-current obligations. We have short-term obligations related to the 2023 Convertible Notes, which will mature on August 15, 2023, unless earlier converted or repurchased. We have remaining interest payments associated with the 2023 Convertible Notes of $6.3 million, of which $2.4 million is accrued as of December 31, 2022 and classified as a current liability on the Consolidated Balance Sheets. The principal portion of the 2023 Convertible Notes of $316.2 million is classified as a non-current liability on the Consolidated Balance Sheets. The 2023 Convertible Notes are classified as long-term debt as of December 31, 2022 because we have the ability and intent to refinance them on a long-term basis under our Credit Facility, which matures on November 21, 2027. As of December 31, 2022, there were no outstanding borrowings under our 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 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, 2022 and prior to the November 21, 2027 maturity date of our Credit Facility. Under our operating leases as described in Note 15, “Leases” in Part II, Item 8, we have current obligations of $31.9 million and non-current obligations of $221.6 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. Refer to Note 1, “Description of Business and Summary of Significant Accounting Policies” in our consolidated financial statements for further information on our significant accounting policies.

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 values 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. We generate the majority of our revenues by providing consulting services to our clients. We recognize revenues primarily from three different types of arrangements: time and expense, fixed-fee and performance-based or contingent arrangements.

Certain fees in our time and expense 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 receive 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.

In fixed-fee arrangements, we agree to a pre-established fee in exchange for a predetermined set of professional services. We estimate revenues using a proportional performance method, which is based on work completed to-date versus our estimates of the total services to be performed over the life of the contract.

In performance-based or contingent arrangements, fees are based on contractually defined objectives, such as completing a business transaction or assisting the client in achieving a specific business objective. Variable consideration to be included in the transaction price is estimated using the expected value method or the most likely amount method based on facts and circumstances. We recognize revenues earned 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.

Our estimates are monitored continually throughout the life of each contract and are based on the nature of the engagement, client economics, historical experiences, available information and other appropriate factors. While we believe that our estimates and assumptions used for revenue recognition are reasonable, subsequent changes could materially impact our results of operations.

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Goodwill and Intangible Assets. We evaluate 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. We assess our goodwill for impairment at the reporting unit level.

As part of the evaluation of goodwill and intangible assets for potential impairment, we exercise judgment to:

•Perform a qualitative assessment to determine whether it is “more likely than not” that the fair value of a reporting unit is less than it’s carrying value. Factors we consider when making the determination include assessing macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, and other relevant reporting unit specific events;

•Decide whether to bypass the qualitative assessment and perform a quantitative assessment. Factors we consider when making this determination include changes in the Company or general economic conditions since the previous quantitative assessment was performed, the amount by which the fair value exceeded the carrying value at that time and the period of time that has passed since such quantitative assessment; and

•Perform a quantitative assessment by comparing 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 approach, using appropriate weighting factors.

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, which reflects an assessment of the risk inherent in the future revenue streams and cash flows. 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 requires significant judgment and estimates. In 2022, we performed our annual impairment tests for each of our reporting units. The results of that test indicated that for each of our reporting units, no impairment existed. If market conditions significantly deteriorate from our current assumptions regarding forecasted cash flows, we may be required to record goodwill impairment charges in future periods. 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 are 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. No impairment charges for intangible assets were recorded in 2022.

Significant New Accounting Pronouncements

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

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ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are exposed to market risk from changes in interest rates, changes in the price of our common stock and changes in foreign exchange rates.

Interest Rate Risk and Market Risk

We are exposed to interest rate risk related to debt obligations outstanding. Interest rate changes expose our fixed rate long-term borrowings to changes in fair value and expose our variable rate borrowings to changes in our interest expense. As of December 31, 2022, there were no variable rate debt instruments outstanding as there were no outstanding borrowings under our Credit Facility. Future interest rate risk may be affected by revolving line of credit borrowings subsequent to December 31, 2022 and prior to the November 21, 2027 maturity date of our Credit Facility.

From time to time, we may use derivative instruments to manage our interest rate risk and market risk exposure. All of our derivative transactions are entered into for non-trading purposes.

The following table presents principal cash flows and related interest rates by year of maturity for our 2023 Convertible Notes and the fair value of the debt as of December 31, 2022 and 2021. Our stock price affects the fair value of our 2023 Convertible Notes, as changes in stock price impact the value of the conversion premium and resulting trading prices of our 2023 Convertible Notes. The fair value is determined based on the last actively traded prices in an over-the-counter market for our 2023 Convertible Notes. The last actively traded prices for our 2023 Convertible Notes per $1,000 principal amount were $1,529.50 and $1,475.50 as of December 31, 2022 and 2021, respectively.

2023 2024 to 2027 Thereafter Total Fair Value Total Fair Value

Long-Term Debt (dollars in thousands)

Average interest rate 2.0 % — % — % 2.0 % — % 5.4 % — %

Foreign Currency Exchange Rate Risk

Exchange Rate Risk

Our FX exposure primarily relates to intercompany receivables and payables and third-party receivables and payables that are denominated in currencies other than the functional currency of our legal entities. Our largest FX exposure is unsettled intercompany payables and receivables, which are reviewed on a regular basis. In cases where settlement of intercompany balances is not practical, we may use cash to create offsetting currency positions to reduce exposure. Gains and losses from FX transactions are included in interest income and other on our Consolidated Statements of Comprehensive Income. See Note 8, “Interest Income and Other” in Part II, Item 8 of this Annual Report for information.

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Translation of Financial Results

Most of our foreign subsidiaries operate in a currency other than USD; therefore, increases or decreases in the value of USD against other major currencies will affect our operating results and the value of our balance sheet items denominated in foreign currencies. Our most significant exposures to translation risk relate to functional currency assets and liabilities that are denominated in the euro, Australian dollar, British pound and Canadian dollar. The following table details the unrealized changes in the net investments of foreign subsidiaries whose currencies are denominated in currencies other than USD for the years ended December 31, 2022, 2021 and 2020. These translation adjustments are reflected in “Other comprehensive income (loss)” on our Consolidated Statements of Comprehensive Income.

Year Ended December 31,

Changes in Net Investment of Foreign Subsidiaries (in thousands)

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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

FTI Consulting, Inc. and Subsidiaries

Consolidated Financial Statements

INDEX

Page

Management’s Report on Internal Control over Financial Reporting 53

Notes to Consolidated Financial Statements 61

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Management’s Report on Internal Control over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting and for performing an assessment of the effectiveness of internal control over financial reporting as of December 31, 2022. Internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our system of internal control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of our assets, (ii) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles and that our receipts and expenditures are being made only in accordance with the authorization of our management and directors, and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements. Under the supervision and with the participation of our management, including our Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting as of December 31, 2022 based on the framework in the 2013 Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission. Based on that evaluation, our management concluded that our internal control over financial reporting was effective as of December 31, 2022.

KPMG LLP, the independent registered public accounting firm that audited our financial statements, has issued an audit report on their assessment of internal control over financial reporting, which is included elsewhere in this Annual Report.

Date: February 23, 2023

/s/ STEVEN H. GUNBY

/s/ AJAY SABHERWAL

Ajay SabherwalChief Financial Officer(Principal Financial Officer)

53

Report of Independent Registered Public Accounting Firm

To the Stockholders and the Board of Directors

FTI Consulting, Inc.:

Opinion on the Consolidated Financial Statements

We have audited the accompanying consolidated balance sheets of FTI Consulting, Inc. and subsidiaries (the Company) as of December 31, 2022 and 2021, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the years in the three‐year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2022 and 2021, and the results of its operations and its cash flows for each of the years in the three‐year period ended December 31, 2022, in conformity with U.S. generally accepted accounting principles.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 23, 2023 expressed an unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the consolidated financial statements that was communicated or required to be communicated to the audit committee and that: (1) relates to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of a critical audit matter does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Changes in estimates of potential fee reductions

As discussed in Note 1 to the consolidated financial statements, for certain arrangements, the Company records revenues based on the amount it estimates it will be entitled to in exchange for its services and only to the extent that a significant reversal of revenue is not likely to occur when the uncertainty associated with the estimate is subsequently resolved. The Company records changes to revenue when there are changes in estimates of potential fee reductions imposed by bankruptcy courts or other regulatory agencies or negotiated with specific clients. Revenues for the year ended December 31, 2022 were approximately $3.0 billion, which includes the previously mentioned changes.

We identified the evaluation of changes in estimates of potential fee reductions as a critical audit matter. There was a high degree of subjectivity and audit effort in evaluating the likely outcome of potential fee reductions imposed by bankruptcy courts or other regulatory agencies or negotiated by specific clients, which may vary depending on the nature of the engagement, client economics, historical experience and other appropriate factors.

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The following are the primary procedures we performed to address this critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the Company’s revenue process, including controls related to the monthly analysis of estimated potential fee reductions by arrangement, and review of the related changes to revenue. For a sample of changes in estimates of potential fee reductions, we inspected relevant evidence, including: (1) contractual documents, (2) regulatory correspondence if applicable, and (3) historical trends and analysis performed by the Company that supported the change, and also inquired of relevant Company personnel to assess the rationale for making the change. For a sample of arrangements, we assessed the existence and accuracy of the billed receivables by confirming amounts recorded directly with the Company’s clients. We compared actual collections and write-offs to previous billed and unbilled receivables to assess the Company’s ability to accurately record changes in estimates of potential fee reductions.

/s/ KPMG LLP

We have served as the Company's auditor since 2006.

McLean, Virginia

February 23, 2023

55

Report of Independent Registered Public Accounting Firm

To the Stockholders and Board of Directors

FTI Consulting, Inc.:

Opinion on Internal Control Over Financial Reporting

We have audited FTI Consulting, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2022, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2022 and 2021, the related consolidated statements of comprehensive income, stockholders’ equity, and cash flows for each of the years in the three-year period ended December 31, 2022, and the related notes (collectively, the consolidated financial statements), and our report dated February 23, 2023 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG LLP

McLean, Virginia

February 23, 2023

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FTI Consulting, Inc. and Subsidiaries

Consolidated Balance Sheets

(in thousands, except per share data)

December 31,

Assets

Current assets

Prepaid expenses and other current assets 95,469 91,166

Liabilities and Stockholders’ Equity

Current liabilities

Accounts payable, accrued expenses and other $ 173,953 $ 165,025

Billings in excess of services provided 53,646 45,535

Commitments and contingencies (Note 16)

Stockholders’ equity

Additional paid-in capital — 13,662

See accompanying notes to consolidated financial statements.

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FTI Consulting, Inc. and Subsidiaries

Consolidated Statements of Comprehensive Income

(in thousands, except per share data)

Year Ended December 31,

Operating expenses

Other income (expense)

Earnings per common share — basic $ 6.99 $ 7.02 $ 5.92

Earnings per common share — diluted $ 6.58 $ 6.65 $ 5.67

Other comprehensive income (loss), net of tax

Total other comprehensive income (loss), net of tax (47,882) (22,405) 34,412

See accompanying notes to consolidated financial statements.

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FTI Consulting, Inc. and Subsidiaries

Consolidated Statements of Stockholders’ Equity

(in thousands)

Additional Paid-in Capital Retained Earnings AccumulatedOther Comprehensive Loss

Common Stock

Shares Amount Total

Other comprehensive income:

Cumulative translation adjustment — — — — 34,412 34,412

Issuance of common stock in connection with:

Stock units issued under incentivecompensation plan — — 2,314 — — 2,314

Other comprehensive loss:

Cumulative translation adjustment — — — — (22,405) (22,405)

Issuance of common stock in connection with:

Stock units issued under incentivecompensation plan — — 2,603 — — 2,603

Conversion feature of convertible senior notes due 2023 — — (2) — — (2)

Other comprehensive loss:

Cumulative translation adjustment — — — — (47,882) (47,882)

Issuance of common stock in connection with:

Stock units issued under incentivecompensation plan — — 1,664 — — 1,664

Purchase and retirement of common stock (574) (5) (88,601) — — (88,606)

Conversion feature of convertible senior notes due 2023 — — (15) — — (15)

Reclassification of negative additional paid-in capital — — 97,645 (97,645) — —

See accompanying notes to consolidated financial statements.

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FTI Consulting, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

(in thousands)

Year Ended December 31,

Operating activities

Acquisition-related contingent consideration 2,172 (324) 5,593

Amortization of debt discount and issuance costs and other 2,224 11,701 11,259

Changes in operating assets and liabilities, net of effects from acquisitions:

Investing activities

Financing activities

Payments of debt issuance costs (3,993) — —

Share-based compensation tax withholdings and other (15,330) (9,246) (5,823)

Payments for business acquisition liabilities (4,848) (7,496) (3,948)

Net increase (decrease) in cash and cash equivalents (2,797) 199,532 (74,420)

Supplemental cash flow disclosures

Non-cash investing and financing activities:

Business acquisition liabilities not yet paid $ 5,593 $ 1,093 $ 6,209

Non-cash additions to property and equipment $ 4,272 $ 6,518 $ 4,966

See accompanying notes to consolidated financial statements.

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FTI Consulting, Inc. and Subsidiaries

Notes to Consolidated Financial Statements

(dollar and share amounts in tables expressed in thousands, except per share data)

1. Description of Business and Summary of Significant Accounting Policies

Description of Business

FTI Consulting, Inc., including its consolidated subsidiaries (collectively, the “Company,” “we,” “our” or “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 operate through five reportable segments: Corporate Finance & Restructuring (“Corporate Finance”), Forensic and Litigation Consulting (“FLC”), Economic Consulting, Technology and Strategic Communications.

Accounting Principles

Our financial statements are prepared in conformity with United States (“U.S.”) generally accepted accounting principles (“GAAP”). The consolidated financial statements include the accounts of FTI Consulting and all of our subsidiaries. All intercompany transactions and balances have been eliminated. Reclassifications of certain prior period amounts have been made to conform to the current period presentation.

Foreign Currency

Results of operations for our non-U.S. subsidiaries are translated from the designated functional currency to the reporting currency of the U.S. dollar (“USD”). Revenues and expenses are translated at average exchange rates for each month, while assets and liabilities are translated at balance sheet date exchange rates. Resulting net translation adjustments are recorded as a component of stockholders’ equity in “Accumulated other comprehensive loss.”

Transaction gains and losses arising from currency exchange rate fluctuations on transactions denominated in a currency other than the local functional currency are included in “Interest income and other” on the Consolidated Statements of Comprehensive Income. Such transaction gains and losses may be realized or unrealized depending upon whether the transaction settled during the period or remains outstanding at the balance sheet date.

Use of Estimates

The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts in the consolidated financial statements and accompanying notes. Due to the inherent uncertainty involved in making those assumptions, actual results could differ from those estimates. Our most significant estimates relate to revenues and the assessment of the recoverability of goodwill and intangible assets. Other estimates include, but are not limited to, the realization of deferred tax assets and the fair value of acquisition-related contingent consideration. Management bases its estimates on historical trends, projections, current experience and other assumptions that it believes are reasonable.

Concentrations of Risk

We do not have a single customer that represents 10% or more of our consolidated revenues. We derive the majority of our revenues from providing professional services to clients in the U.S. For the year ended December 31, 2022, we derived approximately 37% of our consolidated revenues from the work of professionals who are assigned to locations outside the U.S. We believe that the geographic and industry diversity of our customer base throughout the U.S. and internationally minimizes the risk of incurring material losses due to concentrations of credit risk.

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.

•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 and 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 revenue 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, 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 another 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.

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.

Direct Cost of Revenues

Direct cost of revenues consists primarily of billable employee compensation and related payroll benefits, the cost of contractors assigned to revenue-generating activities and direct expenses billable to clients. Direct cost of revenues also includes expense for cloud-based computing and depreciation expense on the software used to host and process client information. Direct cost of revenues does not include an allocation of corporate overhead and non-billable segment costs.

Share-Based Compensation

Share-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense over the requisite service period or performance period of the award. The amount of share-based compensation expense recognized at any date must at least equal the portion of grant date value of the award that is vested at that date.

The fair value of restricted share awards and restricted stock units is measured based on the closing price of the underlying stock on the date of grant. The fair value of performance stock units that contain market-based vesting conditions is measured using a Monte Carlo pricing model. The compensation cost of performance stock units with market-based vesting

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conditions is based on the grant date fair value and is not subsequently reversed if it is later determined that the market condition is unlikely to be met or is expected to be lower than originally anticipated. For performance stock units that contain performance-based vesting conditions, the compensation cost is adjusted each reporting period based on the probability of the awards vesting.

For all of our share-based awards, we recognize forfeitures in compensation cost when they occur.

Acquisition-Related Contingent Consideration

The fair value of acquisition-related contingent consideration is estimated at the acquisition date utilizing either a Monte Carlo pricing model or the present value of our probability-weighted estimate of future cash flows. Subsequent to the acquisition date, on a quarterly basis, the contingent consideration liability is remeasured at current fair value with any changes recorded in earnings. Accretion expense is recorded to acquisition-related contingent consideration liabilities for changes in fair value due to the passage of time. Remeasurement gains or losses and accretion expense are included in “Selling, general and administrative” (“SG&A”) expenses on the Consolidated Statements of Comprehensive Income.

Advertising Costs

Advertising costs consist of marketing, advertising through print and other media, professional event sponsorship and public relations. These costs are expensed as incurred. Advertising costs totaled $19.4 million, $13.0 million and $15.2 million for the years ended December 31, 2022, 2021 and 2020, respectively, and are included in SG&A expenses on the Consolidated Statements of Comprehensive Income.

Income Taxes

Our income tax provision consists principally of U.S. federal, state and international income taxes. We generate income in a significant number of states located throughout the U.S. and in foreign countries in which we conduct business. Our effective income tax rate may fluctuate due to a change in the mix of earnings between higher and lower state or country tax jurisdictions and the impact of non-deductible expenses. Additionally, we record deferred tax assets and liabilities using the asset and liability method of accounting, which requires us to measure these assets and liabilities using the enacted tax rates and laws that will be in effect when the differences are expected to reverse. A valuation allowance is recognized if, based on the weight of available evidence, it is more likely than not that some portion, or all, of the deferred tax asset will not be realized. In evaluating our ability to recover our deferred tax assets, we consider all available positive and negative evidence, including scheduled reversals of temporary differences, projected future taxable income, tax planning strategies and recent results of operations.

Cash Equivalents

Cash equivalents consist of money market funds, commercial paper and certificates of deposit with maturities of three months or less at the time of purchase.

Allowance for Expected Credit Losses

We estimate the current-period provision for expected credit losses on a specific identification basis. Our judgments regarding a specific client’s credit risk considers factors such as the counterparty’s creditworthiness, knowledge of the specific client’s circumstances and historical collection experience for similar clients. Other factors include, but are not limited to, current economic conditions and forward-looking estimates. Our actual experience may vary from our estimates. If the financial condition of our clients were to deteriorate, resulting in their inability or unwillingness to pay our fees, we may need to record additional provisions for expected credit losses in future periods. The risk of credit losses may be mitigated to the extent that we received a retainer from some of our clients prior to performing services.

We maintain an allowance for expected credit losses, which represents the estimated aggregate amount of credit risk arising from the inability or unwillingness of specific clients to pay our fees or disputes that may affect our ability to fully collect our billed accounts receivable. We record our estimate of lifetime expected credit losses concurrently with the initial recognition of the underlying receivable. Accounts receivable, net of the allowance for expected credit losses, represents the amount we expect to collect. At each reporting date, we adjust the allowance for expected credit losses to reflect our current estimate. Adjustments to the allowance for expected credit losses are recorded to SG&A expenses on the Consolidated Statements of Comprehensive Income. Our billed accounts receivables are written off when the potential for recovery is considered remote.

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Property and Equipment

We record property and equipment, including improvements that extend useful life, at cost, while maintenance and repairs are expensed as incurred. We calculate depreciation using the straight-line method based on an estimated useful life ranging from one year to eleven years for furniture, equipment and software. We amortize leasehold improvements over the shorter of the estimated useful life of the asset or the lease term. We capitalize costs incurred during the application development stage of computer software developed or obtained for internal use. Capitalized software developed for internal use is classified within computer equipment and software and is amortized over the estimated useful life of the software, which is generally three years. Purchased software licenses to be sold to customers are capitalized and amortized over the license term.

Notes Receivable from Employees

Notes receivable from employees principally include unsecured general recourse forgivable loans and retention payments, which are provided to attract and retain certain of our senior employees and other professionals. Generally, all of the principal amount and accrued interest of the forgivable loans we make to employees and other professionals will be forgiven according to the stated terms of the loan agreement, provided that the professional is providing services to the Company on the forgiveness date and upon other specified events, such as death or disability. Professionals who terminate their employment or services with us prior to the end of the forgiveness period are required to repay the outstanding, unforgiven loan balance and any accrued but unforgiven interest. If the termination was by the Company without “cause” or by the employee with “good reason,” or, subject to certain conditions, if the employee terminates his or her employment due to retirement or non-renewal of his or her employment agreement, the loan may be forgiven or continue to be forgivable, in whole or in part. We amortize forgivable loans ratably over the requisite service period, which ranges from a period of less than one year to 10 years. The amount of expense recognized at any date must at least equal the portion of the principal forgiven on the forgiveness date.

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.

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 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

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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.

Intangible assets with finite lives are amortized over their estimated useful life and reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. We amortize our acquired finite-lived intangible assets on a straight-line basis over periods ranging from one to 15 years.

Impairment of Long-Lived Assets

We review long-lived assets such as property and equipment, operating lease assets and finite-lived intangible assets 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.

Leases

We determine if a contract is a leasing arrangement at inception. Operating lease assets represent our right to control the use of an identified asset for the lease term and lease liabilities represent our obligation to make lease payments arising from the lease. Operating lease assets and liabilities are recognized on the Consolidated Balance Sheets at the commencement date based on the present value of lease payments over the lease term. We use the incremental borrowing rate on the commencement date in determining the present value of our lease payments. We recognize operating lease expense for our operating leases on a straight-line basis over the lease term.

We lease office space and equipment under non-cancelable operating leases, which may include renewal or termination options that are reasonably certain of exercise. Most leases include one or more options to renew, with renewal terms that can extend the lease term up to seven years. Leases with an initial term of 12 months or less are not recorded on the balance sheet and are expensed on a straight-line basis. Lease and non-lease components are accounted for together as a single lease component for operating leases associated with our office space.

Billings in Excess of Services Provided

Billings in excess of services provided represent amounts billed to clients, such as retainers, in advance of work being performed. Clients may make advance payments, which are held on deposit until completion of work or are applied at predetermined amounts or times. Excess payments are either applied to final billings or refunded to clients upon completion of work. Payments in excess of related accounts receivable and unbilled receivables are recorded as billings in excess of services provided within the liabilities section of the Consolidated Balance Sheets.

Convertible Notes

The carrying amount of our 2.0% convertible senior notes due 2023 (“2023 Convertible Notes”) is recognized as a liability as of December 31, 2022 on the Consolidated Balance Sheets. We recorded debt issuance costs as an adjustment to the carrying amount of our 2023 Convertible Notes liability and amortize the costs using the effective interest rate method over the expected life of the instrument.

Prior to January 1, 2022, we separately recorded the liability and equity components of our 2023 Convertible Notes. The carrying amount of the liability component was calculated by measuring the fair value of a similar debt instrument that does not have an associated convertible feature. The carrying amount of the equity component representing the conversion option was determined by deducting the fair value of the liability component from the par value of the 2023 Convertible Notes. The equity component was not remeasured as long as it continued to meet the conditions for equity classification. The excess of the principal amount of the liability component over its carrying amount (“debt discount”) was amortized to interest expense over the term of the 2023 Convertible Notes using the effective interest rate method. See Note 2, “New Accounting Standards” for additional information.

Prior to January 1, 2022, upon conversion, the 2023 Convertible Notes could be settled, at our election, in cash, shares of our common stock or a combination of cash and shares of our common stock. Effective January 1, 2022, pursuant to the first supplemental indenture, dated as of January 1, 2022 (the “First Supplemental Indenture”), to the indenture, dated as of August

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20, 2018, by and between the Company and U.S. Bank National Association, as trustee (as amended by the First Supplemental Indenture, the “Indenture”), governing the 2023 Convertible Notes, the Company surrendered its right to settle conversions of the 2023 Convertible Notes solely using our common stock and irrevocably elected to settle at least the $1,000 aggregate principal amount of each 2023 Convertible Note submitted for conversion on or after January 1, 2022 in cash in connection with a settlement for which we elect a cash and common stock combination settlement.

2. New Accounting Standards

Recently Adopted Accounting Standards

In August 2020, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2020-06 (“ASU 2020-06”), Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity’s Own Equity (Subtopic 815-40): Accounting for Convertible Instruments and Contracts in an Entity’s Own Equity, which simplifies accounting for convertible instruments by removing major separation models required under current GAAP. The ASU also removes certain settlement conditions that are required for equity contracts to qualify for the derivative scope exception and simplifies the diluted earnings per share calculation in certain events. On January 1, 2022, we adopted ASU 2020-06 using the modified retrospective method and recorded a cumulative-effect adjustment of approximately $22.1 million to the beginning balance of retained earnings at the date of adoption and a $16.4 million net increase to “Long-term debt, net” on the Consolidated Balance Sheets. As permitted by the guidance, prior comparative periods were not adjusted under this method.

Pursuant to ASU 2020-06, we are no longer permitted to separately account for the liability and equity components of convertible debt instruments. As such, the carrying amount of our 2023 Convertible Notes is recognized as a liability as of December 31, 2022 on the Consolidated Balance Sheets. The ASU 2020-06 adoption also resulted in the derecognition of the embedded conversion option, net of tax effects, of approximately $34.1 million, which is included in “Additional paid-in capital,” as well as the derecognition of the related deferred tax liabilities of approximately $4.3 million on the Consolidated Balance Sheets.

The net effect of the adoption in the current and future periods as compared to prior periods is to reduce non-cash interest expense, or increase net income, as there is no longer a discount from the separation of the conversion feature within equity. The discount from recognition of debt issuance costs will be amortized over the effective life of the 2023 Convertible Notes using the effective interest method.

ASU 2020-06 also no longer allows the use of the treasury stock method for convertible instruments for purposes of calculating diluted earnings per share and instead requires application of the if-converted method. Under that method, diluted earnings per share will generally be calculated assuming that all of the convertible debt instruments were converted solely into shares of common stock at the beginning of the reporting period unless the result would be anti-dilutive. Effective January 1, 2022, pursuant to the terms of the First Supplemental Indenture, the principal amount of the 2023 Convertible Notes being converted is required to be paid in cash and only the premium due upon conversion, if any, is permitted to be settled in shares, cash or a combination of shares and cash. Consequently, the if-converted method produces a similar result as the treasury stock method, which was used prior to the adoption of ASU 2020-06 for the 2023 Convertible Notes.

In November 2021, the FASB issued ASU 2021-10, Government Assistance (Topic 832), Disclosures by Business Entities about Government Assistance, which requires entities to provide disclosures on significant government assistance transactions for annual reporting periods. The disclosures include information around the nature of the assistance, the related accounting policies used to account for government assistance, the effect of government assistance on the entity’s financial statements, and any significant terms and conditions of the agreements, including commitments and contingencies. We adopted ASU 2021-10 on January 1, 2022, resulting in the reduction of direct cost of revenues expense on our Consolidated Statements of Comprehensive Income and an increase in other receivables, which are included in the “Prepaid expenses and other current assets” financial statement line item on the Consolidated Balance Sheets. The impact was not material on the Consolidated Balance Sheets as of December 31, 2022, or on the Consolidated Statements of Comprehensive Income, Consolidated Statements of Stockholders’ Equity or the Consolidated Statements of Cash Flows for the year ended December 31, 2022.

3. Earnings per Common Share

Basic earnings per common share is calculated by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common share adjusts basic earnings per common share for the effects of potentially dilutive common shares. Potentially dilutive common shares include the dilutive effects of shares issuable under our equity compensation plans, including stock options and share-based awards (restricted share awards, restricted stock units and performance stock units), each using the treasury stock method.

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For the year ended December 31, 2022, we used the if-converted method for calculating the potential dilutive effect of the conversion feature of the principal amount of the 2023 Convertible Notes on earnings per common share, as required by the adoption of ASU 2020-06. Prior to the adoption of ASU 2020-06, we used the treasury stock method for calculating the potential dilutive effect of the conversion feature of the principal amount of the 2023 Convertible Notes on earnings per common share because we had the ability and intent to settle the principal amount of the outstanding 2023 Convertible Notes in cash. The conversion feature had a dilutive impact on earnings per common share for the years ended December 31, 2022, 2021 and 2020, as the average market price per share of our common stock for the periods exceeded the conversion price of $101.38 per share. See Note 14, “Debt” for additional information about the 2023 Convertible Notes.

Year Ended December 31,

Numerator — basic and diluted

Denominator

Effect of dilutive share-based awards 599 701 763

Earnings per common share — basic $ 6.99 $ 7.02 $ 5.92

Earnings per common share — diluted $ 6.58 $ 6.65 $ 5.67

Antidilutive stock options and share-based awards 9 4 66

4. Revenues

We generate the majority of our revenues by providing consulting services to our clients. See Note 1, “Description of Business and Summary of Significant Accounting Policies” for additional information on the types of consulting contract arrangements we provide.

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. We estimate that approximately 75% of our revenues recognized during the year ended December 31, 2022 were generated from time and expense contract arrangements. 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.

Revenues recognized during the current period may include revenues from performance obligations satisfied or partially satisfied in previous periods. This primarily occurs when the estimated transaction price has changed based on our current probability assessment over whether the agreed-upon outcome for our performance-based and contingent arrangements will be achieved. The aggregate amount of revenues recognized related to a change in the transaction price in the current period, which related to performance obligations satisfied or partially satisfied in a prior period, was $24.4 million, $26.3 million and $19.0 million for the years ended December 31, 2022, 2021 and 2020, respectively.

Unfulfilled performance obligations primarily consist of fees not yet recognized on certain fixed-fee arrangements and performance-based and contingent arrangements. As of December 31, 2022 and 2021, the aggregate amount of the remaining contract transaction price allocated to unfulfilled performance obligations was $3.6 million and $3.7 million, respectively. We expect to recognize the majority of the related revenues over the next 18 months. We elected to utilize the optional exemption to exclude from this disclosure fixed-fee and performance-based and contingent arrangements with an original expected duration of one year or less and to exclude our time and expense arrangements for which revenues are recognized using the right-to-invoice practical expedient.