Welcome to the FTI Consulting Second Quarter 2025 Earnings Conference Call. Please note, today's event is being recorded. I would now like to turn the conference over to Mollie Hawkes, Head of Investor Relations. Please go ahead.

Good morning. Welcome to the FTI Consulting conference call to discuss the company's second quarter 2025 earnings results as reported this morning. Management will begin with formal remarks, after which they will take your questions. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements within the meaning of the Private Securities Litigation Reform Act regarding the company's outlook and expectations for the full year 2025 based on management's current beliefs and expectations. These forward-looking statements involve many risks and uncertainties, assumptions and estimates and other factors that could cause actual results to differ materially from such statements. For a discussion of risks and other factors that may cause actual results or events to differ from those contemplated by forward-looking statements, investors should review the safe harbor statement in the earnings press release issued this morning, a copy of which is available on our website at www.fticonsulting.com, as well as other disclosures under the heading of Risk Factors and Forward-Looking Information in our annual report on Form 10-K for the year ended December 31, 2024, our quarterly reports on Form 10-Q and in our other filings with the SEC. Investors are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this earnings call and will not be updated. FTI Consulting assumes no obligation to update these forward-looking statements, whether as a result of new information, future events or otherwise, except as required by applicable law. During the call, we will discuss certain non-GAAP financial measures. A discussion of any non-GAAP financial measures addressed on this call, and reconciliations to the most directly comparable GAAP measures are included in the press release and the accompanying financial tables that we issued this morning. Lastly, there are two items that have been posted to the Investor Relations section of our website for your reference. These include a quarterly earnings presentation and Excel and PDF of our historical financial and operating data, which have been updated to include our second quarter 2025 results. With these formalities out of the way, I'm joined today by Steve Gunby, our CEO and Chairman; and Ajay Sabherwal, our Chief Financial Officer. At this time, I will turn the call over to our CEO and Chairman, Steve Gunby.

Thank you, Mollie. Welcome, everyone, and thank you all for joining us today. As I assume some of you have seen this morning already, we reported strong second quarter results today. In that regard, I thought it might be interesting to bring our minds back. You might remember that when we talked about the outlook for this year, we indicated that 2025 would be a challenging year. And if you remember, we cited a fair number of potential reasons. First, we were cycling a really strong first half of 2024. Second, and probably more important, we had slowed revenue momentum coming into 2025. Third, we were facing disruption in our Compass Lexecon business. Fourth, although at the end of last year, the market was forecasting an M&A boom in 2025, a boom that would, of course, benefit several of our businesses. In the early part of the year, the market has suspended those expectations. Fifth, while FLC was strong, it was facing uncertainty due to potential changes in the regulatory environment. And sixth, the positive is that we were continuing to find great talent to invest in, which, of course, is a fabulous thing for the medium and long term but typically acts as a drag on the P&L in the short term. So when we added all of that up, it led us to give the weakest guidance that I think we've ever provided during my tenure with a 1% revenue growth at the midpoint of the guidance and the possibility within the range that we forecasted, of a down year in adjusted earnings per share for the first time in many years. So given that backdrop, where are we halfway through the year? I find that question interesting. First, most of those negative things have come true. And actually, the negative impacts in Econ and tech have been even larger than we expected. And yet the results we've been delivering have been solid as are our best estimates for the prospects for the rest of the year. So how is that possible? And what does that mean? To me, that's juxtaposition. The juxtaposition of the headwinds we have faced with the results we are able to deliver to me, is a powerful illustration once again of just how strong this company is, just how resilient. We are powerful enough as a company to weather the most formidable set of headwinds I've ever seen, not weathering them perfectly, but weathering them pretty well. So let me say a few words on the various businesses, starting with the businesses that had the most financial challenges this year and then moving on to some of the businesses that have had strong financial performances. I'm sure you noticed that tech had some financial challenges this year. Let me bring your mind back. I think as you know, our tech business has been soaring prior to this year with the fastest organic growth of any of our major competitors for the past five or so years. That tech team is focused on the toughest, most complicated jobs. They work particularly as the leading law firm on jobs that require processing massive amounts of data, some of which are very complicated emerging forms of data and process it quickly, figuring out with the attorneys what it all means. As a consequence of that, those capabilities have made tech a great business with a great team and it has had a great run. This year, the market has been hit because of the shortage of major deals and because a number of major deals got waived through versus requiring second requests. Given our strength in second requests, that change in policy has impacted us probably more than anyone else. Importantly, we don't expect those headwinds to go away immediately. So in addition to a not-great first half of the year, we are not forecasting a great second half for this business. Having said that, none of that challenges the underlying strength of this business. The ability to juggle intense situations, figure out how to deal with emerging data, leverage new technology, nor does it undermine the incredible capability of our people nor the trust that leading law firms and corporations have in our capabilities. My experience is that during slow markets, the strongest competitors tend to thrive as weaker competitors are forced to cut corners. So while this year is clearly a very tough year, it has not changed my conviction about the strength of this business, the strength of the team, and where this business will get to over time. Let me switch to the next business that has economic challenges this year, our Compass Lexecon business's adjusted EBITDA will be hit substantially this year. It remains an enormously capable organization and the leading group of economists in the world. A strong leadership team at Compass Lexecon has meant we've been able to attract terrific additional talent this year, academics with incredible backgrounds and leading professionals. So we can't downplay the financial hit we will take this year, and I would not want to suggest that the rebound from that financial hit will be immediate. But the Compass Lexecon team and I see the terrific people in Chicago, the West Coast, the East Coast, in EMEA and Asia, together with the great folks who have joined recently, are the foundation of the next generation of success for this great institution that has been a leader for a long time. We do see a major hit to the economics of this business this year but we do not see it as a permanent hit. Let me turn to some of the businesses that have been major contributors to our financials this year. FLC, as you know, like every business has had several quarters where it underperformed its potential. But we have always believed in the FLC team and the powerful group of capabilities within that team, even when it wasn't showing up in the P&L. The team there has been creative and insightful in investing in places where we have conviction about where we can lead on important client matters, whether it's in risk and investigation, cybersecurity, financial services, construction solutions, or in some of the underlying capabilities like data and analytics. The result of that commitment has shown up significantly in the last few quarters, winning some of the most major jobs in the market despite the headwinds. Thus, this year, even with regulatory challenges, we have had a record first half by far for FLC. While one can speculate that regulatory headwinds may intensify, thereby slowing momentum a bit as the year goes on, I remain incredibly enthusiastic about what I see as enormous potential for this terrific group of people going forward. Corp Fin is our largest and most multifaceted business, making it complex to summarize. Its sub-businesses have macro drivers that do not cut the same way for each segment. When you look closely, we've found that as we continue to support each of the sub-businesses, regardless of current economic factors, we continue to attract and develop great talent even if we're in a down cycle for those businesses. What this means is that even though some sub-businesses can experience down periods, overall it adds up to an upward trend. For instance, our transaction businesses have experienced volatility but the team has noted that we are gaining share even during poor quarters. The private equity market has begun to appreciate the quality of our offerings, starting to ask if we could help in further areas, key adjacencies. During both good quarters and even when the deal market is down, the team has continued to invest in those areas, which, while costing money, has helped us further develop and gain share in specific areas as well as strengthen relationships with core clients. Thus, this year, in a market with few transactions, we are still finding ourselves doing well. Likewise, we've not stood still in our core restructuring market, now significantly growing overseas while continuing to invest in capability enhancement in the U.S. and globally. An example would be our drastic growth in the airlines industry; we now have a tremendous share of the airlines work in the U.S. and around the globe. It’s these strategic moves in transactions and core restructuring, along with other initiatives, that have allowed our Corp Fin businesses to stand out, not only this year but over many years. It, of course, has seen ups and downs but its relentless focus on making the right investments has seen it substantially grow revenue and adjusted EBITDA over the past decade. Lastly, the willingness of Stratcom to invest in key areas such as cybersecurity response, public affairs, crisis communications even during slow quarters has allowed it to carry the financial load for the company while simultaneously building its brand. Overall, this year is not the level of growth that I aspire to. It is not the level of growth we've delivered more frequently in the past. But in the face of by far the most significant headwinds I have seen in the 11 years I've been here, we are still delivering solid results. We're in a position of strength, not just fending off the headwinds but also reinvesting in our Compass Lexecon business, supporting our tech, as well as investing in opportunities in Corp Fin and FLC among others. This year, while it might seem challenging, underscores the tremendous potential of this company going forward. I look forward to delivering on that potential together. With that, let me hand it off to Ajay to provide more detailed insights on the quarter.

Thank you, Steve. Good morning, everybody. In my prepared remarks, I will take you through our company-wide and segment results and discuss guidance for the full year. Beginning with the second quarter results, we reported strong overall performance driven by our diverse business segments and depth of expertise. Despite headwinds in our Technology and Economic Consulting segments, we reported nearly similar revenue and adjusted EBITDA compared to the prior year quarter. Notably, in Corporate Finance & Restructuring and Strategic Communication, we set new records for revenues and adjusted EBITDA this quarter, and in Forensic and Litigation Consulting, or FLC, we continue to perform remarkably well despite the regulatory changes and related uncertainties. Turning to our second quarter 2025 results in more detail. Revenues totaled $943.7 million compared to $949.2 million in the prior year quarter. Sequentially, revenues increased by $45.4 million or 5.1% compared to $898.3 million in Q1 of 2025. Earnings per share of $2.13 compared to $2.34 in the prior year quarter and $1.74 in Q1 of 2025. EPS increased sequentially primarily due to a $0.55 special charge related to employee reduction actions taken in Q1. Net income of $71.7 million compared to $83.9 million in the prior year quarter. The decrease in net income was primarily due to lower revenue, an increase in direct costs, which includes higher forgivable loan amortization and FX remeasurement loss compared to a gain in the prior year quarter and a higher effective tax rate, which was partially offset by lower SG&A. SG&A expenses were $202.2 million or 21.4% of revenues compared to SG&A of $206.2 million or 21.7% of revenues in the prior year quarter. The decrease in SG&A was primarily due to lower bad debt. Notably, in Q2, SG&A was up $17.9 million compared to Q1 because, as expected, legal settlements we had in Q1 did not recur. Adjusted EBITDA of $111.6 million or 11.8% of revenue compared to $115.9 million or 12.2% of revenues in the prior year quarter. Our second quarter effective tax rate was 22% compared to 18.2% in the prior year quarter. This difference was due to large option exercises in Q2 last year and resulting discrete tax adjustment. For the full year of 2025, we now expect our effective tax rate to range between 22% and 24%. Weighted average shares outstanding for Q2 were 33.6 million shares compared to 35.8 million shares in the prior year quarter driven primarily by the repurchase of 3.3 million shares in the first half of the year. Billable headcount decreased by 126 professionals or 2% compared to the prior year quarter, driven by approximately 8% declines in each of our Economic Consulting and Strategic Communications segments, partially offset by growth in Forensic and Litigation Consulting, or FLC, and Corporate Finance & Restructuring. Sequentially, billable headcount decreased by 187 professionals or 2.9% with declines across all segments. For us, voluntary attrition is typically higher in Q2. Additionally, some impacted employees from our previously discussed Q1 headcount actions departed during Q2. In the second half of the year, we expect to welcome approximately 320 graduates from university. Now I will share insights at the segment level. In Corporate Finance & Restructuring, record revenue of $379.2 million increased by 9%. The revenue increase was primarily due to increased demand for restructuring and transaction services and higher realized bill rates, which was partially offset by lower demand for transformation and strategy services. Record adjusted segment EBITDA of $81.7 million or 21.5% of segment revenue compared to $66.5 million or 19.1% of segment revenues in the prior year quarter. The increase in adjusted segment EBITDA was primarily due to higher revenue, which was partially offset by an increase in compensation. In the second quarter, restructuring represented 49%, transformation and strategy represented 26%, and transactions represented 25% of segment revenues. This compares to a split of 43% for restructuring, 32% for transformation and strategy, and 25% for transactions in the prior year quarter. Year-over-year restructuring revenues grew by 25% and transactions revenues grew by 10%, while transformation and strategy revenues declined by 13%. Sequentially, Corporate Finance & Restructuring revenues increased by $35.6 million or 10.4%, primarily due to an 18% increase in restructuring revenues and a 12% increase in transactions revenue, which was partially offset by a 3% decline in transformation and strategy. Adjusted segment EBITDA increased by $25.7 million sequentially, primarily due to higher revenues and lower SG&A, which was partially offset by an increase in compensation. Turning to FLC, revenues of $186.5 million increased by 10%. The rise in revenues was primarily due to higher realized bill rates for risk and investigation, data and analytics, and construction solutions. Notably, we saw strong growth in our financial services and cybersecurity practices within risk and investigations. Adjusted segment EBITDA of $31.2 million or 16.7% of segment revenues compared to $15 million or 8.8% of segment revenues in the prior year quarter. This increase in adjusted segment EBITDA was primarily due to higher revenue. Sequentially, FLC revenues decreased by $4.1 million or 2.1%, primarily due to lower risk and investigations revenues, which was partially offset by an increase in construction solutions revenue. Despite a slowdown in Foreign Corrupt Practices Act or FCPA cases and monitorship as a result of changing regulatory posture at the DOJ and the SEC, we continue to see strong performance in our financial services vertical driven by ongoing anti-money laundering related work and a pickup in regulatory scrutiny at the state level. We continue to work with our clients who maintain focus on internal controls and compliance regardless of regulatory changes. Our Economic Consulting segment's revenues decreased by 17% to $191.7 million. Excluding FX, revenues decreased by 19%. This decrease was primarily due to lower demand for M&A-related antitrust and non-M&A-related antitrust services, partially offset by higher realized bill rates for M&A-related antitrust services and higher demand for financial economic services. Adjusted segment EBITDA of $14.2 million or 7.4% of segment revenues compared to $44.3 million or 19.2% of segment revenues in the prior year quarter. This decrease in adjusted segment EBITDA was primarily due to lower revenues and an increase in forgivable loan amortization, which was partially offset by a decrease in compensation including a 7.9% decline in billable headcount. It’s worth noting, our segment EBITDA in Q2 of last year was outsized due, in part, to the reversal of deferred revenue from a large client which benefited adjusted segment EBITDA by approximately $8.5 million in Q2 of 2024. Sequentially, Economic Consulting revenues increased by $11.8 million or 6.6%, primarily due to higher realized bill rates as well as higher demand for financial economic services, which was partially offset by lower demand for non-M&A related antitrust services. Adjusted segment EBITDA remained flat as the increase in revenues was offset by higher compensation, including a rise in forgivable loan amortization. We issued $162 million in forgivable loans to existing and new employees and affiliates net of repayments in Q1 of this year and $72 million in Q2 of this year, mostly in our Economic Consulting segment. Forgivable loan amortization typically ranges from three to six years. In Technology, revenues decreased by 27.9% to $83.6 million. Excluding FX, revenues decreased by 28.9%. This drop was due to lower demand for M&A-related second request services. Adjusted segment EBITDA of $5.3 million or 6.3% of segment revenues compared to $20.9 million or 18.1% of segment revenues in the prior year quarter. This reduction in adjusted segment EBITDA was primarily due to lower revenues, which was partially offset by a decrease in compensation including lower consultant costs related to the decline in second request volume as well as lower SG&A. Sequentially, Technology revenues decreased by $13.6 million or 14% due to lower demand for M&A-related second request services. Adjusted segment EBITDA decreased by $6.3 million, primarily due to lower revenues, which was partially offset by lower compensation and SG&A. As Steve mentioned, we've had numerous second-request engagements paused or canceled altogether due to shifts in regulatory posture. In Strategic Communications, record revenues of $102.7 million increased by 20.8%. Excluding FX, revenues increased 18.6%, primarily due to an $8.4 million rise in pass-through revenues and higher demand for corporate reputation and financial communication services. In corporate reputation, we are supporting our clients with critical crisis communications and cybersecurity issues. Record adjusted segment EBITDA of $18.5 million or 18% of segment revenue compared to $11.6 million or 13.7% of segment revenues in the prior year quarter. This growth in adjusted segment EBITDA was primarily due to higher revenues, which was partially offset by higher pass-through expenses and increased compensation. Sequentially, Strategic Communications revenues increased by $15.6 million or 18%, which includes a $5.7 million rise in pass-through revenues and higher corporate reputation and public affairs revenue. Adjusted segment EBITDA rose by $5.6 million, primarily due to higher revenues, which was partially offset by higher pass-through expenses and increases in compensation and SG&A. Let me now discuss key cash flow and balance sheet items. Net cash provided by operating activities of $55.7 million compared to $135.2 million for the second quarter of 2024. The year-over-year decrease was primarily due to rising forgivable loan issuances, increased compensation, and income tax payments, which were partially offset by an increase in cash collection. During the quarter, we repurchased 2.192 million shares at an average price of $161.88 for a total cost of $354.9 million. In the first half of 2025, we bought back 3.319 million shares at an average price of $162.99 for a total cost of $541 million. As of June 30, 2025, approximately $309.3 million remained available under our stock repurchase authorization. Free cash flow was $38.3 million in the quarter compared to $125.2 million for the prior year quarter. This decrease is primarily due to lower net cash provided by operating activities and an increase in cash used for purchases of property and equipment. Total debt, net of cash, stood at $317.2 million on June 30, 2025, compared to negative $166.4 million on June 30, 2024, and $8.9 million at March 31, 2025. The sequential increase in total debt net of cash was primarily due to share repurchases and forgivable loan issuances. Turning to guidance, given that we now have two quarters behind us, we are narrowing our guidance by modestly reducing the upper end of our revenue and adjusted EPS ranges for the year. We now estimate revenues will range between $3.66 billion and $3.76 billion, which compares to the prior range of between $3.66 billion and $3.81 billion. We now estimate EPS to range between $7.24 and $7.84, and adjusted EPS to range between $7.80 and $8.40, which previously ranged from $7.80 to $8.60. The variance between EPS and adjusted EPS guidance is related to the first quarter 2025 special charge. Our guidance is based on several key assumptions, including: First, our technology segment has been more negatively impacted by the slowdown in M&A and perhaps even more so by the change in regulatory scrutiny than we anticipated, especially compared to the record M&A-related revenues and large jobs we had in 2024. For the remainder of the year, we expect a gradual improvement in demand for M&A-related services in technology and we are witnessing activity supporting this expectation with a number of new engagements, but we do not expect to reach the same level of volume or size of cases we benefited from in 2024. Second, in Economic Consulting, we have also been more negatively impacted by shifts in antitrust enforcement, especially in EMEA. Additionally, we've been successful in attracting even more academic affiliates and senior professionals than we expected, negatively impacting the P&L in the short term. Our guidance assumes that our adjusted segment EBITDA in Economic Consulting will reach a low point over the next few months. Third, we are entering the second half of the year with good momentum we saw in Q2 in many practices, including restructuring in Corporate Finance, financial services, cybersecurity in FLC, and Strategic Communication. Offsetting this somewhat is the ongoing weakness in transformation and strategy in Corporate Finance. Fourth, we expect Q4 adjusted EPS to be lower than each of Q2 and Q3 adjusted EPS mainly because we anticipate our practitioners and clients taking vacations. There is variability here; there have been years where Q4 adjusted EPS exceeded Q2 and occasionally Q3, although over the last seven years, the average Q4 adjusted EPS was 13% lower than Q2 and 22% lower than Q3 adjusted EPS. Lastly, I must point out that our assumptions define a midpoint and a range of guidance surrounding this midpoint, which I characterize as our current best judgment. Often, we find that actual results go beyond this range because ours is largely a fixed cost business in the short term, and small variations in revenue can have an outsized impact on income. Before I close, I want to emphasize a few key themes that I believe underscore the attractiveness of our company. First, our diverse portfolio of businesses is uniquely resilient, allowing us to grow not only regardless of the business cycle but also when any of our businesses face unique headwinds such as we have experienced in Economic Consulting and Technology this year. Second, we are under-levered and possess significant flexibility to deploy capital to enhance shareholder value as we have done this year. Third, we are seeing more investment opportunities globally now than ever before. As Steve mentioned, we are committed to continuing to invest in great talent. Fourth, our management team remains focused on both growth and profitability, as demonstrated by the cost actions we took earlier in the year, along with a relentless commitment to hiring strong talent when available while increasing utilization and rates. With that, let's open the call up for your questions.

Today's first question comes from Andrew Nicholas with William Blair.

Maybe I'll start with Economic Consulting and the divergence that we're seeing relative to the Technology segment. Could you flesh that out a little bit? I mean, it looks like sequentially, Economic Consulting was actually quite strong. I think the tax, you mentioned some paused or canceled second requests. So is that just non-M&A-driven strength? Or are there some onetime items in revenue and Economic Consulting in the second quarter that you don't expect to persist through the back half of the year? Just some additional color there would be great.

You answered the question in your question; it is non-M&A related activity.

And maybe just sticking with Economic Consulting. You talked a lot about recruiting and your success bringing in new professionals. For professionals that are maybe more academically oriented historically. Can you talk a little bit about when you'd have a better sense of their commercial capability? Is that something that you already have a ton of confidence in? Or what the timeline would be for kind of getting a sense of those new professionals in terms of replacing some of the departures?

Yes, it's a good question, Andrew. This is Steve. Look, let's be clear, right? This is something we've done for a long time. The origins of this company are academic. I mean, the origins of this company is as academics come up with new insights into markets, they published their findings in academic journals, which courts found to be persuasive. The lawyers would then ask those academics to come testify. Thus, this is the very foundation of our Compass Lexecon business. The head of our Compass Lexecon business is the former Dean of the University of Chicago Law School. So these are our origins. We've always had academic affiliates as major contributors to the business. Occasionally, they have become so busy that they decided to give up their academic careers and join us full time. But essentially, that’s the origins of our business. When you're dealing with a mix of people who have been testifying for a while and are actively juggling their teaching loads and research, alongside new hires with the potential of becoming future leaders in the field, like some recent recruits, I think Dan would agree, are likely future Nobel Prize winners who lack substantial testifying experience. We're balancing a range of skill levels. In the 20 or so people we hired in the first half of this year, some have extensive experience, while others are at more early stages. To your question about timeline, I suspect a year from now we'll have a better sense of how this is all unfolding, but we won’t have immediate insights in the near term. But does that help answer your question a bit, Andrew?

No, that's great. Really good color and helps me better understand it; I appreciate that. And then if I could transition just maybe one more question on the restructuring environment. I think you said 25% growth year-over-year. I think that's a record quarter for the bankruptcy restructuring practice. So could you just kind of talk about what's driving that? Is there any big engagements that are making that especially strong or if it is perhaps like some of the high-level data we've seen that also indicates macro tailwinds?

So Andrew, we are delighted by that performance. And you read this accurately. It comes from having the best restructuring professionals in the world, not just in the United States but also in the U.K., Germany, Hong Kong, Australia, and Latin America. We are leading in the restructuring practice...and that’s our main point. I’m going to give you some details, but I don’t want you to lose that. Last time, I mentioned tariffs, right? So there have been matters stemming from tariffs. If you have 60% of your cost of goods sold coming from overseas and you experience a 10% or 20% rise in costs while being over-leveraged to begin with, you get into trouble. That's part of it. However, the much larger element is related to LME cases. In essence, past liability management exercises are emerging again for a second wave of bankruptcy, even if spreads are tight. You’d ask why is restructuring strong? There is still considerable LME liquidity in the market and not every company will turnaround as hoped. Furthermore, we're even seeing matters from LME occurring in the fourth quarter of 2024. Additionally, we are enhancing our vertical lines of expertise, giving us more company-side work, which starts much earlier and typically takes longer, resulting in larger fees. We're absolutely delighted with this.

And our next question today comes from Tobey Sommer with Truist.

I was wondering if you could comment on your hiring of senior professionals year-to-date. Would you expect to maintain the same pace of senior consultant hiring and growth through the end of the year?

Tobey, thanks for asking. Look, the numbers indicate that we have hired more senior professionals this year than ever before in the first half of the year. I always find that a little amusing because I think of some of the people we state as hired this year, I think of us hiring them in the middle to end of last year. So some of this timing has to do with when employees officially join, as they might go on garden leave for six months. So I think I was telling you last year that the phone was ringing off the hook; we had many conversations. However, not all those people appeared last year; they showed up this year instead. But it's indeed a great thing. If I must be honest, you never know. We hire when exceptional people are available. If we see great candidates, regardless of the timeline, we seize the opportunity. Australia has a myriad of opportunities due to disruptions with competitors. If further disruptions occur, we’ll keep hiring as aggressively. It may slow down, but it is mainly driven by supply-side dynamics. Does that make sense?

It does. From an overall U.S. regulatory perspective, would you describe it as a net positive or net negative? I understand there are a variety of discrete elements, whether FCPA, second requests, but then you mentioned that states are stepping in. What’s your overall view?

We've had numerous discussions about that. Overall, determining which way it cuts is challenging, so I do not have a clear answer. Regulatory headwinds are affecting our FLC business negatively. They’re also impacting our tech and economic businesses, as you noted negatively. However, some macro factors and regulatory shifts like tariffs positively generate revenue for our Corporate Finance business. From my perspective, I would segment it to believe that there are more headwinds this year than positives, but we can't be precise. Ajay, do you agree?

I can't offer precise predictions for the reasons discussed. However, our FLC is performing remarkably well despite external pressures. We predicted a negative trend, but the reality has exceeded our expectations.

Yes, that color is helpful. You mentioned that the Economic business may bottom out in the next few months. Is that in terms of total revenue, EBITDA, or margin?

Tobey, there's some background noise. Can you clarify your question? I couldn't understand it.

Yes, sorry! For the Economic Consulting business, you mentioned it would bottom out in the next few months. Is that revenue, EBITDA, or EBITDA margin?

So the comment was on EBITDA. Simply put, there are costs and there is revenue. On the cost side, as I mentioned, we discussed how much we issued in forgivable loans in Q1 and Q2. We've provided clarity on amortization in our 10-Q. Thus, in Q2, our direct costs spiked largely due to that forgivable loan amortization. If the volume of these forgivable loans continues to decrease, which it has, I expect Q3 to be significantly lower than Q2. While such amortization will slightly increase, it won’t be as high as the spike from Q2 to Q1. Hence, I see the costs dropping, and over the next few months, we expect to reach a low point in EBITDA before gradually recovering.

And we have our final question today from James Yaro at Goldman Sachs.

The continued weakness in transformation and strategy is intriguing. Could you discuss the drivers behind this and share your views on what could lead to a turnaround?

Thank you, James. Good question. Firstly, we are comparing to a prior year first half that was truly exceptional, thus, the year-over-year comparison is reflective of that. Success has its pitfalls. Hence that historical comparison is one factor. However, you are correct that it appears weak sequentially as well, particularly in overseas markets like the Middle East where declining oil prices have generated a tighter focus on consulting spend, which is not just limited to us but is observable across the entire sector. Additionally, we’re engaging in more matters that are cost takeout-oriented, where success fees will be realized later. Our teams are doing excellent work in those areas, yet the revenue doesn't materialize immediately due to the success fee structure. Lastly, it's important to note that many of our junior-level transformation consultants are flexible and assist in other areas such as transactions and restructuring, ensuring the best future for our talent.

It’s clear you added around $310 million of debt this quarter, and you mentioned having substantial capacity to potentially take on more leverage. Could you provide more context regarding that capacity? Is there a ratio we should consider for measuring the maximum leverage you could theoretically take on?

Certainly. On a gross debt-to-EBITDA basis, we are at 1.2x. On a net debt basis, we are nearly at a rounding error. This is all post stock buybacks, forgivable loans issued, and bonus payments in March and April. At year-end, we typically see significant cash collections, which is the first crucial point. Secondly, our competitors operate with leverage ratios anywhere between 6 and 11x. Therefore, we possess enormous capacity in comparison. It is important to remember that leverage is merely an outcome, not an absolute target. If our share price conditions dictate, we can decide to repurchase aggressively. Thus, leverage remains an outcome based on prevailing circumstances.

That’s very helpful. Regarding the tech segment, the EBITDA margin seemed slightly lower. Given the weaker operational backdrop for that segment, how should we evaluate the margin trajectory going forward?

Look, strategically, this is a tough year. In a slow year, there’s an oversupply of capacity and it becomes increasingly challenging in a sector where pricing is already tough. Not all our jobs are price-sensitive, but we can’t let our core clients be forced into accepting competitors if they need to match compensation. So, I suspect, and I’m not expecting great margins from this business at least for the rest of this year. However, I would like to reiterate that if you consider the industry structure, we are engaged in the most complex jobs. Ajay’s earlier point regarding competitors is crucial; most of them are privately-owned and are heavily leveraged. If we were in that situation, our debt would vastly exceed what we currently have. Overall, we're under far less pressure than our competitors. So, if this situation persists, there will be a shakeout and we would benefit from it. But regardless, I am just not anticipating margin recovery this year, nor am I placing pressure on that group to achieve it.

That’s extremely useful. Lastly, I know there’s been significant discussion surrounding the Economic Consulting business. However, I recall you previously mentioning a $35 million-plus hit to EBITDA. Is that still accurate? Or is it larger or smaller now?

It's larger. I think even in the last call, I indicated it was likely larger than that. There are two elements contributing to this increase. The first is positive; when we initially provided that number, we had no idea about the ability to attract the talent we have. The influx of talent is great, yet, as Ajay pointed out, most of them require forgivable loans, which we provided. Unfortunately, not everyone brings in business immediately, creating a lag effect on our returns. The second more concerning factor is a market phenomenon, particularly in EMEA. Although we have the best outcomes in EMEA, our revenue has been much lower than anticipated, largely due to unanticipated market conditions. Collectively, these two elements have impacted our financial results. I do not know the specific figure, but I would estimate we’re down between $25 million and $30 million compared to last year. If you annualize that delta, you probably would be close to the right number.

That estimate could fall within the acceptable range.

Thank you all for your time and support. To emphasize, we are having a solid year in the face of significant headwinds, which speaks to the resilience of our institution. I think we will continue to astonish you with our progress in the coming years. Thank you for your support.

Thank you. This concludes today's conference call. We thank you all for attending today's presentation. You may now disconnect your lines, and have a wonderful day.