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The unaudited condensed consolidated financial statements of FTI Consulting, Inc., including its consolidated subsidiaries (collectively, the “Company,” “we,” “our” or “FTI Consulting”), presented herein, have been prepared in accordance with generally accepted accounting principles in the United States (“GAAP”) and under the rules and regulations of the Securities and Exchange Commission (“SEC”) for interim financial information. Some of the information and footnote disclosures normally included in annual financial statements have been condensed or omitted pursuant to those rules and regulations. Certain prior period amounts have been reclassified to conform to the current period presentation. In management’s opinion, the interim financial statements reflect all adjustments that are necessary for a fair presentation of the results for the interim periods presented. All adjustments made were normal recurring accruals. Results of operations for the interim periods presented herein are not necessarily indicative of results of operations for a full year. These financial statements should be read in conjunction with the consolidated financial statements and the notes thereto contained in our Annual Report on Form 10-K for the year ended December 31, 2019 filed with the SEC.   

  Recently Adopted Accounting Standards

In August 2018, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") 2018-15 ("ASU 2018-15"), Internal Use Software (Subtopic 350-40): Customer's Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That is a Service Contract , which requires companies to capitalize implementation costs of a hosting arrangement that is a service contract and expense those costs over the term of the hosting arrangement. On January 1, 2020, we prospectively adopted ASU 2018-15 for eligible costs incurred on or after the adoption date. The adoption of this standard may result in the recognition of additional internal use software costs, which are included in the “Property and equipment, net” financial statement line item on the Condensed Consolidated Balance Sheets. There was no material impact on the Condensed Consolidated Balance Sheets as of March 31, 2020 or on the Condensed Consolidated Statements of Comprehensive Income, Condensed Consolidated Statements of Stockholders’ Equity or Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2020.

Accounting Standards Not Yet Adopted

In December 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740): Simplifying the Accounting for Income Taxes , which is intended to reduce the complexity in accounting for income taxes by removing certain exceptions to the general principles in Topic 740 and clarifying and amending existing guidance. The amendments in this ASU are effective for annual periods beginning after December 15, 2021, and interim periods within fiscal years beginning after December 15, 2022, although early adoption is permitted. The Company is in the process of evaluating the impact of this new guidance on its consolidated financial statements.

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 restricted shares, each using the treasury stock method.

Because we expect to settle the principal amount of the outstanding 2.0 % convertible senior notes due 2023 ("2023 Convertible Notes") in cash, we use the treasury stock method for calculating the potential dilutive effect of the conversion feature on earnings per common share, if applicable. The conversion feature had a dilutive impact on earnings per common share for the three months ended March 31, 2020 , as the average market price per share of our common stock for the period exceeded the conversion price of $ 101.38 per share. See Note 8, "Debt" for additional information about the 2023 Convertible Notes.

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	Three Months Ended March 31,
	2020				2019
Numerator — basic and diluted
Net income	$	56,747			$	62,645
Denominator
Weighted average number of common shares outstanding — basic	36,415				36,981
Effect of dilutive convertible notes	433				—
Effect of dilutive stock options	461				431
Effect of dilutive restricted shares	881				807
Weighted average number of common shares outstanding — diluted	38,190				38,219
Earnings per common share — basic	$	1.56			$	1.69
Earnings per common share — diluted	$	1.49			$	1.64
Antidilutive stock options and restricted shares	12				49

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 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 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.

•	Fixed-fee arrangements require the client to pay a pre-established 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.

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.

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 $ 8.3 million and $ 6.4 million for the three months ended March 31, 2020 and 2019 , respectively.

Unfulfilled performance obligations represent the remaining contract transaction prices allocated to the performance obligations that are unsatisfied. Unfulfilled performance obligations primarily consist of fees not yet recognized on a proportional performance basis for fixed-fee arrangements and performance-based and contingent arrangements. As of March 31, 2020 and December 31, 2019 , the aggregate amount of the remaining contract transaction price allocated to unfulfilled performance obligations was $ 1.4 million and $ 2.3 million , respectively. We expect to recognize the majority of the related revenues over the next 24 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.

Contract assets are defined as assets for which we have recorded revenue but are not yet entitled to receive our fees because certain events, such as completion of the measurement period or client approval, must occur. The contract asset balance was immaterial as of March 31, 2020 and $ 1.3 million as of December 31, 2019 .

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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 Condensed 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.

We record adjustments to the allowance for doubtful accounts and unbilled services as a reduction in revenues when there are changes in estimates of fee reductions, such as those fee reductions imposed by bankruptcy courts and other regulatory institutions for both billed and unbilled receivables. The allowance for doubtful accounts and unbilled services is also adjusted after the related work has been billed to the client and we discover that collectability is not reasonably assured. These adjustments are recorded to “Selling, general and administrative expenses” ("SG&A") on the Condensed Consolidated Statements of Comprehensive Income. Our bad debt expense totaled $ 3.9 million and $ 3.8 million for the three months ended March 31, 2020 and 2019 , respectively. Our write-offs totaled $ 6.1 million and $ 2.5 million for the three months ended March 31, 2020 and 2019 , respectively.

Goodwill

The table below summarizes the changes in the carrying amount of goodwill by reportable segment:   

	Corporate Finance & Restructuring				Forensic and Litigation Consulting				Economic Consulting				Technology				Strategic Communications				Total
Balance at December 31, 2019
Goodwill	$	478,842			$	232,120			$	268,677			$	96,770			$	320,497			$	1,396,906
Accumulated goodwill impairment	—				—				—				—				( 194,139		)		( 194,139		)
Goodwill, net at December 31, 2019	478,842				232,120				268,677				96,770				126,358				1,202,767
Foreign currency translation adjustment and other	( 3,771		)		( 1,802		)		( 331		)		( 81		)		( 4,834		)		( 10,819		)
Balance at March 31, 2020
Goodwill	475,071				230,318				268,346				96,689				315,663				1,386,087
Accumulated goodwill impairment	—				—				—				—				( 194,139		)		( 194,139		)
Goodwill, net at March 31, 2020	$	475,071			$	230,318			$	268,346			$	96,689			$	121,524			$	1,191,948

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Other Intangible Assets

Other intangible assets were as follows:  

		March 31, 2020												December 31, 2019
		Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount				Gross Carrying Amount				Accumulated Amortization				Net Carrying Amount
Amortizing intangible assets
Customer relationships		$	97,870			$	77,171			$	20,699			$	99,613			$	76,808			$	22,805
Trademarks		9,730				1,051				8,679				9,855				653				9,202
Acquired software and other		3,319				2,115				1,204				3,386				2,061				1,325
		110,919				80,337				30,582				112,854				79,522				33,332
Non-amortizing intangible assets
Trademarks		5,100				—				5,100				5,100				—				5,100
Total		$	116,019			$	80,337			$	35,682			$	117,954			$	79,522			$	38,432

Other intangible assets with finite lives are amortized over their estimated useful lives. We recorded amortization expense of $ 2.3 million and $ 1.9 million for the three months ended March 31, 2020 and 2019 , respectively.

We estimate our future amortization expense for our intangible assets with finite lives to be as follows: 

Year	As of March 31, 2020 (1)
2020 (remaining)	$	6,939
2021	8,740
2022	6,944
2023	3,564
2024	2,177
Thereafter	2,218
	$	30,582

(1)	Actual amortization expense to be reported in future periods could differ from these estimates because of new intangible asset acquisitions, impairments, changes in useful lives, or other relevant factors or changes.

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The following table presents the carrying amounts and estimated fair values of our financial instruments by hierarchy level as of March 31, 2020 and December 31, 2019 :

	March 31, 2020
					Hierarchy Level (Fair Value)
	Carrying Amount				Level 1				Level 2				Level 3
Liabilities
Acquisition-related contingent consideration, including    current portion (1)	$	15,184			$	—			$	—			$	15,184
2023 Convertible Notes (2)	278,193				—				417,937				—
Total	$	293,377			$	—			$	417,937			$	15,184

	December 31, 2019
					Hierarchy Level (Fair Value)
	Carrying Amount				Level 1				Level 2				Level 3
Liabilities
Acquisition-related contingent consideration, including    current portion (1)	$	14,826			$	—			$	—			$	14,826
2023 Convertible Notes (2)	275,609				—				398,016				—
Total	$	290,435			$	—			$	398,016			$	14,826

(1)	The short-term portion is included in “Accounts payable, accrued expenses and other” and the long-term portion is included in “Other liabilities” on the Condensed Consolidated Balance Sheets.

(2)	The carrying values include unamortized deferred debt issue costs and debt discount.

The fair values of financial instruments not included in the tables above are estimated to be equivalent to their carrying values as of March 31, 2020 and December 31, 2019 .

We estimate the fair value of our 2023 Convertible Notes based on their last actively traded prices. The fair value of our 2023 Convertible Notes is classified within Level 2 of the fair value hierarchy because it is traded in less active markets.

We estimate the fair value of acquisition-related contingent consideration using either a probability-weighted discounted cash flow model or a Monte Carlo simulation. These fair value estimates represent Level 3 measurements as they are based on significant inputs not observed in the market and reflect our own assumptions. We have multiple valuation models that use different inputs and assumptions based on the timing of the acquisitions. As a result, the significant unobservable inputs used in these models vary. The acquisition-related contingent consideration subject to the probability-weighted discounted cash flow model was valued using significant unobservable inputs including a discount rate of 13.5 % and future cash flows. The acquisition-related contingent consideration subject to the Monte Carlo simulation was valued using significant unobservable inputs including a volatility rate of 30.0 % , a discount rate of 13.6 % , which reflects the weighted average of our cost of debt and adjusted cost of equity of the acquired company, and future cash flows. Significant increases (decreases) in these unobservable inputs in isolation would result in a significantly lower (higher) fair value. We reassess the fair value of our acquisition-related contingent consideration at each reporting period based on additional information as it becomes available.

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The change in our liability for acquisition-related contingent consideration for our Level 3 financial instruments is as follows:

	Liability for Acquisition-Related Contingent Consideration
Balance at December 31, 2019	$	14,826
Accretion for time value of money (1)	506
Foreign currency translation adjustment (2)	( 148		)
Balance at March 31, 2020	$	15,184

	Liability for Acquisition-Related Contingent Consideration
Balance at December 31, 2018	$	3,698
Accretion for time value of money (1)	93
Balance at March 31, 2019	$	3,791

(1)	Accretion for the time value of money is included in "Selling, general and administrative expenses" on the Condensed Consolidated Statements of Comprehensive Income.

(2)	Foreign currency translation adjustments are included in "Other comprehensive income (loss), net of tax" on the Condensed Consolidated Statements of Comprehensive Income.

The table below summarizes the components of the Company’s debt: 

	March 31, 2020				December 31, 2019
2023 Convertible Notes	$	316,250			$	316,250
Credit Facility	50,000				—
Total debt	366,250				316,250
Less: deferred debt discount	( 33,168		)		( 35,393		)
Less: deferred debt issue costs	( 4,889		)		( 5,248		)
Long-term debt, net (1)	$	328,193			$	275,609
Additional paid-in capital	$	35,306			$	35,306
Discount attribution to equity	( 1,175		)		( 1,175		)
Equity component, net	$	34,131			$	34,131

(1)	There were no current portions of long-term debt as of March 31, 2020 and December 31, 2019 .

2023 Convertible Notes

On August 20, 2018, we issued the 2023 Convertible Notes in an aggregate principal amount of $ 316.3 million . The 2023 Convertible Notes bear interest at a fixed rate of 2.0 % per year, payable semiannually in arrears on February 15th and August 15th of each year and will mature on August 15, 2023, unless earlier converted or repurchased. The 2023 Convertible Notes are senior unsecured obligations of the Company.

The 2023 Convertible Notes are convertible at a conversion rate of 9.8643 shares of our common stock per $1,000 principal amount of the 2023 Convertible Notes (equivalent to a conversion price of approximately $ 101.38 per share of common stock). Subject to the conditions set forth in the indenture governing the 2023 Convertible Notes, holders may convert their 2023 Convertible Notes at any time prior to the close of business on the business day immediately preceding May 15, 2023. The circumstances required to allow the holders to convert their 2023 Convertible Notes prior to maturity were not met as of March 31, 2020 .

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The excess of the principal amount of the liability over its carrying amount ("debt discount") is amortized to interest expense over the term of the 2023 Convertible Notes using the effective interest rate method.

We incurred debt issue costs and allocated the total amount to the liability and equity components of the 2023 Convertible Notes based on their relative values. The debt issue costs attributable to the liability component are amortized to interest expense over the term of the 2023 Convertible Notes using the effective interest rate method. Issuance costs attributable to the equity component were netted with the equity component in stockholders' equity.

The table below summarizes the amount of interest cost recognized by us for both the contractual interest expense and amortization of the debt discount for the 2023 Convertible Notes:

	Three Months Ended March 31,
	2020				2019
Contractual interest expense	$	1,581			$	1,581
Amortization of debt discount (1)	2,225				2,108
Total	$	3,806			$	3,689

(1)	The effective interest rate of the liability component was 5.45 % as of March 31, 2020 .

Credit Facility

On June 26, 2015, we entered into a credit agreement (the "Original Credit Agreement"), which provides for a $ 550.0 million senior secured bank revolving credit facility (the “Credit Facility”) maturing on June 26, 2020. In November 2018, we amended and restated the Original Credit Agreement, to, among other things, extend the maturity of the revolving loans under the Credit Facility to November 30, 2023 and incurred an additional $ 1.7 million  of debt issuance costs (the Original Credit Agreement as amended and restated, the “Credit Agreement”).

The Company classified the borrowings under the Company’s Credit Facility as long-term debt in the accompanying Condensed Consolidated Balance Sheets, as amounts due under the Credit Agreement are not contractually required or expected to be liquidated for more than one year from the applicable balance sheet date. Additionally, $ 1.0 million of the borrowing limit under the Credit Facility was utilized (and, therefore, unavailable) as of March 31, 2020 for letters of credit.

There were $ 1.6 million and $ 2.0 million of unamortized debt issue costs related to the Credit Facility as of March 31, 2020 and December 31, 2019 , respectively. These amounts were included in “Other assets” on our Condensed Consolidated Balance Sheets.

We lease office space and equipment under non-cancelable operating leases. We recognize operating lease expense on a straight-line basis over the lease term. 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. Most leases include one or more options to renew, with renewal terms that can extend the lease term from six months to seven years . The exercise of lease renewal options is at our sole discretion. Certain of our lease agreements include rental payments that are adjusted periodically for inflation. Our lease agreements do not contain any material residual value guarantees or material restrictive covenants.

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The table below summarizes the carrying amount of our operating lease assets and liabilities:

Leases		Classification		As of March 31, 2020				As of December 31, 2019
Assets
Operating lease assets		Operating lease assets		$	149,570			$	159,777
Total lease assets				$	149,570			$	159,777
Liabilities
Current
Operating lease liabilities		Accounts payable, accrued expenses and other		$	36,235			$	35,727
Noncurrent
Operating lease liabilities		Noncurrent operating lease liabilities		163,594				176,378
Total lease liabilities				$	199,829			$	212,105

The table below summarizes total lease costs:

	Three months ended March 31,
Lease Cost	2020				2019
Operating lease costs	$	11,900			$	10,865
Short-term lease costs	522				863
Variable lease costs	2,987				3,013
Sublease income	( 1,090		)		( 1,197		)
Total lease cost	$	14,319			$	13,544

We sublease certain of our leased office spaces to third parties. Our sublease portfolio consists of leases of office space that we have vacated before the lease term expiration. Operating lease expense on vacated office space is reduced by sublease rental income, which is recorded to SG&A expenses on the Condensed Consolidated Statements of Comprehensive Income. Our sublease arrangements do not contain renewal options or restrictive covenants. We estimate future sublease rental income to be $ 3.6 million for the remainder of 2020, $ 4.5 million in 2021, $ 0.7 million in 2022, $ 0.6 million in 2023, $ 0.6 million in 2024 and $ 0.3 million in years beyond 2024.

The maturity analysis below summarizes the remaining future undiscounted cash flows for our operating leases and includes a reconciliation to operating lease liabilities reported on the Condensed Consolidated Balance Sheet:

	As of March 31, 2020
2020 (remaining)	$	32,688
2021	50,784
2022	31,886
2023	26,654
2024	23,518
Thereafter	75,776
Total future lease payments	241,306
Less: imputed interest	( 41,477		)
Total	$	199,829

The table below includes cash paid for our operating lease liabilities, other non-cash information, our weighted average remaining lease term and weighted average discount rate: