Q3 2020 FTI Consulting Inc Earnings Call
Welcome to the F T I consulting third quarter Twenty-twenty earnings Conference call, all participants will be and listen only mode should you need assistance. Please signal conference specialists by pressing the snarky followed by zero.
After today's presentation that would be an opportunity to ask questions to ask a question me press start and then one on your telephone keypad to withdraw your question.
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Note that the event is being recorded.
I would now like to turn the conference over to Molly Hawks, Vice President of Investor Relations. Please go ahead.
Good morning, and welcome to the F. T. I can felting conference call to discuss the companies third quarter at 2020 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 section 27, a of the Securities Act of 1933 and section 21 at the Security Exchange Act of 1934.
That involve risks and uncertainties forward looking statements include statements concerning plans objectives goals strategies future events future revenues future results and performance expectations plans or intentions relating to financial performance acquisitions share repurchases.
Business trends and other information or other matters that are not historical including statements regarding estimates of our future results financial results and other matters.
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 and the earnings press release issued this morning, a copy of which is available on our website at www Dot F. T I consulting dot 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 31st 2019 and update it in our quarterly report for the first quarter ended March 31st 2020, as well as in our other filings with the S. E. C. Investors are cautioned not to place and.
[noise] do reliance on any forward looking statements, which speak only as of the date of this earnings call and we will not be updated.
During the call we will discuss discuss certain non-GAAP financial measures such as total segment operating income adjusted EBITDA total adjusted sediment EBITDA adjusted earnings per diluted share adjusted net income adjusted EBITDA margin and free cash flow.
For a discussion of bees and other non-GAAP financial measures as well as a reconciliation of non-GAAP financial measures to the most directly comparable gap measures investors should review the press release and accompanying financial tables that we issued this morning, which include the reconciliation.
Lastly, there are two items that have been posted to the Investor Relations section of our website. This morning for your reference. These include a quarterly earnings presentation, and an X L. M. P. D F. A R historical financial and operating data, which has been updated to include our third quarter of Twenty-twenty results.
I have no during today's prepared remarks management will not speak directly to the quarterly earnings presentation posted to the Investor Relations section of our web site to ensure our disclosures are consistent besides provide the same details as they have historically and his eyes are upset are available on the Investor Relations section of our web site.
With these formalities out of the way I'm joined today by Stephen Gunby, Our President and Chief Executive Officer, and other Sabra, well, our Chief Financial Officer.
At this time I will turn the call over to our President and Chief Executive Officer, Steve Gunby.
Thank you Molly good morning to everyone.
And thank you all for joining us.
Well I'm sure you've all noticed that at the end of October and Covid is still with us.
And I'm guessing that's just as troubling for you as it is for me I think most of US knew during the summer that the evidence suggested they'd be good chance of Covid would still be with us at this point.
I don't think any of us really expected that'll be completely gone, but I guess most of them are secretly hoped it would.
And have you set some expectations it'd be better than it is today.
So in addition to hoping that you are doing well and your loved ones as well. Let me think you join each complicated times for continued attention you're showing.
Company.
Let me also use this opportunity to thank some of the F. T I folks, who maybe joining us call or incredible efforts.
Continued all year.
And can you into this quarter.
Our company as I'll talk about in a moment, where in terrific shapes were not in perfect shape is no company drink Covid isn't perfect shape, but we are in terrific shape.
And that is only been possible because of extraordinary efforts bio people efforts to support clients just 40, each other from home.
That collectively.
I've put us in a strong position not only.
Two whether covid, but he might need to shore coming out of this.
Today as usual I will let <unk> take you through the details of the quarter, but let me a fun show a couple of comments one on the revision to guidance and secondly can at least as important why I continue notwithstanding that revision to be so positive about this company's future.
Let me start with you just need your guidance. It is essentially an adjustment to our expectations about the fourth quarter.
The third quarter.
So different from expectations and some specifics did not come out to different from what we expected and I forget.
But at the end of the last quarter, we had hoped the evolution of Covid will allow for a stronger fourthquarter than we do today.
<unk>, let me go into that in a lot more detail as you know I think a fourth quarter results are typically are weakest.
Considerably less strong than a fire three quarters.
Samples if you look at the last five years of Fourthquarter EPS is roughly two thirds of the fire three quarters cause of holidays and some end of your actors.
This year, we thought the evolution of Covid might allow for better back in July we suspected that covid would still be here in the fourth quarter. So we and I'm guessing. Most you did not believe it was gonna be is present as it is today and therefore, we hoped or somewhat more rapid unfolding of the opening of courts.
B rigidification of the legal system more of an opening of cross border travel all of which of course would allow fast returned to normal for some of the businesses.
Hi, Kobe.
We also saw.
That if that didn't happen at the speed, we hope for on the other side.
We would see a continuation of the extraordinary strength, we had an a restructuring business in the second quarter.
What has happened in reality.
Is both of these and unfortunately to a somewhat lesser extent immediate expected.
Most in terms of the businesses that will negatively affected by Covid.
They are in large part starting to come back.
We have started to see some signs of improvement N F. L C and another possible business that have been affected by travel restrictions and foreclosures.
But that recovery is that a considerably slower pace than we had hoped it's just not the hockey stick we expected to see begin in the third quarter and continue on to the fourth.
Second in terms of the restructurings and bankruptcies.
Last quarter, if you recall, we talked about the fact that there is uncertainty it wasn't supposed to be around that we talked about how we could.
I have a scenario, where the government actions cause a temporary pause on bankruptcies and restructurings at least in some parts of the world.
We believe then and continue to believe now at the restructuring market is going to be here for a considerable amount of time.
But we also understood that there could be waves.
Cause if government policies for example, the aggressive monetary stimulus that we've seen can affect or at least seriously delay bankruptcies and restructuring activity.
What has happened here recently is that market forces began to play out more in favor of loose money and against restructuring activity than we had expected mob extraordinarily worse, but around the edges worse.
You can see that in our third quarter results, but you can also see it very vividly and external data.
Notably if you look at for example.
August and September chapter 11 filings into false they fell to just over half the level that they were between man July.
And I think the reason for that is essentially the loose money. The least money has allowed what unprecedented issuance of speculative grade bonds. This year.
And that remark complete reasonable late so if you look at the rates right now, they're not too different from where they were pre told it.
And the spreads compared to March perhaps.
Helped.
And that has made a difference in the third quarter and it's obviously, making a difference at this point in time.
[laughter].
The consequences that is not.
That a restructuring business is doing poorly.
To the contrary it is still experiencing considerably higher demand than it did pre covid.
That is just not as strong.
As we had hoped.
Alright, and expected back in July and it is not a strong enough to offset the slower paced recovery, we are seeing any other parts of our business.
So the.
A nation of Covid being more significant no longer impact on parts of our business and the loose money have this slowing effect on the pace of bankruptcy filings another restriction restructuring activities.
[noise] together means that we just no longer feel confident in an anomalous fourthquarter fourthquarter, that's higher or as high as the first three quarters of the year and.
And if you're building a more typical ratio of fourthquarter as compared to file for this you get to the 525 to 575 range for adjusted EPS that they will talk about as opposed to the 550 to search that we had before so we moved your guidance.
That's all I was gonna say on guidance.
Let me move on to what I guess is the next set of questions on many People's minds, which is so what does that mean going for how does that play out and I'm guessing a two versions of that question.
One is so how does that play out near term and two does that change the bold new fundamental trajectory of the company longer time.
Let me talk to both of those.
With the caveat that.
Perhaps countered it cheaply counterintuitively it is easier to predict a medium long time and.
It is a short time.
I'm sure that's pretty counterintuitive, but that's my experience in this business and the reason for that is in a short term we can be and are buffeted by factors such as those I. Just described factors that are external to us.
Loose money emanated trends regulatory activity et cetera, whereas my view of our history is that over the long term in this business.
For the long term, whether we perform or not is much more of a function of us of what we do which is ultimately in our control.
If we are well positioned around the corner issues. Our clients are facing if we have great people with great branch and if you go on the market and effective way my experiences and I think the data show we grow over any medium term.
Factors, we can control over the medium term outweigh the short term factors as.
As a result in my mind. So there is uncertainty in a short time I am at least as confident about the long term is when we went into covid.
In the short term of course could transfer your scene could continue.
Seeing a gradual strengthening of the businesses that are slow now, but it's graduate we don't see anything that suggests we're gonna have.
Go backwards, but we also don't see a current acceleration of those trends. So we could be lower long term expectations for some subsets of our business for awhile.
And so of course.
The loose money and the government stimulus could continue to erode the strong performance of corpse then for awhile.
I should note however that that can reverse itself incredibly fast for example, with a couple of large bankruptcies or restructurings happened M. As in man, but for sure. It is possible that loose money could affect us for awhile, notwithstanding all belief that loose money cannot ultimately.
[laughter] offset.
Forever, the underlying economics of businesses.
So absolutely there are things that are out of our control and those things could mean their slowness. The continues until the first half of the year.
But over any medium or long term period, one has to believe there's gonna be litigation in the world. There's gonna be investigations in the world, They're gonna be tribunals to try cases juries will eventually allowed be allowed once again to sit in the same room at the same point in time, there will be disputes, we will M&A activity and the underlying economic reality.
We'll get paid that they are bankruptcies and restructurings.
So over any medium term our results in my view will be much less affected by forces outside of controlling more dictated by questions like are we well positioned.
We strengthening our businesses are we going after the right adjacencies.
On the People's side, how will you be changing the best people are we developing great people are we an attractive place for people to join.
As you know we felt pretty good about the answers to those questions going into Covid.
In terms of the jobs and awards, we had one around the world. The list had never been longer or more impressive we'd extended into keeney adjacencies that we're supporting our business cyber security business transformation public affairs, and others, we've expanded and hamster geographical footprint, we have record numbers of promotions and are are.
Ability to track senior talent from the outside as shown by the powerful number of senior hires that we had to cheat had never been as strong and a consequence of that I'm sure you. All the number was unprecedented organic growth for this company in 2018 and 19.
Double digit top line growth that drove record on it.
And even if one discount some of that growth is anomalous or catch up from prior years are you, adding slower growth this year.
Our multiyear trajectory now for an extended period of time still calculates to be an impressive set of numbers.
Important this year, notwithstanding covid and notwithstanding all of its challenges we have continued to invest the time each of those critical leveraged we have continued to support clients and what are turning out to be high profile brand building.
<unk> the largest bankruptcies globally mega deals with antitrust implications largest investigations happening in different parts around the World Asia, Germany. The U S companies facing an antitrust cases related to data data privacy.
And companies at the center of the Covid pandemic working towards the vaccine among many other high profile engagements.
As a result, we have deepened the most key client relationships in a farm and continue to win industry out athletes from leading the deal bankruptcy cables for the 12th consecutive year.
Having more employees name to who's who I'm consulting experts guide than any other foreign globally for the fifth consecutive year.
L. M. Recently named me, that's the case set up for the financial crisis management among many others.
Importantly in the face of Covid.
We have promoted more people this year.
Than ever before.
Our employee engagement scores are the highest we have ever had our retention rate is the highest we've ever had.
And our attractiveness to leading experts and other farm. So now she S. T I as a fabulous platform for their advancing their careers as measured either by the number of players we've done or probably more currently does not a phone is ringing.
Has never been higher.
As I'm sure you know not all firms gotten too covid as well as we have thus far and some of our competitors are experienced some other scratches and.
And as a consequence, the number of conversations we're having with terrific people, whose culture bits with us who Wanna join us.
As powerful indeed.
As a consequence in the face of Covid, we have committed to and achieved.
Record head count.
Leaving us with a strength of team around the world that I believe is unprecedented in this company's history.
As a result, notwithstanding the incredible growth, we were experiencing coming into covid.
Today, I feel at least as bullish.
Not more about our prospects.
Coming out of it.
With that.
Let me turn the call over to <unk> take you through the quarter in more detail J.
Thank you Steve Good morning, everybody in my prepared remarks. This morning, I wouldn't review our company wide and segment results and discuss our revised guidance for the year.
I'm pleased stood or bold strong third quarter results.
Most notably our forensic in their phone and forensic in litigation consulting or F. O C segment.
Delivered strong sequential improvement.
Even with significant opportunities remaining for increased utilization.
Conversely, and our corporate finance and restructuring segment bankruptcies and.
Perhaps in Bob due to government stimulus benefiting certain industries, which and done had she could boating revenue in that segment at less than the 11th reach in the second quarter of 2020.
Underscoring the hour market, leading positions and resiliency.
Even in the face of a global pandemic. This quarter's revenue of $622.2 million what was a record high.
Both available head count to 5019, and here, where your billable he'd come grow 12, 15.8%. We're also records, giving us ample capacity for future growth and profit.
Let me know take you through the details.
All the quarter revenues of six and $22.2 million were up $29.1 million or 4.9% compared to revenues O $593.1 million and the prior to give quarter a.
Ah revenue growth you you'd over here was driven by higher demand and Ah corporate finance and restructuring an economic consulting segments, which was partially offset by lower demand and R. F. L C and strategic communications segments and a decline in fast through revenue as compared to the prior to get a call.
Huh.
<unk> P B S with $1.35 and three 220 compared to dollar 59, and the prior to give quota.
Just the D b S off $1.54 compared to $1.63 and the priority a quarter.
The difference between a gap and adjusted D. B S and the quota reflects is $7.1 million special charge, which reduced got b B S. By 14 cents and $2.3 million of non-cash interest expense related to our convertible notes, which decreased gap B B S.
By five cents.
The special charge is comprised of two items first we announced in August that we have lease approximately 120000 square feet.
<unk> new space at 11, 66 Avenue of the Americas.
Consolidating from approximately 160000 square feet of space and two offices in New York.
Do you expect to take possession of the space in April of 2021.
Advance of this and given most employees are currently working from home.
Have already abandoned 67000 square feet of space, resulting in $4.7 million in lease abandonment and relocation costs.
Second in the quarter, we took performance related actions in our <unk> segment that resulted in severance another employee related costs of $2.4 million.
As of September 30th 2020.
We're weighted average chairs outstanding our way, so Oh 37.1 million chairs compared to 37.9 million chairs September 30th 2019.
<unk> includes the potential value to the impact of a convertible notes, which at the end of this quarter was approximately 337000 chairs.
We have more than offset bold dilution from our convertible notes and from normal course equity compensation by repurchasing 1.9 million chairs over the last 12 months.
But <unk> 2020, net income of $52 million compared to net income of $64 million and the prior to get a quarter.
The year over year decrease, whereas largely because did that cough increase D $6.3 million.
Which was primarily related the 15.8% increase billable headcount.
We also have the $7.1 million special charge, an F X remeasurement losses of $3.5 million you do weakening of the U S dollar against other major currencies, which compared to a 2 million dollar gain and to try to get a quarter.
These cost increases or only partially offset by higher revenues and a decline in SG&A expenses as well as the door effective tax rate.
S G and expenses in the third quarter of $122.1 million, we're 19.6% of revenues. This compares to S. G and have $128 million or 21.6% of revenues in the third quarter of 2019.
The decrease was primarily due to lower travelling lemon detainment expenses, resulting from COVID-19 relate to travel restrictions and lower bed desk.
Was partially offset by an increase insanities and employee related expenses driven.
Driven by that 11% year over year increase in non billable headcount.
Third quarter of 2020, adjusted EBITDA of $90.9 million or 14.6% of revenues compared to $92.3 million or 15.6% of revenues and the pride you had a quota.
We're gonna effective actually put the third quarter of 22.3% compared to 24.7% and the priority at a quarter.
The 2.4% decline was primarily due to a favorable discrete tax adjustment related to share based compensation.
Billable headcount increased by 685 professionals are 15.8% compared to the priority of quota sequentially.
Billable headcount was up by 370 fold professionals are 8.1%.
What's noting in the third quarter alone, we welcomed 200 and put the seven recruits do F D I from universities.
Our largest class ever.
Also during the quarter, we welcomed the theme from desktop partners to our corporate finance and restructuring segment.
My wife share some insights at the segment level and corporate finance and restructuring revenues of $236 $6 million increase 23.4% compared to the priority a quarter.
Increase in revenues was primarily due to higher demand and hired realize bill rates for a restructuring services and if one quarter revenues from Delta partners.
On July 1st this year, we acquired Delta partners and last year in August we acquired Anders a G Act.
Acquisition related revenues in the quarter or $15.4 million.
As a reminder, reconsider revenues as acquisition related for the first 12 months post acquisition.
As such this quarter, one month offenders revenues and three months of Delta apartment revenues were considered acquisition related.
What's the melting from an industry perspective, we experienced the strongest demand in restructuring in airlines Telecom restaurants energy transportation retail health care real estate and media and entertainment.
Just to check them, EBITDA, Oh, $56.2 million or 23.8 per cent of segment revenues compared to $48.1 million or 25.1% of segment driven using the priority at a quarter.
As higher revenues more than offset and increase in compensation, primarily related to a 36.6% increase in billable headcount and higher variable compensation.
On a sequential basis, corporate finance and restructuring revenues decreased $9.4 million or 3.8%.
Steve mentioned, a volume of bankruptcies in the U S slowed in July and August and we experienced a sequential decline in demand for restructuring services.
This decline in restructuring revenues was only partially offset by an increase in revenues and business transformation in transactions.
Which includes the desktop partners acquisition.
In transactions, we are seeing it pick up in activity in health care Telecom media and technology retail chemicals and industrials in particular with our private equity declines.
Sequentially adjusted segment EBITDA declined more than revenue because of sharply higher headcount related cos driven by the 18.1% increase in billable headcount.
S G and a expense also rose because of her one time adjustment to earn out accretion expenses related to our <unk> physician and additional employee and infrastructure costs added as part of the Delta partners acquisition.
Turning to F. L C revenues of $119.1 million decreased 16.5% compared to the prior to get a quarter the.
The decrease in revenues was primarily driven by lower demand for disputes an investigation services embark because certain matters or at least deferred due to travel restrictions two client locations as well as foreclosures and delays.
Just a segment D V D a of $13.6 million or 11.4% of segment revenues compared to adjusted EBITDA D. A of $27 million or 18.9% of segment revenues and the prior to get a quarter.
The year, where you're decrease in there just to check my David D. A was primarily due to lower revenues with lower staff utilization, which was only partially offset by a decline in S. G and a expenses.
[noise] sequentially I felt for your revenues increased $12.7 million or 12% as demand rose photo of investigations data and analytics and dispute services.
Notably we saw a gradual opening of coach over the course of the quarter and trial dates are getting scheduled.
Howard adjusted EBITDA increased $22.6 million compared to the second quarter of 2020.
This impressive rebound was primarily due to the increase in revenues as well as lower compensation, which included variable compensation of drools and lower bed that.
As I mentioned earlier during the quarter, we took a special charge within not not for <unk> R. F. O C segment, resulting from severance payments to 16 employees.
Alright, economic consulting segment's revenues of $155 million increased 9.4% compared to the prior to get a quarter like.
Like last quarter revenue growth was driven by higher demand and realize bill rates for large emanated related and bed dressed engagements.
Just a segment David D E R 20, $517 million or 16.6% of segment revenues compared to $19.4 million I'm, putting 0.7 per cent of segment revenues and the priority a quota.
The year over year increase and adjusted segment D. V. D. A was due to higher revenues, which was partially offset by an increase in compensation, primarily due to a 15.2% increase in billable headcount and higher variable compensation.
Sequentially economic consulting revenues increased $3.5 million, a 2.3 per cent.
We delivered higher revenues and our international arbitration business as virtual testimony wash introduced more broadly during the quarter.
Also noteworthy we are seeing higher demand <unk> Morn emanate related antitrust services and higher demand for our financial economics breach of contract services driven by an uptick in demand arising from COVID-19.
<unk> related disputes.
This was partially offset by a decline in revenues for emanate related and Petra services compared to the second quarter of 2020.
In technology does that unusual $58.6 million increased 2.6% compared to the priority of quota. The increase in revenues was primarily due to a higher demand for global crossing bother investigation and litigation services, which was partially offset by a decline into.
<unk> for emanated related services adjusted.
Just a segment D V D a of $11.9 million or 20.4% of segment revenues compared to $12.3 million or 21.5 per cent of segment revenues in the prior to your quota.
The decrease in adjusted segment E. D. A was do you do hire compensation primarily related to a 13.2% increase in billable headcount.
On a sequential basis technology revenues increased $11.5 million or 24.4%.
Primarily due to higher demand <unk> investigation services and a surge in demand for EM and they relate to the second request services.
Revenues in the strategic communications segment of $53 million decrease $7 million or 11.7% compared to the prior to get a quarter. The decrease in revenues was primarily due to lower demand for corporate reputation and financial communication services and a two point.
3 million dollar decline and pass through revenues.
Just a segment Deborah D E O $8.4 million, a 15.9 per cent of segment revenues compared to $12.6 million or 21.1% of segment drive in <unk> in the priority headquarter.
The decrease in there just to check my D V. D. A was primarily due to lower revenues.
Sequentially strategic communications revenues decreased $3.9 million or 619%, primarily due to a decline for our restructuring and financial communications services, which has surged during the second quarter with the rush of bankruptcy filings.
Let me know discuss T cashflow and balance sheet items regenerated <unk> cash from operating activities up to $111.6 million and three cashflows $99.8 million and a quarter.
Total debt net of cash of $36.6 million decreased $21.2 million compared to $57.8 million at September 30th 2019.
During the quarter, we repurchased 749315 chairs at.
At an average price for sure Okay $110.57 for the total cost of $82.9 million at.
At the end of the quarter, we had approximately 180 $214 million remaining available for sure repurchases under our current authorization.
Turning now to our guidance at the outset off the pandemic box of her business experienced is strong tailwind, particularly a restructuring business. One other parts of our business experienced a strong downdraft from deferral from a Dakota look if not a reduction in demand.
The exact trade offs between these opposing forces walls.
And it is uncertain.
Godless, we maintained our guidance all through this year.
Now with three quarters under our belt, we had adjusting our guidance ranges for 2020, only slightly downwards with the higher and they'll find revised screen just still within the hour original range.
Now expect Twenty-twenty revenues range between 2.42 billion Duban four 7 billion. This compares to the previous revenue range of 2.45 billion to 2155.
We now expect Twenty-twenty gap P. P. S mid range between $4.93 on $5.23. This compares to the previous <unk> B B S. A range of between $5.52 in $5.82 and includes our third quarter special charge of 14 cents for sure and then <unk>.
Made a non-cash interest expense of 18 cents for sure related to our 2023 convertible notes.
N right now expect 2020, adjusted EPS Little range between 525 and $5.75. This compares to the previous suggestion D. P. Kinda strange all 550 to $6.
All were revised guidance is based on two P assumptions first let.
Have you experienced any reduction in the volume of bankruptcies over the last few months compared to the second quarter of 2020.
And a revised guidance assumes a similar level of bankruptcies in the fourth quarter as we had dishwater.
S. Steve mentioned in terms of restructuring globally. The pandemic has had I'm even impact on many industries and government subsidies and policies have altered the natural course.
In aggregate in the fourth quarter, <unk> continued distress situations and oil and gas exploration production and drilling.
Health care automotive Department stores Airlines restaurants, and entertainment and entertainment venues. So the level of such demand is not expected to be as strong as earlier in the year.
Second redelivered strong sequential improvement in our F O C segment.
While they remain significant room for further improvement from higher utilization, we expect such improvement to be gradual.
Ah those segments. Despite the pandemic are doing well. However, we are approaching here and I'm not expecting our employees to take well deserved vacations.
And chewing typical season, a link back to billings across all segments.
Okay.
Before I close I want to reiterate the few T teams that underscored the long term strength and potential of her business.
First we believe re are leading D ward leader in restructuring.
And we expect the waves <unk> in the coming 12 to 24 months, so timing is uncertain.
With the record staff additions in this segment as we continue to invest <unk>, we are better position now to help our clients globally than ever before.
Second we have significantly diversified offerings over the last several years with investments in areas such as non them in the antitrust International arbitration business transformation cyber security and public affairs.
Not only are we producing better results and that's spelled C.
But also we're seeing these practices trend coming as we slowly emerge on the other side of the spend down.
Sure.
We believe we are the choice employer in our practice areas and continue to attract island because our our colleagues are working on the highest profile engagements in their fields across the globe.
Fort <unk> core we help our clients, especially in times of dislocation as they navigate through their most complex business challenges.
<unk> will undoubtedly resolved in a new genre of disputes investigations and conflicts.
That our experts.
Already assisting with and supporting.
And [laughter].
In the last 12 months, we have reduced <unk> by $21.2 million wild reap purchasing $212.2 million worth of our shares and that Quieting Delta partners preeminent technology media and telecom poke his consulting practice.
Our business generates tremendous free cash flow and our balance sheet is N vehicle, giving us the ability to continue to invest for growth and redone capital to shareholders.
That that's open to call up for your questions.
We will now begin the question and answer session.
Question, you mean press one on your telephone.
If you're using a speaker phone please pick up your headset before pressing the keys to withdraw your question. Please press Star then too.
This time, we will pause momentarily to similar after.
Our first question comes from Andrew Nicholas with William Blair. Please go ahead.
Hi, good morning.
<unk> just just wanted to start digging into C. F. R. A little bit further can you help us better understand the Beatles Asian trend there I I recognize that.
Demand was a little bit later than you had anticipated with a slowdown in bankruptcy, but just.
Surprising to see it down too much sequentially. So I'm just kind of wondering what the drivers are there how much of that is a function of weakness in business transformation.
Or is it a function of elevated hiring in anticipation of demand.
2021, just anything else that you can kind of say specifically to utilization in the court.
Andrew the <unk>, the more burnt and in fact, we've hired lots and lots of people and you know, especially from for example, the universities and you know utilization is not a we did metric it's not the way it did by seniority it's not the waited by bochner.
Or or junior that each person has the same number a bit of a large and.
<unk>. So that's the most significant factor it's not as if our demand is completely fallen off I mean, yeah Rover, yeah restructuring is up and sequentially business transformation in transactions are old show up I mean sequentially and you're gonna need are weird transformations also help either.
Acquisition, we did buy all off does that bachner. So we we are where she got her maintaining mark chair you know there. There is there is a lot of bankruptcy out there. There's a lot of dislocation out their business transformation is getting better. We've just hired this time that universities is.
Is when you hire them and we this gives us lots of capacity to grill.
It makes sense. Thank you and then.
He started to to see quite a bit more positive come to your own M&A in the market of late I'm. Just wondering if that's something that that you've seen as well what businesses you'd expect to to be most positively impacted by that in the near term and and your outlook on on that front.
Mmm No question about it no question about it that was two some the surprise of the pandemic you know how quickly M&A came back so you're seeing that in our technology practice. For example, with you know, we we do particularly well on large emanate instead of the.
Meg 5 billion dollar blood Stealen, there's been a lot of those announced publicly and we also get tired in advance do a chest antitrust issues. For example that may or may not be there uhm, the economic and something side. So do your specific question economic consulting in technology, the two statements that benefit.
Directly from him a name for the most part from large emanate and you're seeing that the the results I mean quite evidently you're saying that the results from both segments are corporate finance theory old show on the business transformation in transaction site that transactions elements of that which is about 59% of our total revenue in that area.
And the whole whole segment de tour seeing a lot of activity from private equity clients. That's why it's specifically mentioned that those are the three it.
Great. That's helpful. And then if I could just ask one more I just wanted to be clear on kind of the F. L. C trajectory going forward I think you had mentioned at the outset of the prepared remarks that your initial expectation was more of a hockey stick.
Is that something that now moved more towards 2021, and the similar shape or is it just a an expectation now that that that rebound is more gradual not not that hockey stick kind of being pushed out to next year.
Maybe I'll take that I think our expectation is look you don't know right. I mean this is so affected by the trajectory of Covid and.
Governments innovation this to do cases, virtually and all that but I would say it is not that we just pushed out a hockey stick. It is more at least currently for a gradual recovery I mean, we're finding way.
Ways to get around the court restrictions courts are starting to innovate.
But I think the.
That teams.
Expectations of a quick rebound that they they had back in July you know I think are more muted. We are I do want to say that that it's not that the expectation of getting that business back too.
<unk> is is gone at all I mean, I think our confidence in that business in the medium and long term is as high as it's ever been but I I would say are current guesses at the slower ramp back and it's not just a hockey stick delayed J U in a different position I would take we're probably lines on that now.
Never so sir but I I will say that the that we're not giving items, just yet and and.
And then and then this man that makes that's not an advice I'm, hoping to do so we're gonna wait till the end of February even be amounts that adults and at that time you mean.
Yeah, you haven't been talking now for a second wave and what that May do in Europe, and shutting down things on the other hand, we are seeing things opening up in Asia quite significantly I'm, even for US. So we'll just wait the the good news is look look at that as the resiliency in our business, where we are able to offset.
These opposing forces in a different segment. There are people are suddenly getting used to it there. So let me go to opening up trial days getting scheduled and that and such I work going but that Steve spelled it's best to assume gradual recovery, we'll get there in February to give specific items.
Thank you.
Thank you Andrew.
Again, if you have a question please press star nine one.
Our next question comes from Toby Summer with trip Securities. Please go ahead.
Good morning, Toby good.
Good morning.
Do you have the appetite for more aggressive share repurchase I don't know, whether you're you're going to point to see the the stock market open but stock is down sharply and and I also Wanna know could you do that and also have the capacity to take advantage of dislocation that competitors either by hiring individuals and small groups.
<unk> indoor potentially acquisition.
Let me, let me say this I <unk>, we have the capacity to we always the number one priority in our company is to make sure we treat great talent well first the great talent, we have in our company, but then secondly to always leave ourselves the opportunity the financial on for.
Do you need to jump on great talent, whether or not it happens to be accretive to the P&L near term or not so absolutely. We have the ability to do that and I think it's quite independent of our ability to repurchase shares because the the reality attracting talent tends to hit EBITDA doesn't tend to be a big cash outflow in in the.
The share repurchases really a cash tissue.
I don't know, whether I J wants us to comment on specific intentions with respect to share buyback. So let me let me defer.
I would say we don't typically comment on that we have I would say this we have a terrific balance sheet and.
Over my tenure here and Hodges tenure, we have shown an ability to buy back shares when we think it's appropriate but I don't think we ever comment on specific attention semi right onto it you are so just look at what we've done <unk>.
You have a demonstrated ability an enormous capacity I mean, not that loads are down orange or vulgar remains available valuations in terms of what you know what out there in public space are a lot more than our stock so.
And you know, we I don't think I need the same mall.
Thank you could you could you remind us on a b.
Remaining authorization for repurchase it and then maybe switching.
To Cook finance restructuring how.
How do you get the confidence to describe the potential for the more medium term outlook for waves of bankruptcies that you mentioned.
Okay.
The remaining authorization RJ do you know the number I think I'll have the end at the end at the end of the quarter person to 180 odd million dollar dangerous in my prepared remarks.
<unk>.
So in terms of our confidence about <unk> you know I think you can look at look there is both internal things and then there's external thing the external things you can look at.
Moody's expectations for bankruptcies over the next 12 and 24 months you can look at the standard and Poor's based on credit Worthiness. These are there are there are.
The truth is that although there's been loose money that hasn't necessarily made every company back into a fully solving company. It's just allowed people to avoid restructurings for a period of time and so there's a lot of external measures that suggest there there's a pent up demand for that the other the more internal factor in.
Is what we've done over this period of time is continue to strengthen our our business.
Our global presence is enormously different than it was not only I mean, certainly 10 years ago. When we were particularly a U S based company and particularly credit or side focus today, we're still that strong there, but we have company side that you asked me a terrific practice in Latin America, we have a terrific practice in London perfect practice in Germany practice.
Lincoln practice in Australia in Australia, <unk>, I mean, we have presence around the globe and we continue to add to it so.
The combination of the pent up demand and.
Our strength and.
And my experiences when he got pent up demand and you're you've you've you're powerful company you know you're gonna do pretty well if the issue is.
It's just you can't tell exactly with the waves or just because you don't know exactly how the government policies intersect that but that's that's the basis for our long term optimism Kobe does that answer your question.
Sure sure that's that's helpful and.
<unk> I guess, given the more modest trajectory here with just a couple of months in a year.
Without without giving you ask you to give us a numerical guidance could you maybe discuss some of the more important factors that we should consider when trying to model next year in the absence of company guidance.
So the.
The the key variables have always been restructuring MMA fraud.
Major disputes antitrust issues mm mm mm.
Any any any major dislocation that you see in the newspaper you can imagine that there's a good likelihood if there's any significance and around the globe that if D. I may be involved.
So and there's different margins in each of these areas and there's you know there's so I'm. So for example on the bankruptcy side. If there's there's public disclosure at least in the U S. Something bankruptcies, if you see a pick up in that or you can see speculate them great default is projected to be around 6%. That's suppose just remain in.
6%, let me <unk>, you know and the 6% there's quite elevated in fact, if that remains the area. There's more junk bonds being downgraded then upgraded and so I'm. So sorry that remains that's a break or so for the robust unfortunate, but a robust bankruptcy space and and that is amongst a.
Highest margins you know businesses for us so that there there does that driver. If you you know if you see private I could be getting active with the with the cheap money and trying to do more transactions. You know, we do have private I predict lines, if you see them and they pick up Orange and you see antitrust cases are.
You know and for example in the technology space. There's lots of talk on we don't talk about specific declines, but you know not I mean that is usually very good for US now in terms off are uhm. So those are some cases, if you'll see a major fraud or dispute investigation there've been some public cases with the audit firms and you know you can imagine you know we.
May be involved on the other side not where the margins come in as if we have a head count spike more so than the revenue Spike. That's that's we are not in the profit maximizing modem each quarter rebooting the company for a long time girls. So clearly we could we could you know cut back on the hiring or not have had that was mentioned driven.
More profit, but then that would be trucked changing our future and we haven't done that now do we need to give them the balance shades of green.
Thanks for the context.
Thanks Kobe.
That concludes the question and answer session and today's conference. Thank you for attending today's presentation. You may now disconnect.