Q3 2021 FTI Consulting Inc Earnings Call

[music].

Good day, everyone and welcome to the F D I consulting towards quarter 2021, Onyx Conference calls.

As a reminder, today's call is being recorded.

All participants will be in a listen only mode.

Should you need assistance. Please signaller conference specialist by pressing the Starkey followed by Seattle.

After today's presentation, there will be an opportunity to ask questions.

To ask a question you May press start then one on your telephone keypad.

To withdraw your question. Please press Star then too.

I know for the opening remarks, and introduction I would like to turn the conference over to Molly Hawks, Vice President of Investor Relations. Please go ahead.

Good morning, welcome to the S. T I consulting conference call to discuss the company's third quarter, 20th 21 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. It may include forward looking statements within the meaning of section 27, a of the Securities Act of 1933 and section 21 at the Securities Exchange Act of 1934 that involve risks and uncertainties.

Lord looking statements include statements concerning plan policies practices programs objectives goals strategies future events future revenues future results and performance expectations plans or intentions relating to financial performance acquisitions.

Share repurchases business trends, new or changes to laws and regulations, including U S and foreign tax laws and other information or other matters that are not historical including statements regarding estimates of our future 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 Investor should review the Safe Harbor statement and the earnings press release issued this morning.

Copy of which is available on our website at www Dot S. T I consulting dot com as well as other disclosures under the heading of risk factors and forward looking information in our quarterly report on Form 10-Q for the quarter ended September 30th 2021 filed with the SEC today and are and.

You'll report on Form 10-K for the year ended December 31st 2020, and and or other filings with the SEC.

Investors are cautioned not to place undue reliance on any forward looking statements would speak only as of the date of this earnings call and will not be updated.

During the call people discuss certain non-GAAP financial measures such as total segment operating income adjusted EBITDA total adjusted segment 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 our reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures Investor should review the press release and the accompanying financial tables that we issued this morning, which include the definition and 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 excel in P. D. F of our circle financial and operating data, which had been updated to include our third quarter of 2021 results.

With these formalities out of the way I'm joined today by Stephen Gunby, Our President and Chief Executive Officer, and RJ Satawal, our Chief Financial Officer.

At this time I will turn the call over to our President and Chief Executive Officer, Steve Gumby.

And I think Steve is muted so there we go.

It wouldn't be it wouldn't be a COVID-19 events, if if somebody wasn't muted, though I'm glad to get that out of the way I do Molly and thank you for pointing out of reviewed and good morning, everyone and thank you all for joining us.

As you were saying all the time during Covid I hope you and your loved ones continue to be safe, but at least smell, hoping as well you are and they are beginning to see the light at the end of this tunnel and that's the end of the scourge of Covid is within sight.

R. J of course is gonna give you the details of this quarter I I'm guessing that most of you noticed based on some of the materials already released this morning.

This was a spectacular quarter.

No I'd say, we'll be careful and he will stress that some of these earnings strengths. This quarter reflect one time benefits stuff you can't count on recurrent things like ethics.

Revenue deferrals be recognized the lower tax rate et cetera.

But even normalizing for all that as far as I can tell it is a great quarter and more important to me.

And I hope you, it's another and a large number three quarters.

Which to me is not a confirmation of one time things were transients things.

The fundamental strength of this company.

With our people are doing every day to build this business.

Is that allow us to help our clients now.

Navigate only their greatest challenges, but in many cases their greatest opportunities.

It's a fabulous quarter.

I want to be clear.

However, it has not been returned all of our businesses and businesses that go up in a straight line.

Cause we've talked about many times each of our businesses and the company is cole could have huge ziggs and zags.

Due to market conditions.

The winning or losing a a big job.

We're jumping on an opportunity to invest jump.

Jumping on an opportunity to invest in a way that can hurt the piano in the short term, but supports future growth.

And even in this great quarter, we saw some of that if you look at a restructuring business. It continues to face widespread market slowdown around most of the world.

Though we benefited from some legacy cases during the quarter that business is certainly off in a big way.

Big way from a year or so earlier now I don't believe anybody thinks this restriction market has gone away permanently we're continuing to invest in that business.

But that the Zack.

Similarly.

Some of the people that ignited the incredible performance in the first half of the year, notably second request activity weakened this quarter.

We have enormous confidence.

And the multiyear trajectory of that business is more important to the people of that team that is driving that multiyear trajectory <unk>.

We have in the face of that slowdown continued to hire we increased our headcount enough business 12, 4% year over year, So even though the revenue went up the adjusted EBITDA decline.

That's just an example of investing to support business over the medium term something that we.

Committed to do and we will continue.

And even in SLC, where we have great strength compared to last year. We've had pockets of weakness for example, Asia because borders remain close and travel restrictions have been extended which affected our ability to both deliver certain services and reach clients in the market.

Even if we do the right thing.

Our business.

Zack.

Some of them can be pretty bad sacks.

But what I think we've said many times and willing now believe the data fully support.

We do the right things, although there are zigzags.

Over any extended period of time each of our businesses our growth engine.

Not only growth engine, but vital and powerful growth engine. They are vibrant they allow us to deliver on major assignments and make.

At least meet properly and I think many of US proud they allow us to track right people to build our brand and therefore, though they're a zig zags.

They become <unk> around it upward sloping line. It doesn't mean you can't have all the zags come in the same quarter or even the same year, but it does mean that over any extended period of time, the zigzags around an incredibly powerful upward sloping line now.

Now that line I assume is important to you our shareholders.

I believe it's equally important.

For the engine of the firm or people had upward sloping line that gives us and I hope you have the confidence to invest in great people, regardless of whether it's a good quarter or not a good quarter for a particular business. It allows us to not do lay offs just.

Because some businesses temporarily slow and a quarter the strength of conviction, we drew on obviously last year.

And supported our people and it's giving us real benefits. This year. It allows us to promote people when they are ready to get promoted versus one O. The numbers happen to be good and allows us to hire aggressively when the great talent is available.

Versus when it feel convenient according to the piano.

Allows us to invest in our People's development.

When they're eager to grow.

My experiences when you do that you build a firm you build take a powerful firm and you make it ever more powerful and you create businesses that are global and diverse.

And vibrant for your clients and for your people.

My experiences also when you have great people doing great work, who feel supported.

And then with populace individuals.

Ambulance individuals who are in an environment, where they can develop even further.

And you end up with great people outside your firm who want to join you.

And through that you create businesses.

But through the zigzags become sustainable.

Powerful.

Resilient.

An exciting businesses and exciting growth engine.

That's the journey, we have been on it has been a lot of work and always has a lot of work, there's always daily things to struggle with.

A lot of work.

It's also been incredibly rewarding.

That is the journey, we look this great team that I have the privilege of bleeding.

To stay on.

With that let me turn it over to you is it.

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 with our third quarter results.

Steve discussed this morning be reported another excellent quarter.

Revenue grew 12.9% with every segment reporting growth.

And we continued making investments in headcount, adding 346 total available professionals year over year.

Including 56 senior managing directors.

Earnings per share were also boosted by FX Remeasurement games, and lower weighted average shares outstanding our way so.

Resulting in a 45% increase in gap EPS and it's 31% increase in that just the D. B S compared to the prior to your quarter.

Overall, we are delighted with these results, which exceeded our expectations.

Revenues of $702.2 million increased $80 million compared to revenues of six and $22.2 million in the prior to get a quarter <unk>.

<unk> B B S of $1.96 M C 221, compared to $1.35 and three 220.

Just to D. B S for the quarter were $2 institutions.

Which compared to $1.50 fold in the prior to get a quarter.

The difference between our gap and adjusted EPS in two 221 reflects $2.4 million of non-cash interest expense related to our convertible notes.

Which reduce gap EPS by six cents per share.

Three two of 20, we had a special charge of seven $1 million as well as non-cash interest expense of $2.3 million.

Richard use gap EPS by 14 cents per share and five cents per share respectively.

Net income of $69.5 million compared to $50 $2 million in the prior to get a quarter.

The increase in net income was primarily due to higher revenues, which was partially offset by an increase in compensation, including the impact of the six 9% increase in billable headcount.

And higher SG&A expenses.

Effects Remeasurement games this quarter versus losses in the same quarter last year also boosted net income.

[noise] SG&A of $138.6 million or 19.7% of revenues. This compares to SG&A over $122 million or 96% of revenues in the third quarter of 2020.

The increase in SG&A included higher compensation outside services expenses bad debt software costs and travel and entertainment expenses.

Third quarter of 2021, adjusted EBITDA, Okay, $100.3 million or 14.3% of revenues compared to $99 million or 14.6% of revenues in the prior to get quarter.

Our third quarter effective tax rate of 21.6% compared to 22.3% and the priority a quarter.

Our tax rate for the quarter benefited from discrete tax adjustments related to the release of a valuation allowance on our Australian deferred tax asset.

Because of sustained profitability.

Fully diluted ratio of 35.4 million shares in situ 21, compared to 37.1 million shares and could do 20.

Our convertible notes added dilutive impact on EPS of approximately 842000 shares included in ratio as our average share price of $138.83. This past quarter was above the $101.38.

Conversion thresholds right.

As I mentioned billable headcount increased by 346 professionals are 6.9% compared to the prior year quarter.

Sequentially billable headcount increased by 250 professionals are 4.9%.

As we welcome 211 professionals from University campuses.

Now I will share some insights at the segments level, and corporate finance and restructuring revenues of $253 million increased 5.8% compared to the prior year quarter.

The increase in revenues was due to higher demand and realization, Florida transactions and business transformation services.

As well as the recognition of deferred revenue.

Which will partially offset by lower demand for restructuring services.

Adjusted segment EBITDA of 55, $6 million or 22.2% of segment revenues compared to $56.2 million or 28, or 23.8% of segment revenues and the prior to get a quarter.

The year over year decrease and adjusted segment EBITDA was due to increased compensation, including the impact of for 6% increase in billable headcount.

And hired SG&A expenses.

In the third quarter, we continued to grow our transactions and business transformation practices globally.

Not only RV growing these practices, but also we are able especially at junior levels to leverage professionals across practices.

This quarter once again and number of our junior professionals, who typically would support restructuring assignments worked on transactions related engagements.

On a sequential basis revenues increased $19.4 million or eight 4% as the segment benefited from continued growth in our business transformation in transactions businesses.

And the recognition of prior deferred revenue.

Adjusted segment EBITDA for the third quarter increased $15.5 million.

Turning to SLC revenues of 145 $3 million increased 22% relative to a weak quarter in the prior year increase in revenues was primarily due to higher demand for our investigations disputes and health solution service.

<unk>.

Adjusted segment EBITDA of $16 $6 million or 11, 4% a segment revenues compared to $13.6 million or 11, 4% a segment revenues and the prior to your quarter.

The increase in adjusted segment EBITDA was due to higher revenues, which was partially offset by higher compensation, which includes seven 7% growth in billable headcount.

As well as higher SG&A expenses compared to the prior to get a quarter.

Sequentially revenues decreased $5.5 million, primarily due to lower demand for an investigation and health solutions services adjust.

Adjusted segment EBITDA decreased $1.4 million.

Our economic consulting segment's revenues of $172.5 million increased 11, 3% compared to the prior year quarter.

The increase was primarily due to higher demand for non M&A related antitrust and financial economic services, which was partially offset by lower demand for MMA related antitrust services compared to the prior year quarter.

Just a segment EBITDA of $29.9 million or 17.3% of segment revenues compared to 25 $7 million or 16.6% of the segment revenues in the prior year quarter.

The increase in adjusted segment EBITDA was due to higher revenues, which was partially offset by higher compensation, which includes the impact of 5.1% growth and billable headcount.

Sequentially revenues decreased $10.8 million or $5, 90%, which was driven by decrease demand for MMA related Mpeg Trust services, primarily due to the conclusion of a large map in the quarter.

In technology revenues of $64.7 million increased 10.4% compared to the priority at quarter the.

The increase in revenues was primarily due to higher demand for litigation investigation and information governance services, which was partially offset by lower demand are M&A related second request services compared to the priority of the quarter.

Adjusted segment EBITDA of $7.8 million or 12.1% of the segment driven use compared to $11.9 million or 24% of segment revenues in the prior year quarter.

The decrease and adjusted segment EBITDA was due to higher compensation, which includes the impact of a 12, 4% increase in billable headcount.

As our technology segment continues to make investments and talent, but particularly at the senior levels to bolster our capacity and expertise globally across data risk compliance privacy and information governance as well as higher SG&A expensive.

Sequentially revenues decreased $14 million or 17.8%, primarily due to decreased demand for MMA related second request services.

Just a segment EBIT declined $10.7 million sequentially.

Record revenues and the strategic communications segment of 69 $4 million increased that'd be 1.1% compared to the priority at quarter.

The increase in revenues was primarily due to higher demand for corporate reputation and public affairs services.

Adjusted segment EBITDA of $15.5 million or 22.3%, a segment driven use compared to $8.4 million or 15.9% of segment revenues in the prior year quarter.

The increase in adjusted segment EBITDA was due to higher revenues.

Sequentially revenues increased $1.6 million, primarily due to higher demand for financial communications and corporate reputation services.

And just a segment EBITDA increased $2 million sequentially.

Let me know discussed E cash flow and balance sheet items regenerated net cash from operating activities of $196.9 million.

Which increased by 85 $3 million compared to 111 $6 million in the third quarter of 2022.

A year over year increase was largely due to an increase in cash collected resulting from higher revenues, which was partially offset by an increase in compensation related costs and other operating expenses.

We generated free cash flow.

Okay $172.2 million in the quarter.

Total debt net of cash decreased $167 million sequentially from 159 4 million on June 30th 2021 to a negative met that position of $1.3 million on September 30th 2021.

The sequential decrease was primarily due to an increase in cash and cash equivalents and repayment of borrowings under our senior secured bank revolving credit facility.

Turning to our guidance.

In light of a record financial performance during the first nine months of 2021, we are raising the low end of our previous full year 2021 guidance range for revenues of between 2.7 billion in $2.8 billion to expected revenues of between 2.7.

5 billion and $2.8 billion.

We are raising our full year 2021 guidance changes for gap EPS of between $5.89 and $6.59 and adjusted EPS of between $6 and $6.50 to.

The gap EPS of between 639, and 664 and adjusted the Eps's between $6.50 and $6.75.

The 11 cents per share variance between EPS and adjusted EPS guidance. We're fully of 2021 includes the estimated impact of non-cash interest expense of 20 cents per share related to our 2023 convertible notes and the second quarter of 2021 nine cents per share again.

Related to the fair value Remeasurement of acquisition related contingent consideration.

Which are not included in adjusted EPS.

Are updated guidance after a record year to date performance is shaped by four key considerations.

First restructure.

Restructuring activities remain subdued as credit markets remain and and accommodated mode and the number of stressed and distressed issuances remains low.

Standard and Poor's is now forecasting that the trailing 12 months use speculative great default or a corporate default rate will fall further input in the first half of 2022, reaching to 5% by June 2022, which compares to 3.8.

8% in June 2021, and 6.6% in January 2021.

Second global M&A activity, which drives demand in our economic from something in technology segments, as well as our veterans business and corporate finance and restructuring has been at record levels year to date.

There is no certainty that MMA activity will continue at this space.

Third reordered long jobs thumb, and one large engagements and they may not be immediately replaced as Steven I have both mentioned today, we saw several large jobs and are significantly wind down in the last two quarters across that economic <unk>.

Hoping technology, and corporate finance and restructuring businesses.

<expletive>.

The fourth quarter is typically a rican quarter for us because of a seasonal business slowdown at the end of the year.

Before I close I want to read to date for key themes that underscore the strength of our company.

First our results show that while continuing to dominate our traditional areas of strength, we have demonstrable bleak grown otter, adjacencies and footprint, which also have the added benefit of making us less susceptible to the business cycle.

Business transformation in transaction services, Richard represented 36% of total segment revenues in corporate finance in Q3 of last year.

Contributed 59% this quarter.

Non MMA related antitrust services have steadily grown do represent 32% offer economic consulting revenues this quarter.

Which compares to 23% in Q3 of last year.

Auto Australian business has grown to 31 senior managing directors from 19 two years back.

And our middle East business has grown to 16 managed senior managing directors from five two years back.

<unk> EMEA represented 30% of revenue this quarter with us only recently ramping up in Germany and Spain.

Second re gallant among our staff arguably some of the leading experts in the world and.

Areas, such as antitrust financial arbitration and economic analyses, the restructuring technology and data analytics based investigations and corporate reputation and communications.

Both in many industries around the world the pace of change is accelerating.

And we have the surge capacity to help our clients when their fate when they faced they're great this challenges and opportunities.

And finally, our strong balance sheet continues to give us the flexibility to make sustained investments towards growing our business globally.

With that let's open the call up for your questions.

Thank you very much.

Ladies and gentlemen, even now begin the question and answer session.

To ask a question you May press Star one.

On your telephone keypad.

If you're using a speaker phone please pick up your handset before pressing the keys.

To withdraw your question Please press star sent to.

At this time, we will pause momentarily.

Rostow.

The first question is from the line of Andrew Nicholas from William Blair. Please go ahead.

Hi, Thank you for taking my questions and good morning.

My first question was just going to be on the hiring environment and your ability to source talent right. Now you mentioned a few times in your prepared remarks about our willingness to kind of add head count here, particularly where talent exists, but but how easy is it to do are you, having an easy time, finding that talent both at the senior level and.

And at the junior level.

And what what may be a tighter labor market might need in terms of of wage pressures all that would be really helpful to understand.

Yeah, maybe I'll take corrected an object chime in and see if you have anything additional dad look I think I think there are two factors that that drive our ability to attract talent.

I guess to put a cliche, it's supply and demand, but I mean, a lot of it has to do with an.

An attractive place, particularly for the senior talent.

For people to come.

We've seen as a place that is moving that has integrated external talent well.

And when people are frustrated with their existing place. This is a great place to go and I think on that front.

We're not perfect, but we have built.

Really good reputation around the world now and the word of mouth on that is really powerful no matter, how how silver tongued I tried to be or one of our segment leaders trying to be it's the friend of the friend, who you trust to people check with and they say no none of the gun. It is a great place and.

And that word of mouth is really powerful and that is sustaining us.

Then we also benefit from one.

Competitors have issues.

And when the competitive issues or competitors do stuff that isn't.

Doesn't suit well with the with the.

With some of the leaders people come over and so we picked up some talent last year, because some of our competitors laid off people and then lay off the people. We picked up people were frustrated that great people below them were laid off and they say what would you guys do over there and people said Wow, that's the culture I want to be part of so those are those.

Those are I don't know if there's a permanent things those are great things that we've invested in and are really sustaining in addition to that you have labor markets. I think that has less of effect on the senior most talented and does have on the junior talent.

Last year, we were hiring.

In the face of some downturns in our business and some of our competitors work in fact, some of our competitors were laying off to new people. So it was easy market for all the junior talent today, if you're going to get junior talents and transactions.

You are fighting the world you are finding the world that is busy on transactions and also some of the world that under higher last year on transaction so on that upfront.

Much tougher it's much tougher in terms of wages, yes, no. This environment is one where you have to constantly monitor and make sure you're not just saying based on some pay scale that somebody developed in 1946, but that euro you are on top of that and your and your.

And you're making sure, particularly your strongest people are getting paid and that means we've made adjustments and we will make adjustments.

Can't quantify exactly how much those are but that is a <unk>.

Dominant out here my experience over a long history in professional services is that's short term problems now because it's short term raises sometimes those phenomena go on for awhile, but if that phenomenon is out there you should if you have the best people will be able to match that over time with your price and so those are the things will monitor here.

Does that does.

Does that help.

Yeah, you hit you hit all the all the questions and topics I really appreciate that.

While we perhaps need Somali perhaps me really hard.

Great.

Well hopefully hopefully this is another one then.

Second question and follow up with just be on the technology segment, you mentioned, a few times ramping up investments their head count was up double digits could you just spent some time talking about or more about the opportunities for that business, where you're seeing opportunities for growth whether it's from a.

Geographic perspective, or individual kind of underlying business opportunities I think that'd be the helpful to understand thank you yes.

For that let me there are a couple of different things going on in part of this hiring right now as we.

We were we were under hiring for awhile and we were we are poor people were dying in the first half of this year.

People will throw themselves into work.

And dedicated people will do almost anything, but but not forever right. So.

So we needed to give people a break the utilization you can't really look at the utilization numbers. The way, we published on certain protect because they're weird, but the people were killing themselves in the first half of the year with all the second request in a way that wasn't sustainable. So some of that is just that but the more fundamental forces I think you know two years ago. This.

Business with underperforming and change the strategy, we always had a great reputation, particularly for the most complicated job I think for most people who know for the most complicated E discovery jobs and related services.

We are the leader.

Something different about global complicated jobs that are from the commodity end of this business and we were always the leader as you know we trapped ourselves because we said we will only work with people if we work with our or historical technology called Ringtail.

And.

Retail as other tech platforms became much more prevalent that hurt us in the market and so.

You know probably four or five years ago, we changed leadership, we changed your strategy.

And we had some turnover related to that since that day I believe we've been by far the best for.

Organic growth engine in the industry.

And.

We had always a right to own a bigger footprint then I believe we did the capability of our people is incredible what we're now starting to do as as in Paul and people and people try us They say Wow, that's a different experience in our our share in law firms is growing our share in corpus is growing and I think we're starting to hit.

R.

More closer to where the footprint, we should have them in the U S. Even in the U S. Even as well as to your point around the World and I think there was a long way for that to go. The problem is that you have lots of zigzags in that business I don't think we released the statistics on what percent of our revenue is from from.

Second request, but it can vary a lot it can vary by.

Factor of.

Four in a given year given quarter to quarter and.

So you have zig zags, if you hire based on the zags, you're going to always be short and you're going to underinvest in your people and so.

Have made it very clear that Sophia and the team that we believe.

And when they should hire when they find the talent and we're going to support this business does that.

Does that help yep very helpful. Thank you again and I'll hop back in the queue.

Thank you.

Thank you very much.

Next question is from the line of England.

England from been in both please go ahead.

Hi, guys. Thanks for taking the questions. The first one I had was.

Could you talk a bit about the pipeline for the next couple of quarters, and particularly which areas of the business and looking strongest.

Relates to the <unk> well, that's obviously been strongly this year.

Well, we won't know that I'll, let RJ after that but where are you. Sam are you in London are you back here in the U S are aware.

Fill in London, the travel restrictions domain, a call and get back hopefully next month things.

Things have changed.

Yeah, I think finally, well nice to hear your voice so it's one of those.

Salmon.

We haven't sort of given guidance for next year I wanted to be particular about that but.

In General terms, you know our business transformation then transactions business is is continuing to do well remember there's two aspects their transformation ma'am transactions and the M&A market is like we said, it's not likely to go at this space forever, but it is quite robust.

Don't get me wrong in that sense. So so that's the area where there is.

Continued growth in the in the.

Restructuring space, it's still quite subdued.

And in the email. We also are large M&A from that's where the antitrust. These kicks in and we talked this quarter about a large assignment and MMA antitrust ending and those things can cause the <unk> zags that Steve talked about them.

Country too are we are not in the business of predicting when the mixed large very large M&A will take place and we will get five it's almost impossible to do that.

Okay, great and.

And then the next question I had was around.

So the cash position and capital allocation, you've obviously seen.

Leverage come down you didn't do any buybacks in the quarter, how you thinking about capital allocation for the rest of the year and into 2022.

So so first.

Obviously very proud of the free cash flow, but I would like.

Pulling a little cautionary note, we typically pay or bonuses most of our bonuses in the March April timeframe. So there is a if you if you look at quarterly trends over any extended period of time, you see us, adding cash in Q3 and Q4.

And even the slightly down in Q2 and down the loft in terms of cash lead in Q1. That's typical cycle. So this is not different from a typical cycle. So a significant cash outlay happens in the March April timeframe, So I thought, but mentioned that place in terms of capital allocation.

This is the single biggest priority for us as organic growth.

We have.

The wherewithal to do whatever we need to do for organic growth where the opportunities exist.

Absolutely. So that's one over any extended period of time, we don't like dilution I mean, just in the last 12 months. We've bought back you are right about this quarter not buying back stock, but over the last 12 months, we've bought back $300 million of stock of average price of $107.

So so so so clearly we do look at dilution over extended period of time, and we've done some small duck and acquisitions as well with that does make sense to do.

We don't have any plans for a dividend in the foreseeable future.

Okay, Great and then maybe just one more than you mentioned that growth.

The Australia business I was just wondering if there are any all the market's slide back where you think you are on the way at the moment and you think you could accelerate the growth what you've got in Australia.

Yeah, I think I think if you talk to my Exco, They would say I believe dot net regarding market and I'm, putting pressure on them to figure out how to do it.

That's a little facetious, but.

I don't I mean seriously at one point.

Favorite children and this company was the restructuring business and it was really the restructuring business in the U S. I'm excited now about the.

The powerful growth and as we have restructuring globally, even if it's muted this now because of market conditions. The non transaction the non restructuring businesses have shown their strength, our tech business and so forth and if you look at one point the U S was the entire growth engine of this company. It is not any more.

So.

And we have like in addition to sort of at the Sonic strategy things I have quarterly strategy conversations with every segment and every region and we are exploring significant growth opportunities everyplace now the issue the tricky thing in and professional services is.

It's not like it used to be a BCG. If you if you do a strategy effort for a paper company. After you decide that this waferboard is going to be the market to go in you.

You hire somebody to put in machines, which are 200 yards long and you buy the machine when somebody puts assembles on the problem and professional services strategy.

<unk> talent.

So no matter what do you think there's a market opportunity in Botswana, If you can't get the best talent in Botswana, you can't go there or for any business and and so the conversations are.

Inextricably linked with.

Which external lateral hire as are calling us and wanting to join us and how good we feel about them in the market opportunities or or where are we just promoted people or do we have a superstar MD, who we think can help lead something so there's a combination but we have those conversations around every geography in or it.

Least every region.

And every segment I don't think there is only one does that help at least give you a flavor.

Yes, that's great, thanks, and I'll hand over that.

Thank you.

Thank you very much.

Next question is from the line of Mark critics from.

Companies. Please go ahead.

Good morning, everyone.

Good morning, Mark.

So I was wondering if you could follow.

Back to one of the things that you mentioned that you prepared remarks around.

Utilizing some of your talents and this is something that you've mentioned in the past with a little more behind that because I think it's kind of kind of interesting the flexibility of being able to have folks working in different segment in different areas.

I think you specifically mentioned some of your junior talent being able to be utilized in other areas and I was wondering if you could talk a little bit about maybe.

Thank you for that question. It's a good question I want to Dimensionalize Latino.

It came from before our company, where it hired kind of talented junior people with no expertise generically and basically flowed people across wherever we.

Or at least the first five or six years in their career.

That's that's that's my experience when I was at BTG that is not this firm this permits assumption expertise based firm.

And a lot of the hiring we do is not as a first year level, it's mid level of people who have.

Dot has been doing.

Restructuring modeling for someplace else for a number of years and wanted to join us and so we.

And the expertise you need to do testify on antitrust clear answers a different expertise then to testify on the forensic accounting matter or to do and investigations.

Four four FINRA investigate I mean, there's just there's just a lot of different expertise and so there's some inherent limits in how much you can flow people across the boundaries because with such an expertise business, having said that I think we on top of that put limits on ourselves because of.

Silos and not a commitment at one point in the past and what we've done is we release those and then I think we've been a little bit surprised does actually help flexible some people are and how people are so.

So it's not it's not an all or nothing but I think you talked with Karla and Mike.

C F.

We did a great job of flowing people not only from.

From the bankruptcy side from the from the non restructuring set of services over to bankruptcy last year when the bankruptcy business was booming, but not just from some.

<unk> people, who had the right accounting backgrounds and the re orientation also went through training and were parts of teams in the restructuring side and this year, we've managed to flow them back in a big way and.

And so.

This is something that we're committed to add in your right by two eight people people love. It. The other thing I would say that's happened is look COVID-19 horrible, but you learn things right and what you learn is that.

Somebody in Australia can help you on a case in London, even if they're not there because they're as close as the person next door, if youre doing everything for resume or teams as long as they are willing to deal with the time change and so we've started to cross team around the world in a better way, which is both effective.

For skills, leveraging but also to your point motivating four.

Or many junior staff I, sometimes think everybody in Australia, when the 23 year old wants to leave Australia or temporarily and you know you couldn't third COVID-19, but you could virtually at least and those are those are good things. So we're making progress I am not sure where as far as we can go yet both were making progress on it and I'm glad you noticed it does that.

Speak to your point Mark.

It does and then they just one quick little follow up I was wondering if you could give an update as to its sort of maybe you will you feel you are with with.

With folks with joining into office here and there or maybe you should do so will bring us up to speed on on what that has been so far and maybe what it might look like at least.

As far as the Crystal ball R. U T C. Thanks.

Two two phrases you mentioned here and there and Crystal ball are the right ones.

So so it's hugely different around the world.

I think in Western Australia.

Almost never left the offices of I don't know if you know Western Australia had no cases for an extended period of time, then they would know that wouldn't let anybody in from around the world. They also woodman, let anybody from other than Western Australia in Western Australia.

So it was isolating but people were back in the offices with maps and there were conferences in western Australia with a thousand people without masks and no cases.

During the peak of the rest of the year Eastern Australia was different it was people back in the office is in lockdown serious lockdowns.

And now it's changed in Australia, where people are they are focused on getting everybody vaccinated and if you go to Asia.

Actually most of our people are back in the office and Asia wearing masks and.

Say in Hong Kong, I think last time, I talked with John Rowel about this I think 70 or 80% of our people have back in the office.

In different offices in Asia, but that's which sometimes changes if there is a lockdown or a surge.

Other places around the world.

Are nowhere near there.

The U S. Most of our folks are not back in the offices I mean like in DC starting to go back in the offices and then they were masked mandates.

And it's just.

I think many people say if I have to wear masks to communicate with my colleague I'd, rather I think a more effective on teams or zoom in so although people were eager to get back and connect that shut it down.

In contrast, London.

Was no, but almost nobody back in the offices until recently and I was over there two weeks ago or three weeks ago. I think there were I can't remember the number like.

500 people in the office that day.

It was the energy level was electric went to Germany, it's not as far along so I think it's it's a journey.

To the point I don't think we're ever going to cope go back to normal any normal for US was not everybody in the office every day anyway, because people travel to clients.

And.

I always.

My Tech staff Nico lives in Seattle is living in Seattle for seven years.

We don't have a monolithic block people to their desk culture, even long before COVID-19 and we won't going forward, so, but but I do think we need to get.

As as as as Covid allows.

Ah reconnection set of activity in person when you do that people all of a suddenly discover that zoom is great, but actually closing somebody or chatting with them lie is even better than we need that and we're moving in that direction, but only SHT.

And perceived safety allow and so it's it's hit or Miss Michael.

My Crystal Ball says is for the first time being a little optimistic.

A crystal ball says, yes, we could have another variant all those sorts of things I think once you get.

This level of people vaccinated.

And frankly this number of people who are caught it who will not for not being vaccinated the immunity levels go up and.

Assume we could have a surge this winter I would guess, it's going to be a much lesser surge than we had last winter. So I'm crossing my fingers that.

We're moving in the right direction here, but that is a crystal ball activity does that help at least.

Very much thank you.

10-Q.

Right.

Next question is from the line of Toby Summer from priced Securities. Please go ahead.

Toby before you a chuckle.

Question, how do you feel about the World series.

Oh I.

Just fine just fine I don't have a.

Kind of Ah.

Team in this particular pair to root for so.

New enjoying it isn't it isn't the Atlanta Stadium called <unk> Park.

It is but I was born and lived in different areas.

Different affiliations so.

I hope your employer didn't hear that I really don't think well.

Well I think that would be Oilgas show up in the transcript so okay.

I was wondering if you could.

Comment on sort of the the.

The aspect of your of your businesses that are driven by.

Regulatory actions.

There were expectations or.

The by the administration to be more active on several regulatory fronts than the previous administration, but I know there can be a transition period, where there's kind of like less regulatory activity.

Respective of an eventual posture.

Where does that.

What what's your perspective on that.

Yeah, I'll give you look I'll give you the gatherings of my hallway chitchat on that as opposed to a definitive answer the gatherings of the hallway chit chat is.

A there is always well it's certainly this year, there's a transition as people get in the job. There is allowed and people move out of jobs and there's a lull in the beginning of the administration's even if the administration and tend to have more regulatory action.

There is a low because.

Actually takes people to do it any changing people and people are waiting for confirmation or people are waiting to throw people and so I think there is there is a belief in the direction that you described but there's also a belief that some places it hasn't it hasn't yet manifested itself in regulatory action. The other issue is sometimes worth the very front end of regulatory app.

<unk> often.

We can there can be all.

A tale that were heavily involved in right I mean, we're still.

This is not regulatory option, but it's legal action, we're still doing mortgage based backed securities cases.

10 years after the mortgage backed securities prices and there is often a long tail on regulatory actions as well so.

I would not say that we have seen a surge of that in our current numbers as a surge in that but I do believe that.

Most of our people believe the regulatory action level will go up and over time that will show up and demand for our services are you in a different place or not.

Consistent system does that answer does that give you a sense Toby.

It does thank you.

With.

The pandemic experiencing kind of.

In some cases newly highly visible public companies is is anything to change significantly with respect to the risk of discovery consulting being either disintermediated by technology, if judges are somehow more willing to.

Utilize technology more significantly or changes business models that suppliers and other other kind of players within the ecosystem.

Wow.

Well look I think a year, Germany discovery, specifically or generally it for our business.

You discovery and sort of though.

That aspect is where I was aiming specifically yeah.

Look.

Think look we spent a lot of time thinking about technology changes in that industry and there was some major technology changes said, we don't want to be a software provider in that industry, we want to be software agnostic. So we can be leveraging the best tools for our clients. So we used ringtail, what we use relativity a lot with other technologies.

He used some intelligent stuff that goes on top of each of those technologies and we've become very nimble and the use of technology. So we spend a lot of time monitoring stuff at this point, we would say for the high end of the market. We do not see Ah disintermediation that somehow technology is going to automatically do or the judges or.

B press, the button and find the sixth documents that matter in the case with a contrary what's happening in the world with all the different media is there is a data explosion and so you need some sort of intelligence to sift through explosions of different forms of data.

That wasn't around awhile. It can go through all the different data and figure out what's relevant.

And yes, the tools are getting better so that in.

And the prices are being driven down because you had better tools.

But you still need people.

Glue on the non simple.

The local divorce case.

On the on the real complicated.

Who can navigate that complexity.

So we can say that we're pretty bullish about our second part of that business at least for the next while ahead does that talk to your question at least.

Yeah.

How do you look at opportunities for the company.

Two.

Develop and grow recurring revenue streams.

While I'll believe it at that.

Okay. So.

So obviously.

I came here from a telephone company and and telephone companies have recurring revenue streams on the problem is there going downwards.

So so so so but I am a fan of recurring revenue streams and and consulting.

Traditionally there is no such thing you have to sell through a different client or the same client a different set of services. So it isn't the classically we have some recurring revenue streams for example in the strategic Communications practice love.

Lot of companies hired us as as retainers and in our technology practice to the extent that we are hosting data for an extended period of time, you could call that a recurring revenue stream as well, but the main point there there is.

Extremely talented people.

And those are.

Significant percentage of our revenue comes for example, this intermediate through through attorneys.

A recurring revenue stream is that those folks call our practitioners again and again and again for different cases of the same genre that charge recurring revenue stream that relationship that we have between that that's apparently in our professional.

Thank you good that we have those relationships because I've J when he first got here. So Oh my God. If you actually look at how much of our revenue is for sure six months from now Gulf coming from the telephone company, but it's done okay. Since you've been here right through our tech.

Quite Frank Okay did that adults.

Thank you very much.

Any other questions.

That was our last question.

So let me say, thank you again for the attention and support from each of you.

We really appreciate it and.

I want to say, thank you so much to our team or not so much this quarter quarter adult matter, but for building an enterprise that is as powerful as exciting as it is so thanks to everyone and have a good following.

Punctuated myself.

Ladies and gentlemen, this conference call has now concluded.

Thank you for attending today's presentation you may now disconnect your lines. Thank you.

[music].

[music].

Good day, everyone and welcome to the F D I consulting third quarter 2021 earnings conference call.

As a reminder, today's call is being recorded.

All participants will be in a listen only mode.

Should you need assistance. Please signal a conference specialist by pressing the Starkey followed by Seattle.

After todays presentation, there will be an opportunity to ask questions.

To ask a question you May press Star then one on your telephone keypad.

To withdraw your question. Please press Star then two.

Yeah.

And now for the opening remarks, and introductions I would like to turn the conference over to Mollie Hawkes Vice President of Investor Relations. Please go ahead.

Good morning, welcome to the STI consulting conference call to discuss the company's third quarter 2021 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 of the Securities Exchange Act of 1934 that involve risks and uncertainties.

<unk> looking statements include statements concerning plans policies practices programs objectives goals strategies future events future revenues future results and performance expectations plans or intentions relating to financial performance acquisitions.

Share repurchases business trends, new or changes to laws and regulations, including U S and foreign tax laws and other information or other matters that are not historical including statements regarding estimates of our future 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 in the earnings press release issued this morning.

A copy of which is available on our website at www Dot STI consulting dot com as well as other disclosures under the heading of risk factors and forward looking information in our quarterly report on Form 10-Q for the quarter ended September 32021 filed with the SEC today.

And our annual report on Form 10-K for the year ended December 31, 2020, 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.

During the call we will discuss certain non-GAAP financial measures such as total segment operating income adjusted EBITDA total adjusted segment EBITDA adjusted earnings per diluted share adjusted net income adjusted EBITDA margin and free cash flow.

For a discussion of these and other non-GAAP financial measures as well as our reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures investors should review the press release and the accompanying financial tables that we issued this morning, which includes the definitions and reconciliations.

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 excel and PDF of our historical financial and operating data, which have been updated to include our third quarter of 2021 results.

With these formalities out of the way I'm joined today by Steven Gunby, Our President and Chief Executive Officer, and Ajay Sabra Wall, our Chief Financial Officer.

At this time I will turn the call over to our President and Chief Executive Officer, Steve Gunby.

Yeah.

And I think as Steve has muted. So if we go it wouldn't be it wouldn't be a COVID-19 event somebody who wasn't muted so im glad to get that out of the way. Thank you Mollie and thank you for pointing out our reviewed it and good morning, everyone and thank you all for joining us.

As we're saying all the time during Covid I hope you and your loved ones continue to be safe, but at least now hoping as well, but you are and they are beginning to see the light at the end of this tunnel at.

At the end of the Scourge of Covid is within sight.

Yes.

Hi, J of course is going to give you. The details of this quarter I am guessing that most of you noticed based on some of the materials already released this morning.

This was a spectacular quarter.

Now Jay will be careful and you will stress that some of these earnings strength. This quarter reflects one time benefits that you can't count on recurrent things like FX and.

Revenue deferrals being recognized a lower tax rate et cetera.

But even normalizing for all of that as far as I can tell it is a great quarter and more important to me.

And I hope you, it's another in a large number of great quarters.

Which to me is not a confirmation of one time things were transient things.

The fundamental strength of this company.

With our people are doing every day to build this business.

Does that allow us to help our clients.

Navigate not only their greatest challenges.

And in many cases their greatest opportunities.

It's a fabulous quarter.

I want to be clear.

However, it has not been we've turned all of our businesses into businesses that go up in a straight line.

As we have talked about many times each of our businesses and the company as a whole can have huge zig and zag.

Due to market conditions.

The winning or losing a big job.

We're jumping on an opportunity to invest jumping on an opportunity to invest in a way that can hurt the P&L in the short term, but supports future growth.

And even in this great quarter, we saw some of that if you look at our restructuring business. It continues to face widespread market slowdown around most of the world.

And although we benefited from some legacy cases during the quarter that business is certainly off in a big way.

In a big way from a year or so earlier.

Don't believe anybody thinks this construction market has gone away permanently so we're continuing to invest in that business.

But that does that.

Similarly in fact, some of the fuel that ignited the incredible performance in the first half of the year, notably second request activity weakened this quarter.

We have enormous confidence in the multiyear trajectory of that business and more important the people of that team that is driving that multi year trajectory.

So we have in the face of that slowdown continued to hire we increased our head count in that business 12, 4% year over year. So even though the revenue went up the adjusted EBITDA decline.

That's just an example of investing to support business over the medium term something that we have.

Committed to do and we will continue to do.

And even in <unk>, where we have great strength compared to last year. We've had pockets of weakness for example, Asia because orders remain closed and travel restrictions have been extended which affected our ability to both deliver certain services and reach clients in the market.

Yes.

Even if we do the right things.

Our business has decreased and zacks.

Some of them can be pretty bad zacks.

But what I think we've said many times and when I now believe the data fully support.

We do the right things, although there are zig zags.

Over any extended period of time each of our businesses our growth engine.

Not only growth engine, but vital and powerful growth engine. They are vibrant they allow us to deliver on major assignments that Mick.

At least <unk> and I think many of US proud they allow us to attract great people to build their brand and therefore, though there are zig zag.

They become the <unk> around an upward sloping line. It doesn't mean you can't have all the zags come in the same quarter or even the same year, but it does mean that over any extended period of time, the zigzag there around an incredibly powerful upward sloping line.

Now that line I assume it is important to you our shareholders.

I believe it's equally important.

For the engine of the firm our people is that upward sloping line that gives us and I hope you have the confidence to invest in great people, regardless of whether it's a good quarter or not a good quarter for our particular business. It allows us to not do layoffs, just because some business is temporarily slow in the quarter the strength of conviction, we drew on obviously last.

Here in.

And supported our people and it's giving us real benefits. This year that allows us to promote people when they're ready to get promoted versus one O. The numbers happen to be good and allows us to hire aggressively when the great talent is available.

Versus when it feel convenient according to the P&L.

It allows us to invest in our people development.

When they are eager to grow.

My experiences when you do that you build a firm newbuild take a powerful firm and you make it ever more powerful and you create businesses that are global and diverse.

Dave and vibrant for your clients and for your people.

My experience is also when you have great people doing great work and feel supported.

You end up with Fabulous individuals.

Amulets individuals who are in an environment, where they can develop even further.

And you end up with great people outside your firm who want to join you.

And through that you create businesses.

But through <unk> and zags become sustainable.

Powerful.

Resilience.

An exciting businesses and exciting growth engine.

That's the journey we've been on it has been a lot of work and always has a lot of work there is always daily things to struggle with.

A lot of work.

It's also been incredibly rewarding.

That is a journey we look this great team that I have the privilege of leading.

To stay on.

With that let me turn it over to you okay.

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 our third quarter results.

As Steve discussed this morning, we reported another excellent quarter revenue grew 12, 9% with every segment reporting growth.

And we continued making investments in head count, adding 346 total billable professionals year over year.

Including 36 senior managing directors.

Earnings per share were also boosted by FX remeasurement gains.

And lower weighted average shares outstanding are way so.

The resulting in a 45% increase in GAAP, EPS and a 31% increase in adjusted EPS compared to the prior year quarter.

Overall, we are delighted with these results, which exceeded our expectations.

Revenues of $702 $2 million increased $80 million compared to revenues of $622 2 million in the prior year quarter.

GAAP EPS of $1 96, and <unk> 21, compared to $1 35, and $3 20.

Adjusted EPS for the quarter were $2 <unk>.

Which compared to $1 54 in the prior year quarter.

The difference between our GAAP and adjusted EPS of <unk> 21 reflects $2 4 million of noncash interest expense related to our convertible notes.

Which reduced GAAP EPS by <unk> <unk> per share.

In <unk> of 'twenty, we had a special charge of $7 $1 million as well as noncash interest expense of $2 3 million.

Which reduced GAAP EPS by <unk> 14 per share and <unk> per share respectively.

Net income of $69 5 million compared to $50 2 million in the prior year quarter the.

The increase in net income was primarily due to higher revenues, which was partially offset by an increase in compensation, including the impact of a six 9% increase in billable head count.

And higher SG&A expenses.

FX remeasurement gains this quarter versus losses in the same quarter last year also boosted net income.

SG&A of $138 6 million or 19, 7% of revenues. This compares to SG&A of $122 million or 19, 6% of revenues in the third quarter of 2020.

The increase in SG&A included higher compensation outside services expenses bad debt software costs and travel and entertainment expenses.

Third quarter of 2021, adjusted EBITDA of $100 3 million or.

Our 14, 3% of revenues compared to $19 $9 million or 14, 6% of revenues in the prior year quarter.

Our third quarter effective tax rate of 21, 6% compared to 22, 3% in the prior year quarter.

Our tax rate for the quarter benefited from discrete tax adjustments related to the release of a valuation allowance on our Australian differed tax assets because of sustained profitability.

Fully diluted ratio of 35 4 million shares and <unk> 21, compared to 37 1 million shares in <unk> 'twenty.

Our convertible notes had a dilutive impact on EPS of approximately 842000 shares.

Included in rates, so as our average share price of $138 <unk>. This past quarter was above the $101 38 conversion threshold right.

As I mentioned billable head count increased by 346 professionals are six 9% compared to the prior year quarter.

Sequentially billable head count increased by 250 professionals or four 9% as we welcomed 211 professionals from University campuses.

Now I will share some insights at the segment level and corporate finance and restructuring revenues of $253 million increased five 8% compared to the prior year quarter.

The increase in revenues was due to higher demand and realization for our transactions and business transformation services.

As well as the recognition of deferred revenue.

Which were partially offset by lower demand for restructuring services.

Adjusted segment EBITDA of $55 6 million or 22, 2% of segment revenues compared to $56 2 million or 28 or 23, 8% of segment revenues in the prior year quarter.

The year over year decrease in adjusted segment EBITDA was due to increased compensation, including the impact of a 6% increase in billable head count.

And higher SG&A expenses.

In the third quarter, we continued to grow our transactions and business transformation practices globally.

Not only are we growing these practices, but also we are able especially at junior levels to leverage professionals across practices.

This quarter once again, a number of our junior professionals, who typically would support restructuring assignments worked on transactions related engagements.

On a sequential basis revenues increased $19 4 million or eight 4% as the segment benefited from continued growth in our business transformation and transactions businesses.

And the recognition of prior deferred revenue.

Adjusted segment EBITDA for the third quarter increased 15 $5 million.

Turning to <unk> revenues of $145 $3 million increased 22% relative to a weak quarter in the prior year. The increase in revenues was primarily due to higher demand for our investigations disputes and health.

<unk> services.

Adjusted segment EBITDA of $16 6 million or 11, 4% of segment revenues compared to $13 6 million or 11, 4% of segment revenues in the prior year quarter.

The increase in adjusted segment EBITDA was due to higher revenues, which was partially offset by higher compensation, which includes seven 7% growth in billable head count.

As well as higher SG&A expenses compared to the prior year quarter.

Sequentially revenues decreased $5 5 million.

Primarily due to lower demand for investigations and health solutions services.

Adjusted segment EBITDA decreased $1 4 million.

Our economic consulting segment revenues of $172 $5 million increased 11, 3% compared to the prior year quarter.

The increase was primarily due to higher demand for non M&A related antitrust and financial economic services, which was partially offset by a lower demand for M&A related antitrust services compared to the prior year quarter.

Adjusted segment EBITDA of $29 9 million or 17, 3% of segment revenues compared to $25 $7 million or 16, 6% of segment revenues in the prior year quarter.

The increase in adjusted segment EBITDA was due to higher revenues, which was partially offset by higher compensation, which includes the impact of five 1% growth in billable head count.

Sequentially revenues decreased 10, 8 million or five 9%, which was driven by decreased demand for M&A related antitrust services, primarily due to the conclusion of a large matter in the quarter.

In technology revenues of $64 $7 million increased 10, 4% compared to the prior year quarter.

The increase in revenues was primarily due to higher demand for litigation investigation and information governance services, which was partially offset by lower demand for M&A related second request services compared to the prior year quarter.

Adjusted segment EBITDA of $7 million to $8 million or 12, 1% of segment revenues compared to $11 $9 million or 24% of segment revenues in the prior year quarter.

The decrease in adjusted segment EBITDA was due to higher compensation, which includes the impact of a 12, 4% increase in billable head count.

Our technology segment continues to make investments in talent, particularly at the senior levels to bolster our capacity and expertise globally across data risk compliance privacy and information governance as well as higher SG&A expenses.

Sequentially revenues decreased $14 million or 17, 8%, primarily due to decreased demand for M&A related second request services.

Adjusted segment, EBITDA declined $10 $7 million sequentially.

Record revenues in the strategic communications segment of $69 $4 million increased 31, 1% compared to the prior year quarter.

The increase in revenues was primarily due to higher demand for corporate reputation and public affairs services.

Adjusted segment EBITDA of $15 5 million or 22, 3% of segment revenues compared to $8 4 million or 15, 9% of segment revenues in the prior year quarter.

The increase in adjusted segment EBITDA was due to higher revenues.

Sequentially revenues increased $1 $6 million, primarily due to higher demand for financial communications and corporate reputation services.

Adjusted segment EBITDA increased $2 million sequentially.

Let me now discuss key cash flow and balance sheet items, we generated net cash from operating activities of 196 $9 million.

Which increased by $85 $3 million compared to $111 6 million in the third quarter of 2020.

The year over year increase was largely due to an increase in cash collected resulting from higher revenues, which was partially offset by an increase in compensation related costs and other operating expenses.

We generated free cash flow.

$172 $2 million in the quarter.

Total debt net of cash decreased $167 million sequentially from $159 4 million on June 32021 to a negative net debt position of $1 3 million on September 30 of 2021.

The sequential decrease was primarily due to an increase in cash and cash equivalents and repayment of borrowings under our senior secured bank revolving credit facility.

Turning to our guidance.

In light of our record financial performance during the first nine months of 2021.

We are raising.

The low end of our previous full year 2021 guidance range for revenues of between $2 7 billion and $2 $8 billion to expected revenues of between $2 75 billion and two 8 billion.

We are raising our full year 2021 guidance ranges for GAAP EPS of between $5 89, and $6 39.

And adjusted EPS of between $6 and $6 50.

The GAAP EPS of between $6 39, and $6 64, and adjusted EPS of between $6 50.

$6 75.

The <unk> 11 per share variance between EPS and adjusted EPS guidance for full year 2021 includes the estimated impact of noncash interest expense of <unk> <unk> per share related to our 2023 convertible notes and the second quarter of 2021, nine <unk> per share gain.

Related to the fair value Remeasurement of acquisition related contingent consideration.

Are not included in adjusted EPS.

Our updated guidance after a record year to date performance.

Chip by four key considerations.

First <unk>.

Restructuring activity remains subdued.

As credit markets remain in an accommodative mode and the number of stressed and distressed issuances remains low.

Standard <unk> Poor's is now forecasting that the trailing 12 month U S speculative grade default or a corporate default rates will fall further and further in the first half of 2022.

Reaching two 5% by June 'twenty, 'twenty, two which compares to three 8% in June 2021, and six 6% in January 2021.

Second global M&A activity, which drives demand in our economic consulting and technology segments as well as our transactions business and corporate finance and restructuring has been at record levels year to date.

There is no certainty that M&A activity will continue at this space.

Third we are a large jobs from and when large engagements and they may not be immediately replaced as Steve and I have both mentioned today, we saw several large jobs and are significantly wind down in the last two quarters across our economic <unk>.

Salting technology, and corporate finance and restructuring businesses.

<unk>.

The fourth quarter is typically a weaker quarter for us because of our seasonal business slowdown at the end of the year.

Before I close I want to reiterate four key themes that underscore the strength of our company.

First our results show that while continuing to dominate our traditional areas of strength.

Have demonstrable bleak drone auto adjacencies and footprint, which also have the added benefit of making us less susceptible to the business cycle.

Business transformation and transaction services, which represented 36% of total segment revenues in corporate finance in Q3 of last year.

Contributed 59% this quarter.

Non M&A related antitrust services have steadily grown to represent 32% of our economic consulting revenues this quarter.

Which compares to 23% in Q3 of last year.

Our Australian business has grown to 31 senior managing directors from 19 two years back.

And our middle East business has grown to 16 managed senior managing directors from five two years back.

And EMEA represented 30% of revenues this quarter.

With us only recently ramping up in Germany, and Spain.

Second we count among our staff arguably some of the leading experts in the world in areas, such as antitrust financial arbitration and economic analyses, the restructuring technology and data analytics based investigations and corporate.

Reputation and communications.

Third in many industries around the world the pace of change is accelerating and we have the surge capacity to help our clients when they when they face their greatest challenges and opportunities.

And finally, our strong balance sheet continues to give us the flexibility to make sustained investments towards growing our business globally.

With that let's open the call up for your questions.

Thank you very much.

Ladies and gentlemen, given now begin the question and answer session.

To ask a question you May press Star then one on your telephone keypad.

If youre using a speakerphone please pick up your handset before pressing the keys.

To withdraw your question. Please press Star then two.

At this time, we will pause momentarily.

Our roster.

The first question is from the line of.

Andrew Nicholas from William Blair. Please go ahead.

Hi, Thank you for taking my questions and good morning.

My first question was just going to be on the hiring environment and your ability to source talent right. Now you mentioned a few times in your prepared remarks about a willingness to kind of add head count here, particularly where talent exists, but how easy is that to do are you, having an easy time, finding that talent both at the senior level and.

And at the junior level.

And what what may be a tighter labor market might mean in terms of of wage pressures all of that would be really helpful to understand.

Yes, maybe I'll take a crack at and Ajay chime in if you have anything additional to add look I think I think there are two factors that.

Drive our ability to attract talent.

I guess to put a cliche of supply and demand, but I mean.

A lot of it has to do with are we.

An attractive place, particularly for the senior talent upfront to for people to come.

Are we seen as a place that is moving that has integrated external talent well and when people are frustrated with their existing place. This is a great place to go and I think on that front.

We're not perfect, but we have built.

A really good reputation around the world now.

The word of mouth on that is really powerful no matter, how how silver tongued I try to be a one of our segment leaders trying to be it's the friend of the friends, who knew trusts two people check with them. They say no son of a gun it as a great place.

And that word of mouth is really powerful and that is sustaining us.

Then we also benefit from when.

Competitors have issues.

And when the competitive issues or competitors do stuff that isn't.

It doesn't suit well with the with the.

With some of the leaders people come over and so we picked up some talent last year, because some of our competitors laid off people and they didn't lay off the people we picked up where people were frustrated that great people below them were laid off.

And they say what you guys do over there and people said Wow, that's the culture I want to be part of so those are those.

Those are I don't know if theres a permanent thing those are great things that we've invested in and are really sustaining in addition to that you have labor markets. I think that has less of effect on the senior most talent. It does have on the junior talent.

<unk>.

Last year, we were hiring.

In the face of some downturns in our business and some of our competitors Werent in fact, some of our competitors were laying off junior people. So it was an easy market for all the junior talent today, if youre going to get junior talent and transactions.

You are fighting the world you are finding the world that is busy on transactions and also some of the world that under hired last year on transactions. So on that front, it's much tougher it's much tougher in terms of wages. Yes. No. This environment is one where you have to constantly monitor and make sure you're not just paying based on some pace scale that somebody developed and $19 40.

Six but that Europe.

We're on top of that in your in your and.

And Youre, making sure, particularly your strongest people are getting paid and that means we have made adjustments and we will make adjustments and I can't quantify exactly how much those are but that is a phenomenon out here my experience over a long history in professional services is that short term problems now because it's short term raises.

Sometimes those phenomena go on for a while but if that phenomenon is out there you should if you have the best people will be able to match that overtime with your price and so those are the things we monitor here does that.

Does that help yes, you hit you hit all the all the questions and topics I really appreciate that.

While we approximate our moly, perhaps me really hard.

Great.

Well hopefully hopefully this is another one then.

My second question a follow up would just be on the technology segment, you mentioned, a few times ramping up investments there head count was up double digits can you just spend some time talking about or more about the opportunities for that business, where youre seeing opportunities for growth whether it's from a.

Geographic perspective, or individual kind of underlying business opportunities I think that'd be the helpful to understand. Thank you. Yes. Thank you for that let me there are a couple of different things going on in part of this hiring right now is we.

We were we were under hiring for a while and we were we are.

Our core people were dying in the first half of this year.

People will throw themselves into work.

And dedicated people will do almost anything but not forever right. So.

So we needed to give people a break that the utilization you can't really look at the utilization numbers. The way, we published them protect because they're weird, but the people were killing themselves in the first half of the year with all these second requests in a way that wasn't sustainable. So some of that is just that but the more fundamental forces I think you know few years ago. This.

Business is underperforming.

<unk>. This strategy, we always had a great reputation, particularly for the most complicated jobs I think for most people who know the most complicated ediscovery jobs and related services.

We are the leader there is something different about global complicated jobs that are from the commodity end of this business and we were always the leader as you know we trapped ourselves because we said we will only work with people. If we worked with our own historical technology called Ringtail.

And.

Retail.

Other tech platform it became much more prevalent that hurt us in the market and so.

Now I'll, probably four five years ago, we changed leadership, we changed our strategy.

And we had some turnover related to that since that day I believe we've been by far the best.

Organic growth engine in the industry.

And.

We had always a right to own a bigger footprint than I believe we did the capability of our people is incredible what we're now starting to do is call and people and people try us they say wow, that's a different experience and our share in law firms is growing our share in corporates is growing and I think we're starting to hit.

Our.

More closer to where the footprint, we should have in the U S. EBIT in the U S. Even as well as to your point around the world and I think there is a long way for that to go. The problem is that you have lots of <unk> and zags and that business I don't think we release the specifics on what percent of our revenue is from from.

Second request, but it can vary a lot it can vary by.

Victor.

For in the.

Given year on a given quarter to quarter and.

So you have <unk>, if you hire based on the zags youre going to always be short and youre going to under invest in your people and so.

I've made it very clear to <unk> and the team that we believe.

And when they should hire when they find the talent and we're going to support this business does that.

Does that help.

Yes, very helpful. Thank you again and I'll hop back into queue.

Thank you.

Thank you very much.

Next question.

<unk> is from the line of Sam.

England from Ben and Bob. Please go ahead.

Hi, guys. Thanks for taking the questions. The first one I had.

Could you talk a bit about the pipeline for the next couple of quarters, and particularly which areas of the business are looking strong.

Linked to the M&A Thats, obviously been strongly this year.

Well I'll, let I'll, let Jay answer that but where are you. Sam are you in London are you back here in the U S are aware.

Hello, London, the travel restrictions still may not get back hopefully next month things.

Things have changed.

Yes, I think finally, well nice to hear your voice so I just wanted to sure.

Sam.

We haven't sort of given guidance for next year, but I want to be particular about that but.

In general terms, our business transformation and transactions business is us continuing to do well remember there's two aspects of their transformation land transactions in the M&A market is like we said, it's not likely to go at this space forever, but it is quite robust.

Don't get me wrong in that sense. So so thats the area where there is.

Continued growth in the end.

Restructuring space, it's still quite subdued.

In M&A. We also are a large M&A firm, that's where the antitrust these kicks in and we talked this quarter about a large assignment in M&A antitrust ending in <unk>.

Those things can cause the zig zags that Steve talked about.

Country to or we are not in the business of predicting when the mix large very large M&A will take place and we will get five it's almost impossible to do that.

Okay great.

And then the next question I had was around sort.

So the cash position and capital allocation, you've obviously seen.

The leverage come down you didn't do any buybacks in the quarter.

How you're thinking about capital allocation for the rest of the year and into 2022.

So first.

We're obviously very proud of the free cash flow.

One of the tone, a little cautionary note, we typically pay our bonuses most of our bonuses in the March April timeframe. So there is a if you if you look at quarterly trends over any extended period of time, you see us, adding cash in Q3 and Q4.

And even to slightly down in Q2 and down a lot in terms of cash bleed in Q1, that's our typical cycle. So this is not different from our typical cycle.

Significant cash outlay happens in the March April timeframe. So I thought that mentioned that first in terms of capital allocation is the single biggest priority for us is organic growth.

We have.

The wherewithal to do whatever we need to do for organic growth where the opportunities exist.

Absolutely. So thats one over any extended period of time, we don't like dilution I mean, just in the last 12 months. We've bought back you are right about this quarter not buying back stock, but over the last 12 months, we bought back $300 million of stock at an average price of $107.

So so so so clearly we do look at dilution over extended period of time, and we've done some small tuck in acquisitions as well where that those makes sense to do.

We don't have any plans for a dividend in the foreseeable future.

Okay, Great and then maybe just one more you mentioned the growth in the Australia business I was just wondering if there are any other markets like that.

You think you are on the way at the moment and you think you could accelerate the growth <unk> got in Australia.

Yes, I think I think if you talk to my Exco, They would say I believe that and everybody market and putting pressure on them to figure out how to do it.

That's a little facetious, but.

I don't I mean seriously at one point.

They were favorite children in this company is the restructuring business and it was really the restructuring business in the U S. I'm excited now about.

The powerful growth engines, we have restructuring globally, even if it's muted this now because of market conditions. The non transaction the non restructuring businesses have shown their strength, our tech business and so forth and if you look at one point the U S was the entire growth engine of this company it is not anymore.

So we are.

We have like in addition to sort of episodic strategy things I have quarterly strategy conversations with every segment and every region and we are exploring significant growth opportunities and replace now the issue the tricky thing in and professional services.

It's not like it used to be a BCG. If you if you do it strategy effort for a paper company. After you decide that this wafer board is going to be the market to go in.

You hire somebody to put in machines, which are 200 yards long and you buy the machines when somebody puts assembled zone the problem in professional services strategy.

Tied to talent.

So no matter what do you think there's a market opportunity in Botswana, If you can't get the best talent in Botswana, you can't go there or for any business and and.

So the conversations are.

Inextricably linked with <unk>.

<unk> external lateral hires are calling us and wanting to join us and how good we feel about them and the market opportunities or.

Or where are we just promoted people or do we have a superstar Mds, who we think can help lead something so there is a combination but we have those conversations around every geography.

At least every region.

And every segment I don't think Theres only one does that help at least give you a flavor.

Yeah, that's great. Thanks.

Thank you.

Thank you very much.

Next question is from the line of Marc Riddick from Sidoti <unk> Company. Please go ahead.

Good morning, everyone.

Good morning, Mark.

So I was wondering if you could follow up go back to one of the things that you mentioned in your prepared remarks around Utah.

Utilizing some of your talent and this is something that you've mentioned in the past.

A little more behind that because I think it's kind of kind of interesting the flexibility of being able to have folks working in different segments in different areas.

I think you specifically mentioned some of your junior talent being able to be utilized in other areas and I was wondering if you could talk a little bit about maybe.

How much different that is and maybe what you've done in the past it doesn't mean, you're doing more often and then from a development standpoint, it seems as though that would be something that would be fairly helpful. In the long run. So I was wondering if could talk a little bit more about that part of your use of satellite right now yes.

Thank you for that question. It's a good question look I want to Dimensionalize that.

I came from before our company, where a higher kind of talented junior people with no expertise generically and basically flowed people across wherever we.

Or at least the first five or six years in their career.

That's that's.

My experience when I was at BCG that is not this firm. This firm is such an expertise based firm.

And a lot of the hiring we do is not at the first year level its mid level people, who have been doing.

Restructuring modeling for someplace else for a number of years and want to join us and so we and the expertise you need to do testify on antitrust clearance as a different expertise than to testify on the forensic accounting matter or to do an investigation.

Four four.

Brian.

So just a lot of different expertise and so there is some inherent limits in how much you can flow people across the boundaries because with such an expertise business, having said that I think we on top of that put limits on ourselves because of silos and not a commitment at one point in the path.

And what we've done is we release those and then I think we've been a little bit surprised this actually helped flexible some people are and how people are.

So it's not it's not an all or nothing but I think if you talk with Carlin and Mike.

CF.

We did a great job of flowing people not only from.

From the bankruptcy side from the from the non restructuring set of services over to bankruptcy last year when the bankruptcy.

<unk> is booming, but not just from <unk>.

<unk> people, who had the right accounting backgrounds in the right orientation also went through training and wear parts of teams in the restructuring side and this year, we've managed to flow them back in a big way.

And so.

This is something that we're committed to and Youre right to eight people people love. It. The other thing I would say Thats happened is look COVID-19 is horrible, but you learn things and what you learn is that.

Somebody Australia can help you on a case in London, even if theyre not there because they're as close as the person next door, if youre doing everything through zoom or teams as long as they are willing to deal with the time change and so we've started to cross team around the world in a better way, which is both effective.

For skills, leveraging but also to your point motivating for.

Or many junior staff at sometimes think everybody in Australia, and a 23 year old wants to leave Australia for temporarily.

Couldnt during COVID-19, but you could virtually at least and those are those are good things. So we're making progress I am not sure. We are as far as we can go yet, but we're making progress on it and I'm glad you noticed it does that speak to your point Mark.

It does and then I just one quick little follow up I was wondering if you could sort of give an update as to sort of maybe where you feel you are with.

With folks with joining into office here and there or maybe if you can sort of just bring us up to speed on.

What that has been so far and maybe what it might look like at least.

As far as the Crystal ball.

Two phrases you mentioned here and there in Crystal ball are the right ones.

So it's hugely different around the world.

I think in Western Australia.

Most nevertheless, the offices of I don't know if you know Western Australia had no cases for an extended period of time, then they would know they wouldnt, let anybody in from around the world. They also wouldn't let anybody from other than Western Australia in Western Australia.

So it was isolating but people were back in the offices with masks and there were conferences in Western Australia with 1000 people without masks and no cases for during the peak to the rest of the year Eastern Australia was different it was people back in the offices and locked down serious lockdowns.

<unk>.

And now it's changed in Australia, where people are focused on getting everybody vaccinated and if you go to Asia.

<unk>.

Actually most of our people are back in the office and Asia wearing masks and I'd.

I'd say in Hong Kong I think last time I talk with John Raul about this I think 70 or 80% of our people are back in the office.

In different offices in Asia, but thats with sometimes changes if there is a lockdown or a surge.

Other places around the world.

Are nowhere near there.

The U S. Most of our folks are not back in their offices I mean like in DC. We started to go back in the offices and then they were masked mandates.

It's just.

I think many people say if I have to wear masks to communicate with my colleague I'd, rather I think are more effective on teams or zoom and so although people were eager to get back and connect.

Got it down.

In contrast, London.

No, but almost nobody back in the offices until recently and I was over there two weeks ago or three weeks ago, I think I can't remember the number like.

500 people in the office that day.

It was the energy level was electric went to Germany, it's not as far along.

I think it's.

It's a journey.

To the point I don't think we're ever going to go back to normal I mean normal for US was not everybody in the office every day anyway people traveled the clients.

And.

I always.

<unk> Nikko listen Seattle is limited saddle for seven years.

We don't have a monolithic block people to their desk culture, even long before COVID-19 and we won't going forward, so, but I do think we need to get.

As.

As Covid allows a.

Ah reconnection set of activity in person when you do that people all of a sudden we discover that zoom is great, but actually hunting somebody or chatting with them lie or is even better and we need that we're moving in that direction, but only is safety.

And perceived safety allow and so it's hit or Miss Mike.

My Crystal Ball says is for the first time being a little optimistic.

Crystal Ball says, yes, we could have another bearing all those sorts of things I think once you get.

This level of people vaccinated.

And frankly this number of people who have caught it who do not.

Without being vaccinated the immunity levels go up.

I assume we could have a surge this winter I would guess, it's going to be a much lesser surge that we had last winter. So I'm crossing my fingers that.

We're moving in the right direction here, but that is a crystal ball activity does that help at least.

Very much thank you.

Thank you.

All right.

Next question is from the line of Tobey Sommer from priced Securities. Please go ahead.

Dolby before you guys should be.

To your question how are you feeling about the world series.

Oh I'm feeling just fine just fine.

Have a.

Kind of.

Our team in this particular pair to root for so just thought.

Neil joined isn't it isn't the Atlanta Stadium called Truest Park.

It is but I was born and lived in different areas.

Different affiliations.

I hope your employer didn't hear that I really think well, we think that would be.

So I'm going to show up in the transcript so okay.

I was wondering if you could.

Comment on sort of.

The aspect of your of your businesses that are driven by.

Regulatory actions.

There were expectations for.

The by the administration to be more active on several regulatory fronts than the previous administration, but I know there can be a transition period, where there is kind of like less regulatory activity.

Perspective of an eventual posture.

Where does that.

Whats your perspective on that.

Yes, I'll give you look I'll give you the gatherings of my hallway chit chat on that as opposed to a definitive answer the gathering of the hallway chitchat.

A there is always well and certainly this year there is a transition as people get in the job. There is allowed and people move out of jobs and there is a lull in the beginning of the administrations, even if the administration and tend to have more regulatory action.

There is a lull because.

Actually it takes people to do it any changing people and people are waiting for confirmation or people are waiting to have their people and.

And so I think there is there is a belief in the direction that you described but there is also a belief that some places it hasn't it hasn't yet manifested itself in regulatory action. The other issue is sometimes we're at the very front end of regulatory action and often.

We can there can be all.

A tale that we're heavily involved in right I mean, we're still.

This is a regulatory action, but its legal actions, we're still doing mortgage backed securities cases.

10 years after the mortgage backed securities prices.

And there is often a long tail on regulatory actions as well so.

I would not say that we have seen a surge or that in our current numbers is a surge in that but I do believe that.

Most of our people believe that regulatory action level will go up and over time that will show up in demand for our services I'd say you in a different place.

Systems.

Does that answer does that give you a sense tobey.

It does thank you.

With the pandemic experience in kind of in some cases newly highly visible public companies is has anything changed significantly with respect to the risk of E discovery consulting being either just under mediated by technology if judges are.

Somehow more willing to.

Utilize technology more significantly or changes to business models that suppliers and other other kind of players within the ecosystem.

Wow.

Well look I think youre talking about ediscovery, specifically or generally have for our business.

E discovery and sort of the.

That aspect is where I was aiming specifically, yes, yes look.

Look we spend a lot of time thinking about technology changes in that industry and there was a major technology changes said, we don't want to be a software provider in that industry, we want to be software agnostic. So we can be leveraging the best tools for our clients. So we use brings a whole lot we use relativity with other technology.

The use of intelligence stuff that goes on top of each of those technologies and we've become very nimble in the use of technology. So we spend a lot of time monitoring stuff at this point, we would say for the high end of the market. We do not see a disintermediation that somehow technology is going to automatically do or the judges are.

B press, a button and find the six documents that matter in the case of the contrary what's happening in the world with all the different media is there is a data explosion and so you need some sort of intelligence to sift through explosions of different forms of data.

<unk> wasn't around a while I mean, you can go through all the different data and figure out what's relevant.

And yes, the tools are getting better so that in.

And the prices are being driven down because you got better tools.

But you still need people, particularly on the non simple.

Local divorce case.

On a real complicated.

Who can navigate that complexity.

So we would say that we're pretty bullish about our part of that business at least for the next while ahead does that talk to your question at least.

Yes, yes.

How do you look at opportunities for the company.

Two.

Develop and grow recurring revenue streams.

Well ill leave it at that.

Okay. So.

So obviously.

I came here from a telephone company in and telephone companies have recurring revenue streams on the problem is theyre going downwards.

So so so.

Im a fan of recurring revenue streams and in consulting.

Traditionally there is no such thing you have to sell through a different client or the same client the different set of services.

Isn't the classically we have some recurring revenue streams for example in a strategic communications practice, let a lot.

A lot of companies hired us as.

As retainers and in our technology practice to the extent that we are hosting data for an extended period of time you could call that.

Recurring revenue stream as well.

The main point there Sir.

Extremely talented people.

And those are.

A significant percentage of our revenue comes for example, this intermediate through through attorneys.

Our recurring revenue stream is that those folks call our practitioners again and again and again for different cases off the same genre that has a recurring revenue stream that relationship that we have between that that's if any in our professional.

Thank you good that we have those relationships because RJ when he first got here. So I don't my God. If you actually look at how much of our revenue is for sure six months from now the Gulf is coming from the telephone company, but its subtle case since you've been here right the project.

Quite frankly, okay does that help.

Thank you very much.

Any other questions.

That was our last question.

So let me say, thank you again for the attention and support from each of you.

We really appreciate it.

<unk>.

I want to say, thank you so much to our team or not so much this quarter because quarters don't matter, but for building an enterprise that is a powerful and exciting as it is so thanks, everyone and have a good following.

Okay.

Thank you very much sir.

Ladies and gentlemen, this conference call has now concluded.

Thank you for attending today's presentation you may now disconnect your lines. Thank you.

Yes.