Q1 2022 FTI Consulting Inc Earnings Call
[music].
Welcome to the F T I consulting first quarter 2022 earnings conference call.
All participants will be in a listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero.
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 please.
Please note this event is being recorded.
I would now 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 first quarter 2022 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 M. The Securities Act of $19 33.
Section 21 of the Securities Exchange Act of $19 34 that involve risks and uncertainties.
Forward looking statements include statements concerning plans.
Yes.
Coal strategies future events future revenues future results and performance expectations.
Expectations plans or intentions relating to financial performance.
Acquisitions share repurchases business trends, yes, you related matters 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 headings risk factors and forward looking information in our quarterly report on Form 10-Q for the quarter ended March 31, 2020 to our annual report on Form 10-K for the year ended December 31, 2021, and in our other filings with the SEC.
Investors are cautioned not to place any 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 and free cash flow.
For a discussion of these and other non-GAAP financial measures as well as a reconciliation 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 reconciliation.
Lastly, there are two items that have been posted to the Investor Relations section of our website for your reference. These include a quarterly earnings presentation, and an excel and PDF of our historical financial and operating data, which have been updated to include our first quarter 2022 results.
Of note during today's prepared remarks management will not speak directly to the quarterly earnings presentation posted to the Investor Relations section of our website.
To ensure our disclosures are consistent these slides provide the same details as they have historically.
With these formalities out of the way I am joined today by Steven Gunby, Our President and Chief Executive Officer, and Aldo Silva Wall, Our Chief Financial Officer.
At this time I'll turn the call over to our President and Chief Executive Officer, Steve Gunby. Thank you Mollie and welcome everyone and thank you all for taking the time to join US This morning.
Let me start by reiterating that our thoughts are with.
Not only the people of Ukraine, but also all of you who may have relative to store colleagues, who are directly affected by this unbelievable horrible event.
With respect to our quarter and the condition of our company. It's obviously been only a couple of months since we last spoke so the messages. We have today are not radically different from what we talked about with you.
About two months ago.
So I'll be brief in my remarks, let <unk> take you through the quarter and then I look forward to coming back to join him in new for Q&A.
Our financial results. This quarter were overall very much in line with our expectations. There are always of course puts and takes in the individual sub businesses, but overall the key themes. We saw this quarter are very much in line with the key themes, we talked about a couple of months ago.
For example, we're facing headwinds that we anticipated, including things like competitive talent markets competitive compensation pressures, we're dealing with them but of course, there's a lot of work to do to make sure you stay on top of those forces similar.
Similarly, as we talked about we are looking at every bit of information things like when does the restructuring market potentially coming back and where and when or if the M&A market might weekend at the same time, we're ahead of it or behind it.
We have discussion processes underway monitoring processes and I think the reality is at this point despite all of those processes.
It's still the case that nobody has a clear crystal ball on the timing.
And obviously, we are monitoring and trying to guess like the rest of the world.
How the multiple events going on in the macro World War in Europe .
Inflation higher interest rates Covid China's economy.
Et cetera are going to affect the global and local economies and then of course with the second and third order consequences of those events will have on business drivers for the world as a whole and then on us.
Those are things we alluded to two months ago, we are still focused on all of them and as of now I would say it's clear that we also still don't have full clarity on any of them.
So therefore, if you would I'd love to take this conversation is somewhat different direction and upper level.
In a way that we've talked about a bit on some prior calls.
And use this opportunity to reiterate something I believe strongly in.
Which is that if you've been around the world for a while it seems there is always some significant uncertainty in market and economic conditions.
I hope that I'm sure you all hope theres not always going to be a war in Europe is not always going to be this level of inflation.
But it does seem like <unk> been around for a while there is always something whether it's Brexit or a global pandemic or changes in administration or an oil price shock.
We tried to do is assess each of those events when they happen there are consequences assess their duration and of course adjust for them.
Yes.
We believe they create some sort of a permanent shift in markets.
Important most times when we do that analysis.
Analysis comes back suggesting that the effects that we are anticipating on the business are not permanent.
That might be significant.
But there are short term in nature, we didn't know whether Brexit was going to have a short term effect on our business, but we were pretty confident Brexit Brexit was not going to have a major long term negative effect on the European business, we are investing in and.
And so when you come to those sorts of conclusions what we do is return to focusing on what we can control.
We need to control every day, which is to continue to build the best STI and invest behind the best parts of our business.
If you look at our history. The most powerful point it shows that if we don't overreact to global macro factors, but instead focus on doing the right things to build our business things like hiring aggressively when talent is available betting behind that great talent in the segments, regardless of where we are.
Busy in that segment, this quarter or not and investing behind capabilities. We believe our core or positions. We believe in our key adjacencies. There are macro factors can affect those businesses in the short term and sometimes significantly if we do that over any medium period of time, we become more capable more relevant more.
<unk> able to help our clients attack their deepest most significant opportunities and problems.
And therefore over any extended period of time through the Zig zags.
Our businesses Prosper.
If you look at the success over the last few years I think the data would show.
It Hasnt been markets that gave us a success it hasnt been political changes or global macro changes that success.
Has been due to what our people have done.
Sometimes with the benefit of good markets, sometimes in the face of bad markets.
But what we have done.
And do every day to help our clients and get them ever better and get ourselves ever better at helping our clients on their most important issues.
Let me take a moment to maybe step off track, but talk about something I believe.
At least I find.
As is relevant.
And to these points a couple of weeks ago, We had our first senior managing director meeting in almost three years I think most of you know we try to do those meetings every year, but COVID-19 caused what felt like.
Postponements.
But we're finally able to get the global partnership together face to face.
Yes.
In the first time in three years, there were something north of 450 people there.
And though I've had the chance since the meeting during the meeting since the meeting to talk with in depth with a lot of them have and of course talked in depth with every one of them.
But the deep conversations I've had there hasn't been a single one of those conversations where people didn't say they left that room incredibly energized.
By both where our company is today and more important.
By where they see our company heading and where they see themselves able to take our company.
Some of that energy came from plenary presentations that sort of stuff, we talked about or alluded to on these calls the progress in segments or regions and of course every segment gave a presentation. There was a lot of positive feedback on those those those segment presentations. One person said Wow, you can't walk away from those <unk> without having a sense of that.
Like every business around the world are succeeding and more important sees incredible potential going forward and I heard comments on the specifics for example, a lot of people talking about just the amazing continued success of tech or the commitment of Corp fin to invest even when we had the downturn in restructuring or its commitment to grow the business transformation and transaction businesses.
Early in the regional meetings and presentations people talked about the ambition we have in some of the newer geographies like France, Germany, Netherlands, Italy, the middle East.
But also some of the powerful next steps and ambition we have in some of the geographies, where we have been succeeding for a long period of time.
In places, where we fundamentally improved our physicians like Australia.
There was one other aggregate factor that was commented on a lot just the sheer amount of capability in that room and how it's grown.
At the beginning of the meeting we had all the people who are new since the last meeting three years ago, standup and I think something like 40% of the room stood up.
40% because of all the lateral hires we've done but also all the promotions we've been able to make now I don't know if that strikes you those of you on the phone.
Seriously as instruct the people in the room it actually struck me and I already knew the data before I had everybody stand up.
Had folks come up to me and say well, we're going to have to knock the walls out in this room by the next meeting and Thats a room that we at one point fit in very comfortably.
And that was even with some of our partners are unable to attend for example, most of our Smbs from some parts of Asia.
So the plenary presentations, we're seeing is powerful and energizing, but what most people told me. After the meeting was that EBIT more energizing and powerful for them, where the interactions. They had in small groups and one on one discussions that allowed people to talk to the work our people are doing every day.
That adds up to the aggregates. The success stories, we're driving for our clients. The brand building assignments, we're doing that cause other people to call us. The adjacencies that people are passionate about building on that build and add something new but also connect to our historical core businesses. There is a macro version of this firm and on these earnings calls, we generally talk to there.
Particularly the macro financials.
But those macro financials don't come magically by themselves they come from client efforts by individuals small groups intellectual advances the teams come up with commitment drive and energy all of which doesn't come from some generalized macro force for the energy individuals and small groups of people who buildup businesses.
To come up with ever more advanced ways to serve our clients.
And who develop great groups of junior people, who in turn bring energy and make a difference.
I say all this because markets of course do matter.
Whether the restructuring market comes back in the third quarter or the fourth quarter of sometimes next year or two years from now matters markets.
Can be analogize to strong waves in an ocean strong ways.
The waves are with you it's a lot easier to go faster than that the waves are against you.
But of course, the problem is most of US don't control the waves.
I think what happens at meetings like this all <unk> meeting when you see the capabilities of the firm, but also the energy and drive of our people here.
It helps me and I hope.
All of US recognize that this firm we are not Cork simply riding those waves.
Rather we are a firm of powerful engines.
Engines that can plow through waves when they are against us.
And go even faster than the waves when they're with us.
The fuel that powers those engines is the energy the ambition and the capabilities of our teams and I could not walk away from that meeting and I believe everybody who attended could not walk away from that meeting.
Without a sense that this company.
As never had.
As much of that fuel in the tank as we do today.
That leaves me incredibly bullish.
Not only about where this company is today.
But where we can take it over the next two three and five years and beyond.
With that let me turn this over to RJ.
Okay.
Thank you Steve Good morning, everybody and my prepared remarks, I will take you through our company wide and segment results and discuss guidance for the full year.
Overall.
Our quarterly results were in line with our expectations.
First quarter of 2022 revenues of $723 $6 million were up $37 3 million or five 4% GAAP.
GAAP EPS of $1 66, compared to $8 84 in the prior year quarter, adjusted EPS of $1 66, compared to $1 89 in the prior year quarter.
Net income of $59 $3 million compared to $64 5 million in the prior year quarter.
This decrease is primarily because the five 4% growth in revenues was not sufficient to offset the increase in SG&A and compensation expenses.
SG&A of $149 million was 26% of revenues and compares to SG&A of $126 $5 million or 18, 4% of revenues in the first quarter of 2021 the increase in <unk>.
SG&A was primarily due to higher travel and entertainment.
Compensation and legal expenses.
First quarter 2022, adjusted EBITDA of $95 million decreased nine 1% compared to $99 5 million in the prior year quarter.
Our first quarter of 2022 effective tax rate of 22, 2% compared to our tax rate of 23, 9% in the first quarter of 2021 for the balance of 2022, we continue to expect our effective tax rate to be between 22% and 25.
Percent.
Weighted average shares outstanding are way so for Q1 of $35 6 million shares increased 584000 shares compared to $35 1 million shares for the prior year quarter, primarily due to the dilutive impact of arc.
Convertible notes.
For the quarter, our convertible notes had a potential dilutive impact on EPS of approximately 998000 shares in <unk> compared to approximately 450000 shares in ways. So in Q1 of 2021.
As our share price on average of $149.08. This past quarter was above the $101 38 conversion threshold and above our share price on average of $118 44.
In Q1 of 2021.
Billable headcount increased by 430 professionals are eight 4% year over year noteworthy billable head count grew 17, 3% in technology, 10, 7% and forensic and litigation consulting or <unk>.
And 10% and strategic communications.
Sequentially from the end of the year billable headcount increased by 171 professionals are three 2%.
Now turning to our performance at the segment level.
In corporate finance and restructuring record revenues of $253 $3 million increased 12% compared to the prior year quarter.
Acquisition related revenues contributed $2 $2 million in the quarter.
The increase in revenues was primarily due to higher demand for business transformation and transaction services, which was partially offset by lower demand for restructuring services.
Business transformation and transactions and represented 59% while restructuring represented 41% of segment revenues this quarter.
This compares to a 50 50 split between business transformation and transactions.
And restructuring in the prior year quarter.
The year over year business transformation and transactions grew 33% as we successfully help clients in a variety of verticals, including media and entertainment financials and technology, while restructuring revenues declined 9%.
Adjusted segment EBITDA of $53 $5 million or 21, 1% per segment revenues compared to 37 $4 million or 16, 6% of segment revenues in the prior year quarter the.
The increase in adjusted segment EBITDA was primarily due to higher revenues.
Which was partially offset by an increase in SG&A expenses and higher compensation compared to the prior year quarter.
Noteworthy.
Sequential.
Restructuring revenues grew.
14%.
Primarily from improved demand in North America in the retail and technology sectors.
Turning to <unk> revenues of $153 $9 million increased 2% compared to the prior year quarter acquisition related revenues contributed $3 $7 million in the quarter.
Excluding acquisition related revenues revenue decreased <unk> seven.
$7 million or 0.4% in the quarter, primarily due to lower demand for data and analytics and dispute services, which was partially offset by higher realized bill rates.
And demand for our investigation services.
Adjusted segment EBITDA of $17 3 million or 11, 2% of segment revenues compared to 29 $4 million or 19, 5% of segment revenues in the prior year quarter.
The decrease in adjusted segment EBITDA was primarily due to higher compensation.
Which includes the impact of a 10, 7% increase in billable head count.
And SG&A expenses compared to the prior year quarter.
Sequentially <unk> revenues increased 11, 5% and adjusted EBITDA improved $8 $8 million, reflecting increased demand for our investigations and construction solutions services.
In economic consulting revenues of $166 million decreased one 9% compared to the prior year quarter.
The decrease in revenues was primarily due to lower demand.
For M&A related antitrust services.
Which was partially offset by higher demand for non M&A related antitrust services compared to the prior year quarter.
Non M&A related antitrust services represented 33% and M&A related antitrust services represented 17% of total segment revenues in the third quarter.
Adjusted segment EBITDA of $21 $2 million or 12, 8% of segment revenues compared to $26 6 million or 15, 7% of segment revenues in the prior year quarter.
The decrease in adjusted segment EBITDA was primarily due to lower revenues and higher SG&A expenses compared to the prior year quarter.
Technologies revenues of $18 $5 million increased one 3% compared to the prior year quarter.
You may recall that in the first quarter of 2021, the technology segment had one M&A related second request engagement that we said represented over 20% of total quarterly revenues.
Despite this we generated a revenue increase in the first quarter of 2022, which was primarily due to higher demand for information governance privacy and security Cross border investigations and litigation services.
Which was nearly offset by a decline in demand for M&A related second request services compared to the prior year quarter.
Adjusted segment EBITDA of $13 4 million or 16, 6% of segment revenues compared to $21 $6 million or 27, 2% of segment revenues in the prior year quarter.
The decrease in adjusted segment EBITDA was primarily due to higher compensation, which includes the impact of a 17, 3% increase in billable head count.
And higher SG&A expenses.
Sequentially technology revenues increased 24, 6% and adjusted EBITDA improved $5 $6 million.
Primarily reflecting increased demand for M&A related second request and cross border investigations services.
Strategic communications and record revenues of $69 $9 million increased 15, 6% compared to the prior year quarter.
During the quarter, we experienced increased demand primarily for our corporate reputation services.
Adjusted segment EBITDA of $15 $7 million or 22, 5% of segment revenues compared to $10 4 million or 17, 2% of segment revenues in the prior year quarter the.
The increase in adjusted segment EBITDA was primarily due to higher revenues, which was partially offset by an increase in SG&A and compensation expenses, which includes the impact of a 10% increase in billable head count.
Let me now discuss a few cash flow and balance sheet items.
As is typical we paid the bulk of our bonuses in the first quarter.
Net cash used in operating activities of $203 million 8 million.
Compared to $166 6 million in the prior year quarter.
The year over year increase in net cash used in operating activities was largely due to higher annual bonus payments and increase in salaries related to headcount growth and higher operating expenses, which was partially offset by an increase in cash collected resulting from.
The higher revenues.
During the quarter, we spent $3 $1 million to repurchase 21611 shares at an average price per share of a $143 and 36.
As of the end of the quarter approximately $164 million remained available for stock repurchases under our current stock repurchase authorization.
Total debt net of cash of $60 1 million at March 31, 2022, compared to $252 8 million at March 31, 2021, and a negative $178 2 million on December 31 2021.
The sequential increase was primarily due to an increase in cash used in operating activities, which included annual bonus payments.
Turning to guidance, we are reiterating our guidance for the year given we are yet early in the year and because our first quarter results are in line with our expectations.
We estimate that revenues for full year 2022 will range between $2 92 billion and three point over $5 billion.
And that EPS for full year 2020, do will range between $6 47.
$7 20.
We do not currently expect to EPS and adjusted EPS to differ.
Our guidance is shaped by certain key considerations.
In restructuring.
On the back office sharper than expected uptake in Q1.
Our expectation is that we will sustain this level of revenue for the balance of the year.
Similarly, we expect business transformation and transactions within corporate finance to remain robust.
We also expect continuous improvement in our <unk> segment.
Our assumption of simultaneous strength.
He is historically rare and uncertain in these turbulent times.
Additionally, the inflationary environment isn't is resulting in significant compensation related pressures.
And as Steve mentioned, we are re engaging on our efforts to connect our professionals through in person events and gatherings, such as our all SMB meetings and training and development programming.
As a result, we expect SG&A, particularly travel and entertainment expenses to continue to increase this year.
Importantly, our ambition remains to aggressively add head count in all of our geographies.
And finally Q4 is typically a seasonally weaker quarter for us because of both an increase in time off during the holidays for our employees and a seasonal business slowdown.
Before I close I.
I want to reiterate a few key themes that underscore the attractiveness of our business.
First <unk>.
We believe we are the strongest provider of restructuring services anywhere in the world.
And in recent years, we have supplemented that with a growing array of services and business transformation and transactions.
Second our economists and other professionals are recognized as leaders in expert testimony in a variety of areas, including arbitration construction antitrust and competition insurance and investigations.
With our award winning experts and staff and their relationships. We are working on the biggest and most important matters involving complex economic issues.
Third our technology and strategic communications businesses are proving to be a cyclical and have been growing in key areas of client need such as information governance security and privacy E discovery corporate reputation ESG and public affairs.
And finally, our business generates excellent free cash flow and our balance sheet is very strong we have the capacity to continue to boost shareholder value through organic growth share buybacks and acquisitions, when we see the right ones.
With that let's open the call up for your questions.
We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone.
We are using a speakerphone please pick up your handset before pressing the keys.
If at any time your question Thats been addressed and you would like to withdraw. Your question. Please press Star then two at this time, we will pause momentarily to assemble our roster.
Okay.
Our first question will come from Andrew Nicholas with William Blair. Please go ahead.
Hi, Good morning, Thank you for taking my questions.
Good morning first question I had was.
On CFR.
Instead of a Palestinian restructuring questions I'm going to focus on BTT I think you said in your prepared remarks that youre assuming.
We're expecting that to remain robust I think that's a bit surprising to me just given.
What seems to be a slowdown in M&A activity.
Globally can you kind of highlight some of the reasons why why you feel strongly about that business in particular.
Is are there transactions that we're not seeing that are keeping that activity elevated or is there particular momentum in there that you'd like to call out that that'd be helpful.
Thank you Andrew.
So.
Firstly business transformation and transactions is infinitely bigger space and restructuring and we only got started in a meaningful way last several years later and restructuring we are unquestionably number one in the world. So there is that the demand potential second used.
You saw year over year, the kind of growth we've had in business transformation and transactions.
It is a stellar number and to your question in.
And transact with that between business transformation and transactions for the last five quarters transactions is actually bigger slightly than business transformation and that's remained consistent.
Where we play in that transaction spaces in that middle market space. The private equity sponsor acquisitions. There is no let up.
No that's helped maybe I can take that.
Add to that though a little bit RJ is.
We don't have.
Different view of the general M&A market than what Youre reading out there. It's just that we play in so many different parts of it and some of our businesses I think we've seen some M&A slowdown and others, we haven't if I'm remembering right Jason.
Correct.
Part of the business, we haven't yet seen a slowdown partially because of the middle market nature, partially we hope because we continue to gain share in that market and I think thats the basis for the year.
Optimism, it's not so much that we are thinking.
I think we know better the macro forces than anybody else Andrew does that help.
Yes, no that's helpful probably another more evident the breadth of all the different areas that youre operating in.
I guess for my follow up.
Wanted to ask about SLC.
Solid sequential step up in revenue there utilizations improving could you talk a little bit about momentum in that business, what the pipeline looks like for that segment and maybe how that's developed relative to the past couple of quarters, where I think you were a bit slower at least in terms of large project opportunities in unit hope during.
Thank you.
So our.
Our optimism Andrews, obviously, we do have visibility in backlog and pipeline alright, but what happens is sometimes those things get deferred delayed it's not certain exactly when projects will start and what have you. So we certainly expect and believe that there'll be continuous improvement in that in that segment.
We have hired a heavily in variety of areas both in specific.
Work streams like health solutions and investigations in cyber security, but also geographies. So our belief is we are very bullish on it.
Yeah.
Great. Thank you.
Again, if you have a question. Please press Star then one our next question will come from Tobey Sommer with <unk> Securities. Please go ahead.
Thank you I wanted to ask a question about in May.
If you want to broaden that and just call. It your international business that would be fine.
Where are you in the.
The growth.
In your capabilities across your multiple segments such that.
The markets in which you operate in are sufficiently staffed where you can win the most complex engagements that often require.
Contributions from multiple segments.
And.
And then maybe on the financial side of the same.
Question.
Where are we in terms of the evolution of <unk>.
Those geographies being able to contribute accretively to the company's margin as they sort of leverage G&A more effectively.
Maybe I'll take a crack at that RJ and then you can give more texture. If you think that I'd missed something.
I mean, it's a great question.
So.
It depends obviously on geography, where we are in the U K as we have.
The breadth of just like the U S. We have the breadth of services the breadth of capabilities. We can win the biggest job local jobs, we can team with the U S and other places to win the biggest global jobs in our segment and we have the cross segment capabilities to win the biggest jobs win.
When.
When the.
When the job is ideally is best served by a cross segment offering historically, we did not have that most places on the continent or elsewhere in EMEA.
And frankly, most most places elsewhere in the world.
At first I don't think we really fully added even in London.
When I first got here and.
And we certainly didn't have and on the continent.
We're doing this year I think and have been doing over the last couple of years as a step change in the capabilities. We have on the continent. We've always had good <unk> capabilities on the continent, but to your point. It was tended to be more single segment in a geography. So we had a good strat comm business in Germany, We didn't have a corp fin business, we didn't have an MLC business.
We had some capability in France, but it wasn't the scale that we wanted to be we had no presence in the Netherlands, we had.
At 1.8 solid.
Dot com business in Brussels, now, we have the leading stratcom business in Brussels, and we have some other capabilities. They are so this is right now the last couple of years, but particularly this year is the is a year, where we're putting the.
The accelerator down on broadening those capabilities and you say well why why are you accelerating this year. It has to do with the capabilities that we were able to get either promotions or in many cases in some of these geographies lateral hires that we've been able to get it so.
I think what we have done is added enough capability in many of these markets that we already have started to win.
Some of the global assignments within one segment, but when you talk about having the multiple segments on the ground all and powerful forces. So that you can win the cross segment assignment in that geography, we are in the process now of transforming the continent as Ray we are I would say Australia has made a major step change in that over the last five years and we <unk>.
Length in each of the individual businesses, but now we've strengthen the cros. So it varies by geography, but I think you have your finger on one of the most important things going on which is that step change in the continent of EMEA.
In terms of accretive ness or not well.
The stuff, where we've accomplished it becomes accretive where we're making the best too.
Two two.
To grow out the capability, it's often the opposite of accretive near term and we clearly have some of that built into the next quarters of our because we are betting we've gotten the senior people some of them have.
Have restrictions on what they can do for a while and so theyre less productive it takes a while to build the business and we're adding head count below us. So some of these are not accretive in the next few quarters or even maybe into the beginning of next year, but we have a lot of confidence in those bets and are pretty excited about it that I talk to your question Tobey.
You did you did thank you.
So we talked about.
Wage inflation, certainly a topic broadly and in your business.
How has realized bill rate increases this year.
Paired to sort of same store compensation growth I understand youre, adding heads so I'm kind of asking for an adjustment there just to get a sense for how those two figures compare.
Yes, So let me let me give a crack at this within RJ can can say look we've talked about this a lot.
Underscored with our with our with our leadership team that.
For our best professionals, we can't get behind the market you just can't let you can't build a business by.
I mean, if somebody wants to leave for 3% increase than that then thats on them, but you can't allow yourself to get far off the market.
And so.
We've made significant adjustments and we're monitoring and are willing to make significant adjustments going forward.
Now I also experienced over any extended period of time, you can recoup that in price and we need to have that discipline and we've underscored that so we have made adjustments in list prices and so forth. You always then have a question of how long does it take to get realized and Thats, a very idiosyncratic thing in.
RJ has all sorts of monitoring processes in place I am not sure we know yet the exact results of those monitoring processes RJ, but if you want to.
I want to correct that and saying exactly you can ground.
No.
With pricing you can never say that suddenly for now the anecdotal and mathematical evidence suggests that they are sticking there's no material appreciable difference in realization.
One year to the other end there are rate increases obviously now you may not if youll see our we give the bill rate per hour realized bill rate per hour statistics for <unk> and you can track the quarterly and the year over year trends and you might've noticed there that it doesn't look like there's no appreciable increase year over year.
In fact sequentially in Econ for example, there is a decline, but that's not because rate increases for example are not sticking that there is a variety of other things that go into that leverage like whether using junior staff seniors of mix, where the rate increases have been sometimes you can have deferrals of revenues and reversals.
Such deferrals, just because declined hasnt accepted the engagement and the work has started so those sorts of things can cause variability, but in terms of your question Tobey rate increases are largely pronounced sticking.
And I wanted to ask a balance sheet. The capital deployment question so longer term award.
I realized rates are rising now so maybe this isn't the best time to sort of optimize the balance sheet.
But.
You build for the launch.
Yes.
Okay.
Business is so resilient in 2020.
Extraordinarily turbulent your business performed quite well.
It would seem that a company full of finance and accounting professionals.
Good.
I understand that carrying some debt would improve the returns on the business and not extraordinarily stress.
Business in the company during a downturn.
What's the longer term plan to more sort of effectively numerically academically manage the balance sheet.
Okay.
I think if youre, not suggesting we leverage up and compete with Elon for buying Twitter, that's not what you're suggesting here I think tobey right.
Just about driving ROI.
Hi.
Okay.
Let me, let me, let <unk> speak to whatever we publicly speak about that we obviously think a lot about.
Cash and.
And.
And our.
Our policies here and we talk a lot about to the board I don't know how much we share that RJ I'll leave this to you.
Listen you make it you make a great point and it's a textbook sort of question and you're absolutely right I am the CFO of a company of CFO and CEO . There's no question and there's no dearth of advice that one on can get that I actually solicit.
Yet most people will tell me that.
We are in the clear number one in the world and restructuring and interest rates are on the way up and cash is good to have and we to be $5 six to eight times Levered is probably not a great spot to be if youre, giving consulting advice on restructuring at least that's what I'm told I believe.
In my own head I feel you know.
And a company with.
As someone once reminded me we are not a subscription business there are relationships feel like subscriptions, but we are actually not a subscription business so more than two times gross debt.
Certainly we can comfortably take on a lot more than that but <unk> is a debatable matter.
Okay I guess.
Not talking about some sort of polarizing thing, where you would lever up to.
Six seven to eight time degree, but sort of why not oscillate around a turn and a half or two times of that.
Business jet isn't cyclical with the management team.
Kind of indicated that large investments in acquisition.
Unlikely.
I'm not I'm not disagreeing with the Adobe.
I will say is that for that sake is not an objective.
I have no objection to cash.
Piling up in the company and at the same time deploying it at the at opportune.
Moments, but not to take on debt to increase tons. If we don't have a.
Credible deployment opportunity.
So let me let me just add here.
Tobey I think it is.
Thank you.
<unk>, sorry, just going to add something is just.
I think youre right on that there is no way. This company is not at risk. If we had two or three times EBITDA and that I mean, I think <unk> right I think it's.
Some of our competitors, who have six or eight.
I'm glad we're not in that position.
It's just it's just part of a question that we talked about on an ongoing basis of where our cash position is how to use it all those sorts of things. So we don't have a religious prohibition against two or three times EBITDA debt just that just hasnt been in our opinion opportune to go there at this point in time there'll be does that help.
I was just hoping to discuss how you might be able to get there over the long term without tying it down to a specific action.
Perhaps.
Investing more than annual cash flow and repurchased over a number of years would be a way to do it.
Yes, yes.
Yes, I think I think we're not at this point you can hear from my CFO , who is not ready to share that level of detail on plans, but I think youll take your input as as he does a lot of people's input okay.
Thank you so much. Thank you thanks for your for your coverage.
We have no further questions. Thank you for joining today's conference call. Thank you all for thank you all for the attention and the support and hoping everybody stays continues to stay safe.
Again.
Okay.
This concludes our conference for today. Thank you for attending today's presentation you may now disconnect.
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