Q2 2022 FTI Consulting Inc Earnings Call

July 28, 2022

[music].

Welcome to the F T I consulting second quarter 2022 earnings conference call, all participants will be in listen only mode.

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

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Draw. Your question. Please press Star then two please note that this event is being recorded at all but 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 second quarter 2022 earnings results as reported this morning.

I 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 Securities Act of 1933 and section 21 of the Securities Exchange Act of 1934 that involve risks and uncertainties.

Forward looking statements include statements concerning plans.

Jeff This goal strategy future event.

Our revenue.

Our results and performance.

But they've been 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 thoughtful.

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 Spi consulting that 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 June 30th 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 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 V and other non-GAAP financial measures as well as our other reconciliations of non-GAAP financial measures 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 second quarter 2022, Brazil.

Of note during today's presentation many of them will not speak directly to the quarterly earnings presentation posted to the Investor Relations section of our website.

Our disclosures are consistent these slides provide the same details they have historically.

With these formalities out of the way I am joined today by Steven Gunby, Our President and Chief Executive Officer, and I would say Sabra 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 joining us this morning.

This quarter.

All quarters, there are lots of puts and takes in our results disaggregated levels the segments the region subregion.

I will as usual, let Ajay talk to those in some detail.

So let me talk to the macro level.

The macro level the results were for the first time in a while.

That's below my expectations.

Important however, I want to underscore that that shortfall was primarily due to the quarterly noise, but our business is often subject to whether revenue deferral FX re measurement gains or losses taxes, the timing of success fees et cetera.

So I've looked into this extensively in the bottom line for me about this quarter is nothing about this quarter changes my son or our sense of the prospects for the medium term and the long term or for this year.

So as RJ will talk about we are reaffirming our guidance for this year.

So I'll leave the rest of the details on the quarter, then Jay and for the rest of the night time.

For the quarter.

Let's turn to some of the general themes that we've talked about before which is the commitment we are making.

Key to invest behind the strong positions, we have and the numerous strong opportunities that we see.

The investments this quarter or for the most part in the same areas that our investments are typically which is as you know your head count and junior headset and I'll talk to that.

But in this quarter you'll notice. In addition, we have invested heavily in SG&A in a way that we haven't over the last several years. So I want to give you a flavor of that as well.

Let's start with the senior headcount in junior head count with respect to senior head Count I'm, hoping you saw this quarter, we announced the hiring of 33, new senior professionals at the <unk> level.

Which is on average over 50% above the even impressive levels that we've been achieving the last few years.

This quarter, we had particular success at the MB level. We are now three times as many hires as we had.

The second quarter of last year.

Our success release hiring effort is critical because as we've discussed several times, even with all the promotions were making reaching a sort of a bold aspiration to I have and our teams have required ongoing success in attracting great senior people laterally as well.

So very gratified to see yet another powerful quarter for net hiring.

Importantly that hiring is happening across multiple geographies.

As we've discussed this year, we are in particular investing heavily in a number of areas, where we've historically werent as strong like France, Germany, Italy, the Netherlands, and UAE, all of which reflect our strong commitment to deepen our penetration in EMEA region as well as the strength of the leadership now out there that we can invest behind.

But equally important.

Continuing to have great opportunities to hire strong people elsewhere among those numbers for this quarter, we've hired great senior professionals.

Hey.

Realia, Mexico, China, and other places all of which reflect the strength of our brand among leading professionals each of those markets and our belief that we have opportunities in every segment.

And every geography.

So a lot of senior hiring was one of the investment areas this quarter.

Behind the senior investments also hired less tenured people.

People junior people, who can grow and develop in their own rights, some senior people and people who can support the.

The senior people today.

Overall, our head count is up just under 10%, which is generally in line with our aspirations and on top of that this fall we're going to welcome the largest campus hire groups that we've had by far reflecting the commitment we've made and the success with.

In building our presence on campus and our commitment to growing that most core source of organic growth, which is hiring great people at the most junior levels and then developing them up through the ranks.

So a good part of our investment this quarter was in the same form as we've had in the past great senior hires great Junior hires right people behind us.

But what's a little different about this quarter than some recent quarters. We've also made major investments in SG&A.

Let me go into that for a bit.

As we've discussed I think we did a terrific job during COVID-19 maintaining connectivity remotely we put in place tools to help like teams and zoom.

But more important than those tools and processes. Our people made incredible efforts to support our clients through difficult times to remain connected emotionally to each other during the height of COVID-19.

So I think we did a great job.

But in my experience any high powered professional services firm that works on the sort of high Stakes complex matter, but we do need when you tend to invest in face to face connection among our people.

I don't think we're ever going to go back to the old days, where everybody is in the office or at a client site five days a week.

Sometimes seven days a week.

Nor do I think a pure virtual reality makes sense for a company like this which deals with sets of issues.

Major and the stakes are high.

Given that and since we've had so little face to face contact in the last few years. This year, we are consciously making major efforts to re establish that connectivity and that showed up particularly this quarter.

Let me give you a few examples on our last call we talked about how in April we hosted the first all SMB meeting that we've had in almost three years and how energizing networks.

Didn't mention was our enthusiasm the attendance was for that we have a person on our team new ethos ranges everything for that meeting and all the hotel room. He never plan and we ended up running out of hotel space from GE, and we had to scramble and thats wounds that nearby hotels up space for everyone.

It was a major investment as an example, we also made investments like this in a disaggregated way by segment by sub segment in our region throughout the quarter.

And our teams in TMT Ci capital advisors, and real estate each folks fifth major in person meetings some of them gathering the entire global team.

Our tech business development team posted their first in person sales kickoff in over two years.

To me and Im sure. Many of you it's ridiculous to think about having a sales pick up only once every three years theres. So much motivation that comes from an in person meeting with salespeople get together.

Only share best practices, but sure energy and though some of that can be done virtually nothing can replace the energy level you'd get from Cabot.

Cabot in person, but.

I was pleased we were able to return to that sort of event this quarter and similarly in econ LLC tax teams in EMEA and Australia, each other the way base for professionals.

And Thats at the segment and region level. In addition.

We brought back in person talent development training programs. For example, we've historically hosted annual milestone programs for newly hired and promoted professionals and we've done that.

Face to face.

Our firm, we were not able to do that during COVID-19.

We were able to bring them back in person this year.

So the SG&A this quarter reflects in particular, our commitment to increase in first in connectivity, but it also reflects some other things as well, including more travel in person client meetings and proposals as Judy will talk higher airfares and so forth, but also more investment in infrastructure you can't hire all the people we hire.

This quarter.

With our recruiters to do the actual hiring.

And in particular, when you have new geographies, you need those recruiting professionals to be able to speak the local language.

So in many of these new geographies, we made significant investments and not just been recruited.

Finance marketing legal professionals need to support those businesses. So.

So we invest in travel and connectivity, but also in infrastructure.

Those major SG&A expenses are obviously in the classic accounting.

<unk>.

Expensive.

But I also believe they appropriately thought of as investments.

They are critical partners, making sure we continue to attract great people.

And then once we do we support their development and the support and maintain and build upon the culture and a firm that has led to the success of this firm over the last years that has turned this firm into one that is today ever.

Ever more powerful be able to deliver.

Each other in terms of our professional development, but most critically for our clients as well.

And behind those investments is a deeper conviction that we've talked about a number of times, which is as much success as we have had.

I believe we are in the early innings there.

There are powerful market opportunities in front of every segment and every geography.

And there are always new adjacencies to attack the most critical gating factor for our growth is not the market. It is finding the right people retaining them supporting their development supporting the best professionals. So they can become the best versions of themselves.

As long as we do that and along with that support the continued conviction of the right attitudes in the right capabilities the commitment to clients first and foremost.

We will be continue to be able to seize those opportunities as we find them and as they arise and if we do the opportunities for our people.

We'll be as bright as they have ever been but also the power for our clients will continue to grow and shine through into the marketplace.

And so both of those.

<unk> for you our shareholders will continue to be terrific.

So with that in mind, let me turnover.

Page to object.

Thank you, Steve and good morning.

Hello, 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 second quarter results.

Today, we reported yet another quarter of record revenues with six 1% year over year growth.

Without the negative FX impact from the strengthening of the U S. Dollar revenues grew nine 2% compared to the prior year quarter.

We also continued to invest in capacity globally, our billable head count grew nine 4% year over year and total head count grew nine 9%.

As we expected.

Earnings per share declined year over year, because revenue growth was more than offset by an increase in SG&A and direct compensation costs.

I want to acknowledge at the outset that this year over year decline was larger than our expectation for three key reasons.

First in our economic consulting segment, we had a significant deferral in revenue as all client approvals required for revenue recognition for certain matters had not yet been received.

This factor is merely timing of revenue recognition.

We expect this revenue to be recognized in the third quarter.

Second we anticipated an increase in SG&A expenses, because we are investing in infrastructure to support a larger business.

And SG&A was depressed in prior quarters because of the global COVID-19 pandemic.

However, travel and entertainment expenses were even higher than we expected not only due to inflationary impacts on cost such as air fare in hotels, but also as Steve mentioned because of pent up desire to meet in person.

Third.

Large M&A activity is down year over year, which impacts our economic consulting and technology segments.

As a reminder, last year, we benefited from large M&A related engagements that have since concluded.

There are also pockets within our forensic and litigation consulting business, where work involving our litigation related services has been slower to get started than we expected.

Conversely, though we had better than expected performance in our corporate finance and restructuring segment.

Over the last two quarters, we have seen sequential increases in restructuring activity without any let up in our transactions and business transformation businesses.

As Steve mentioned, we are reiterating our guidance for the full year, despite the lower than expected second quarter performance.

Now turning to our second quarter results in more detail revenues of $755 million increased $43 5 million compared to $711 5 million in the prior year quarter, excluding FX revenues increased $65 5 million or nine 2% compare.

To the prior year quarter.

GAAP EPS of $1 43, and <unk> through 'twenty, two compared to $1 77, and <unk> 21, adjusted EPS for the quarter were $1 43, which compares to $1 74 in the prior year quarter.

Net income of $51 4 million.

Compared to $62 $8 million in the prior year quarter. This decrease is primarily because the six 1% growth in revenues was not sufficient to offset the increase in SG&A and compensation expenses.

SG&A expenses of $167 9 million or 22, 2% of revenues. This compares to SG&A of 139, one $133 9 million or 18, 8% of revenues in the second quarter of 2021.

Approximately half of the year over year increase in SG&A expenses was due to higher travel and entertainment expenses.

As Steve mentioned this quarter, we hosted many in person events for talent development team building and marketing and business development purposes.

Higher compensation and consulting expenses made up most of the rest of the year over year increase.

In EMEA.

In particular, we are adding employees to support a larger business in the areas such as recruiting HR finance and legal.

First quarter 2022, adjusted EBITDA of $1, $76 2 million or 10, 1% of revenues compared to $92 3 million or 13% of revenues in the prior year quarter.

Our second quarter effective tax rate of 26% compared to 19, 3% in the priority of quarter.

For the balance of 2022, we expect that effective tax rate to be between 22 and 25%.

Fully diluted way. So Q2 of 35 9 million shares increased 535000 shares compared to 35 4 million shares and $2 21, primarily because of the diluted impact of arc.

Invertible notes.

Our convertible notes had a potential dilutive impact on EPS of approximately one 2 million shares for the quarter included <unk> ratio as our average share price of $164 97, this past quarter was above the $101.38.

Conversion threshold price.

Billable headcount increased by 482 professionals are 94% compared to the prior year quarter non billable head count increased by 155 professionals are 12% for the same period.

Now I will share some insights at the segment level and corporate finance and restructuring revenues of $277 $1 million increased 20% compared to the prior year quarter.

Excluding the estimated negative impact from FX revenues increased 22, 7%. The increase in revenues was primarily due to higher demand and realized rates across our transactions business transformation and restructuring services as well as an increase in pass through revenues in <unk>.

Success fees compared to the prior year quarter.

Adjusted segment EBITDA of $55 million or 19, 8% of segment revenues compared to $40 2 million or 17, 4% of segment revenues in the prior year quarter.

Adjusted segment EBITDA increased due to higher revenues, which was partially offset by higher compensation, which includes the impact of an eight 4% increase in billable headcount and higher SG&A expenses.

Business transformation and transactions represented 60% of segment revenues, while restructuring represented 40% of segment revenues this quarter.

This compares to 56% for business transformation and transactions and 44% for restructuring and <unk> of 'twenty one.

Year over year business transformation and transactions grew 27% and restructuring revenues grew 11%.

On a sequential basis revenues increased nine 4%, primarily driven by an increase in demand for transactions and restructuring services.

Sequentially restructuring revenues grew 9%, primarily resulting from improved demand in North America.

Adjusted segment, EBITDA improved $1 $4 million as higher revenues were partially offset by annual merit increases and higher SG&A expenses.

Turning to <unk> revenues of $164 $2 million increased 9% compared to the prior year quarter. Excluding the estimated negative impact from FX revenues increased 10, 8%. The increase in revenues was primarily due to higher demand for our health solutions.

Services and higher realized rates for our investigation services.

Adjusted segment EBITDA of $16 7 million or 10, 2% of segment revenues compared to $18 million or 11, 9% 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 seven 9% increase in billable headcount and higher SG&A expenses.

Sequentially revenues increased six 7%, primarily due to increased demand for health solutions services.

Our economic consulting segment revenues of $164 million decreased 10, 5% compared to the prior year quarter.

Excluding the estimated negative impact from FX revenues decreased six 6%.

The decrease was primarily due to lower demand for our M&A related antitrust services.

And.

Lower realization primarily related to revenue deferrals or non M&A related antitrust services.

Which was partially offset by higher demand for such non M&A related antitrust services.

Adjusted segment EBITDA of $21 6 million or 13, 2% of segment revenues compared to $37 million or 16, 7% of segment revenues in the prior year quarter.

The decrease in adjusted segment EBITDA was due to lower revenues and higher SG&A expenses, which was partially offset by lower variable compensation.

Off note.

As I mentioned before.

Our economic consulting segment experienced more than the typical revenue recognition deferrals in the quarter, which negatively impacted the segment's performance for revenues and adjusted EBITDA.

Revenue was deferred on work already undertaken as certain client approvals necessary for revenue recognition had not yet been obtained.

We expect these deferrals to be reversed in the third quarter of 2022 as all conditions for revenue recognition are met.

Sequentially revenues decreased one 2%, primarily due to lower realized rates and demand for financial economic services.

Excluding FX revenues increased one 2%.

In technology revenues of $77 $8 million decreased one 1% compared to the prior year quarter.

Excluding FX revenues increased one 4%.

The increase in revenues was primarily due to increased demand for information governance privacy and security and investigation services, which was partially offset by lower demand for litigation and M&A related second request services.

Adjusted segment EBITDA of $8 4 million or 10, 8% of segment revenues compared to $18 5 million or 23, 5% of segment revenues in the prior year quarter.

The decrease in adjusted segment EBITDA was due to higher compensation.

Which includes the impact of an 18, 2% increase in billable head count.

And an increase in as needed contractors as well as higher SG&A expenses.

Sequentially revenues decreased three 4%, primarily due to decreased demand for M&A related and litigation services at.

Adjusted segment EBITDA declined $5 million.

Which was due to lower revenues, coupled with higher compensation expenses.

Revenues in strategic Communications segment of $71 9 million.

Increased 6% compared to the prior year quarter.

Excluding the estimated negative impact from FX revenues increased 11, 7%. The increase in revenues was primarily due to higher demand for our corporate reputation services compared to the prior year quarter at.

Adjusted segment EBITDA of $11 5 million or 16% of segment revenues compared to $13 5 million or 19, 9% 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 13, 7% increase in billable headcount and higher SG&A expenses.

Sequentially revenues increased two 7% primarily due to higher demand for financial communication services adjusted segment EBITDA decreased $4 2 million.

As the increase in revenues was more than offset by higher compensation and SG&A expenses.

Now, let me discuss key cash flow and balance sheet items, we generated net cash from operating activities of $35 million, which decreased $96 million compared to $125 6 million in the second quarter of 2001, the year over year decrease was largely due to higher compensation.

<unk> operating expenses and income tax payments as well as a decrease in cash collections compared to the same period last year.

We generated free cash flow of $22 million in the quarter.

Total debt net of cash of $65 million on June 30 of <unk> 22, compared to $159 4 million on June 30 of 'twenty, one and $60 1 million at March 30 fiscal 'twenty two.

Turning to guidance, we are reaffirming our full year 2022 guidance ranges for revenues and EPS as we expect performance in the second half of the year to be stronger than the first half.

We expect revenues will range between $2 92 billion and $3 <unk> 5 billion.

EPS is expected to range between $6 40 and.

$7 20.

We do not currently expect EPS and adjusted EPS to differ.

Before I close I want to emphasize a few key themes.

First as mentioned earlier.

We have seen an uptick in restructuring activity.

Particularly in North America.

But as of yet we have not seen an associated uptick in other geographies.

We have the world's leading team of restructuring experts, who are now better positioned than ever before to support any such increase in activity when it occurs globally.

Second our business has a diverse set of offerings across both geographies and services in this quarter in particular.

We had terrific performance in our health solutions business within our <unk> segment, and information governance privacy and security in our technology segment, and our corporate reputation business on strategic communications and in the Middle East.

Third we are the go to destination for leading talent in our practice areas, thereby giving us the ability to sustain growth over time and finally, our balance sheet remains exceptionally strong and we have the ability to boost shareholder value through share buybacks.

Organic growth and acquisitions, when we see the right ones with that let's open the call up for your questions.

Thank you we will now begin the question and answer session.

To ask a question you May press star and one on your Touchtone phone.

If you are 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 for a moment to assemble roster.

And our first question today will come from Andrew Nicholas of William Blair. Please go ahead.

Hi, good morning, Thanks for taking my questions.

Thanks Darren.

Yes.

Thank you. Thank you may.

And maybe maybe to start.

Following up on the last thing you said about kind of not having seen a pickup in restructuring outside of North America.

What's your sense for kind of what's what's driving that is it.

And what kind of visibility do you have if any to that eventually buying outside the U S. Just kind of curious about the different dynamics impacting that end market.

Andrew The U S is more marked we can see it in the number of matters coming in and number of pitches and so on and so forth.

Look I think it's a matter of time, but I can't predict that pain.

And we certainly have all the visibility in the world we are the leading practice.

So.

I just didn't want us to get ahead of ourselves.

Sure.

And in terms of the business and.

Transformation in transactions pipeline seems like that.

Continued to grow quite nicely.

I'm wondering.

What the underlying drivers of that are you seeing any success primarily in the mid market. I know you mentioned large scale M&A is starting to slow in other segments, but maybe a little bit more color on the pipeline and the market backdrop, there and then somewhat relatedly and I apologize for the lengthy question here, but.

Hoping you could kind of opine on.

The mix shift going forward from restructuring to BTT.

How long can can a quarter like this the second quarter last where youre seeing really good growth.

In both.

At some point would you expect that to flip further enough kind of share gains going on under the Hood within BTG, where you think there can be a period of both.

Those sub businesses growing thank you.

Let me take a crack at that as something we talked about actively maybe Jay will add to it or.

Previous degree a few if you have a different view, but look I think I think you've hit on a good point look at a macro level some of the forces that trigger.

Restructurings and bankruptcies should negatively affected some of the other parts of that business right at the macro level interest rates go up.

Yields the decline.

Merger integration to decline or for financial due diligence decline et cetera.

You would expect at a macro level that those those macro forces with cuts in favor of one versus the and against the other the other hand, we're not just.

Yes.

Both.

Building on the side anymore. I mean, we now have people who are actively gaining market share in the.

And in the non restructuring set of businesses and so even if the market goes down the question is how much.

The way it goes down but you are at with your waste flows but your engine.

Telling you.

The net of those two so that's one.

One thing that we think about a lot and then the second thing is to your point we're not.

Equally in all parts of the market are more middle market or upper middle market oriented than the Mega deal in CF.

<unk>.

And I Trust business, we tend to focus on the Mega deals.

<unk>.

In our.

Transformation services, we are more working with private equity firms on the midmarket or upper mid market deal and as you noticed in the markets today.

The middle market is more strong continued strong this year than that.

The largest sector yet so I think the question you are raising is how do all of those factors balanced out.

We're hopeful that this quarter is not an anomaly that we can continue.

To see a growth in restructuring and maintain.

I think we believe we can maintain some strength for sure in the transformation services, whether we can be impervious to the market I don't think any of us know.

At least talk to the question.

Andrew.

Yes, no that's very helpful. Thank you.

Hope youre, gaining some vacation this summer.

And our next question today will come from Tobey Sommer with tourists Securities. Please go ahead with your question.

Thank you good morning.

Good morning.

Could you speak to that.

The impacts that you either are seeing or anticipate.

Associated with the big four firms or at least some of them considering splitting their auditing and consulting businesses.

Yeah look that's that's the subject of some discussion.

I would say as of right now its modest impact I mean, we've had a little bit of increase in.

And.

That seems like a little bit of increase in reach outs from some people within a couple of the firms who.

As you know we've been having a lot of conversations with lots of other forms of laterals you want to comment.

East Valley seem to monitor an uptick in that in the last month or so.

Some of the noise happens there, but we don't know how.

What that trend I mean in general I think this is going to play out over a very long period of time right. I mean, if you look at any analogous fields. These do not happen instantaneously.

They don't happen at the end of the day I mean, these are complicated things to fall.

And.

And Im sure. This one will be complicated as well. So I think this is a story that's going to unfold over.

Quarters not days.

I think thats, what we are seeing look I think.

If you look at historical experience these things tend not to happen without some friction.

And we've already been seen as a very good destination for terrific talent from the big four around the world we suspect this flow.

Anything to add to that momentum, but it could have a dampening effect near term at the senior most level.

We're waiting to see whether they're going to have a day.

Most typically the outflow from companies when this happened and to be at the level below the partner level and Thats actually where we're seeing that.

Bit of a spike up in inquiries at this point in time. So we're monitoring it I mean look I think our job is to focus on building our business.

If we.

A great job of building our business attracting great people when they come seeing them succeed the word gets around on that and that causes lots of other people to come and so although we're monitoring with our primary focuses.

In doing the right things for our business and then monitoring and see what opportunities come along but we would suspect that it'll be a process.

That we're going to actively be monitoring over the next.

Many months.

Good question does that at least talk to the question Tobey.

Does with us.

I'm curious what's your.

What are your thoughts around what has been sort of a sluggish rebound.

In SLC.

Hole.

You highlighted some areas of strength, but.

<unk>.

I would've thought based on what I've heard from other players around.

Sure.

Throughput normalizing that the business would be operating at a higher level by now.

Yes look I think some parts of our business are a little bit behind where I thought they'd be.

Monitor to see if those are temporary phenomenon, but I think some of what you are saying I agree with and certainly this quarter didn't meet the expectations of the leadership team and those that segment, but I do want to let me put that a little bit of context in two ways. I mean, some of the weakness is really just the investments we're making.

And at a level, we never have.

And particularly in India, but also in some of our other practices because we have leadership now that we believe we can so that was.

Beyond that there was some weakness in some businesses.

Thanks.

Strong businesses and that had some historical weakness in our construction business is a great business with strong normally and I think that's a temporary thing.

Let me zoom out for a second here I think.

This is a really powerful business for us and if you really looked at it for a period of a decade.

It didn't it didn't grow.

What we've done over the last few years with new leadership team is invest heavily.

Ill turn this back into a growth engine.

And then when you get hit by Covid and all of that because a lot of noise, but if you look within that.

We have proven our ability to grow that business.

The cyber business, which we had nothing we invested in and now we have really a terrific terrific cyber business, our data analytics businesses continued to grow around the world and it's a key to some of the biggest job for winning around the world Health solutions.

Active case during COVID-19 in the midst of being a basket case, they doubled almost double the number of SMB.

As investments and doubled the number of at close to double the number of head count.

And now that business is sorry, so we have proven that when you have the right teams and the best behind them over time that grows and we have a leadership team committed to for I believe the prospects for this business is a terrific terrific, but yet for sure this quarter wasn't that bad.

Is that to your question.

It does thank you.

From a.

Sort of a medium term perspective, you talked about investments a decent amount.

Q&A and revenue generating folks.

How do you think about.

Incremental margin between your U S operations and your international operations over I'm, not asking for guidance, but over some decent stretch for quarters and years.

Or they may have more precise answers I've always resisted.

Setting.

Long term EBITDA percent targa.

Targets.

Because.

I think what you have to do is.

Make sure you're investing enough behind with people and the growth potential on all the way we are investing of course, it will hit the EBITDA right and if you buy a company it doesn't that EBITDA you hire laterally people, who have noncompete, so non solicit get disrupted.

That is EBITDA higher junior people ahead of demand that EBITDA, you'll do this SG&A is EBITDA and so the way we're investing it hits in PFS and we have great investment opportunities I want to go after that even if temporarily depresses the EBITDA margins and so resisted giving EBITDA percent I think when we do that.

You get with Zig zag with the store with big guys.

Over time, you can get significant EBITDA dollar growth.

And we do it without financial shenanigans is not because youre doing financing things are weird things, because youre actually making the business stronger and then and then because of that your EPS growth and create shareholder value and so I am very focused on creating shareholder value, but I would not.

Of note resisted getting locked into any particular EBITDA percentage targets, because I don't want to ever ever pass up an ability to create a great group of people.

Or at least the press or our EBITDA percentage.

Is that at least respond if not satisfied your question.

I was trying to.

That's helpful perspective, but I was kind of aiming more towards.

The incremental margin between your North American U S business and international comparing contrasting what you talked about investing internationally.

But.

Should we be able to get sort of.

Differentiated kind of margin going forward as those businesses get scale. So that I was aiming for a different angle.

I'll just say this and then maybe I'll do lag there are certain places on the continent of Europe , where our investments are negative EBITDA right now and we do not anticipate them being negative EBITDA.

In the future. The reason I gave you that caveat environment.

Return, France that some business in France, it's investing in into profit margins you may choose to say, okay. We should go into market X or y and lose money there and so the aggregation, but yes, absolutely. We're we're investing today.

EBITDA margin almost by definition, where we're saying we're investing heavily.

EBITDA margins there are low our long term expectations does that does that more directly respond to what you are saying.

It does thank you very much.

Thank you.

Okay.

And ladies and gentlemen at this time, we will conclude the question and answer session and we will also conclude FTR consulting second quarter 2022.

Our next conference call.

Thank you for your support.

Thank you.

Thank you all for attending today and you may now disconnect your lines.

Okay.

[music].

Welcome to the F T I consulting second quarter 2022 earnings conference call, all participants will be in 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 and then one on your telephone keypad.

To withdraw your question. Please press Star then two please note that this event is being recorded at all but now like to turn the conference over to Mollie Hawkes Vice President of Investor Relations. Please go ahead.

Good morning, welcome to the F. B I think belting conference call to discuss the company's second quarter 2022 earnings results as reported this morning.

Matt 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 1930 for that.

Involve risks and uncertainties.

Forward looking statements include statements concerning plans objectives goals strategies future events.

Revenue future results and performance.

They've been 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 thoughtful including statements regarding estimates of our future financial results and other matters.

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 other reconciliations of non-GAAP financial measures and 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.

Of note during today's presentation 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 they have historically.

With these formalities out of the way I'm joined today by Steven Gunby, Our President and Chief Executive Officer, and I'll go to Sabra 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 Molly.

Everyone. Thank you all joining us this morning.

This quarter.

All quarters, there are lots of puts and takes in our results that the disaggregated levels the segments the regions subregions.

So I will as usual, let RJ talk to those in some detail.

So let me talk to the macro level the.

The macro level the results were for the first time in a while.

A bit below my expectations.

Important however, I want to underscore that that shortfall was primarily due to the sort of quarterly noise, but our business is often subject to whether revenue deferral, FX remeasurement gains or losses taxes, the timing of success fees et cetera.

I have looked into this extensively in the bottom line for me about this quarter is nothing about this quarter changes my son.

Our sense of the prospects for the medium term and the long term or for this year. So.

So as RJ, who will talk about we are reaffirming our guidance for this year.

So I'll leave the rest of the details on the quarter, then RJ and for the rest of the night time.

For the quarter.

We turned to some of the general themes that we've talked about before which is the commitment we are making.

Key to invest behind the strong positions, we have and the numerous drilling opportunities that we see.

The investments this quarter or for the most part in the same areas that our investments are typically which is as you know senior head count and junior head count and I'll talk to that.

But in this quarter you'll notice. In addition, we have invested heavily in SG&A in a way that we haven't over the last several years. So I want to give you a flavor of that as well.

Let's start with the senior headcount in junior head count with respect to senior head Count I am hoping you saw this quarter, we announced the hiring of 33, new senior professionals at the MD and F&B level, which.

Which is on average over 50% above that even impressive levels that we've been achieving the last few years.

This quarter, we had particular success at the MB level, where you are now.

Three times as many hires as we did in the second quarter of last year.

Our success release hiring efforts is critical because as we've discussed several times, even with all the promotions, we are making reaching a sort of bold aspiration to I have and our teams have required ongoing success in attracting great senior people laterally as well.

So im very gratified to see yet another powerful quarter and they're hiring.

Importantly that hiring is happening across multiple geographies as.

As we've discussed this year, we are in particular investing heavily in a number of areas, where we historically werent as strong like France, Germany, Italy, the Netherlands, and the UAE all of which reflect our strong commitment to deepen our penetration in EMEA region as well as the strength of the leadership now out there that we can invest in time.

But equally important we are.

Continuing to have great opportunities to hire strong people elsewhere. Among those numbers for this quarter, we hired great senior professionals in the United States.

Yes.

Failure, Mexico, China, and other places all of which reflect the strength of our brand among the leading professionals each of those markets and our belief that we have opportunities in every segment and every geography.

So a lot of senior hiring was one of the investment areas this quarter.

Behind the senior investments would also hired less tenured people.

People junior people, who can grow and develop in their own rights become senior people and people who can support.

The senior people today.

Overall, our head count is up just under 10%, which is generally in line with our aspirations and on top of that this fall we're going to welcome the largest campus higher group that we've had by far reflecting the commitment we've made and the success. We've had in building our presence on campus and our commitment to growing that most core source of organic growth, which is high in great.

What's the most junior levels than developing them up through the ranks.

So a good part of our investment this quarter was in the same form as we've had in the past great senior hires great Junior hires right people behind us.

Okay.

But what's a little different about this quarter than some recent quarters. We've also made major investments in Q&A.

Let me go into that for a bit.

Yes.

As we discussed I think we did a terrific job during COVID-19 of maintaining connectivity remotely.

Put in place tools to help like teams and zoom.

But more important than those tools and processes are people moving credible efforts to support their clients through difficult times through new connected motions to each other during the height of Covid.

So I think we did a great job.

But in my experience any high powered professional services firm that works on the sort of high Stakes complex matters that we do you need when you tend to invest in face to face connection among our people.

Don't think we're ever going to go back to the old days, where everybody is in the office or the clients like five days a week.

Seven days a week.

Nor do I think a pure virtual reality makes sense for a company like this which deals with sets of issues that are major and statements that are high.

Given that and since we've had so little face to face context in the last few years. This year, we are consciously making a major effort to re establish that connectivity and that showed up particularly this quarter.

Let me give you a few examples on our last call we talked about how in April we hosted the first of all it can be meeting that we've had in almost three years and how energizing networks.

And I didn't mention was <unk> the attendance was for that.

We have a person on our team your repos ranges everything for that meeting and all the hotel rooms.

He never plans and we ended up running out of hotel space from key and we had to scramble and that means that nearby hotels up space for everyone.

So it was a major investment as an example, we also made investments like this in a disaggregated way by segment by Subsegment that region throughout the quarter.

Our teams in TMT Ci capital advisors, and real estate each of those major in person meetings some of them gathering the entire global team.

Our tech business development team posted their first in person sales kickoff in over two years.

To me and Im sure. Many of you it's ridiculous to think about having a sales kick off only once every three years theres. So much motivation that comes from an in person meeting with salespeople get together not only share best practices for sure energy and though some of that can be done virtually nothing can replace the energy level yes.

Even in person.

So I was pleased we were able to return to that sort of events this quarter and similarly in econ LLC tax teams in EMEA and Australia. Each other that's been away days for professionals.

And that's at the segment and region level. In addition.

We brought back in person talent development training programs. For example, we've historically hosted annual milestone programs for newly hired and promoted professionals and we've done that.

Face to face to enhance connectivity within our firm we were not able to do that during COVID-19 and I was pleased we were able to bring them back in person this year.

So the SG&A this quarter reflects in particular, our commitments increased in person connectivity, but it also reflects some other things as well, including more traveled infer some client meetings and proposals obviously, they will talk higher airfares and so forth, but also more investment in infrastructure you can't hire all the people we hired.

This quarter.

Our recruiters to do the actual hiring.

And in particular, when you have new geographies, you need those recruiting professionals to be able to speak the local language.

So in many of these new geographies, we've made significant investments and not just in recruiters to investment finance marketing legal professionals can use to support those businesses.

So we invested in travel in connectivity, but also in infrastructure.

Those major SG&A expenses are obviously in the classic accounting.

Expensive.

But I also believe they appropriately thought of as investments.

They are critical partners, making sure we continue to attract great people.

And then once we do we support their development and we support and maintain and build upon the culture and a firm that has led to the success of this firm over the last years, but let's turn this firm into one that is to date ever more powerful was able to deliver for each other in terms of our professional development, but most critically.

<unk> for our clients as well.

And behind those investments is a deeper conviction that we've talked about a number of times, which is as much success as we have had.

I believe we are in the early units.

There are powerful market opportunities in front of every segment.

Every geography.

There are always new adjacencies to attack the most critical gating factor for our growth is not the market. It is finding great people retaining them supporting their development supporting the best professionals. So they can become the best versions of themselves.

One is we did that and along with that support the continued conviction of the right attitudes in the right capabilities the commitment to clients first and foremost.

We will be continue to be able to seize those opportunities as we find them and as they arise and if we do the opportunities for our people.

We'll be as bright as they have ever been but also the power for our clients will continue to grow.

And shine through into the marketplace.

And so both of those.

The results for you our shareholders will continue to be terrific.

So with that in mind, let me turnover.

Page to object.

Yes.

Thank you, Steve and 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 second quarter results.

Today, we reported yet another quarter of record revenues with six 1% year over year growth.

Without the negative FX impact from the strengthening of the U S. Dollar revenues grew nine 2% compared to the prior year quarter.

We also continued to invest in capacity globally, our billable head count grew nine 4% year over year and total head count grew nine 9%.

As we expected.

Earnings per share declined year over year, because revenue growth was more than offset by an increase in SG&A and direct compensation costs.

I wanted to knowledge at the outset that this year over year decline was larger than our expectation for three key reasons.

First in our economic consulting segment, we had a significant deferral in revenue.

Has all client approvals required for revenue recognition for certain matters had not yet been received.

This factor is merely timing of revenue recognition, we expect this revenue to be recognized in the third quarter.

Second we anticipated an increase in SG&A expenses, because we are investing in infrastructure to support a larger business.

And SG&A was depressed in prior quarters because of the global COVID-19 pandemic.

Third.

Large M&A activity is down year over year, which impacts our economic consulting and technology segments.

As a reminder, last year, we benefited from large M&A related engagements that have since concluded.

There are also pockets within our forensic and litigation consulting business, where.

Work involving our litigation related services has been slower to get started than we expected.

Conversely, though we had better than expected performance in our corporate finance and restructuring segment.

Over the last two quarters, we have seen sequential increases in restructuring activity without any let up in our transactions and business transformation businesses.

As Steve mentioned, we are reiterating our guidance for the full year, despite the lower than expected second quarter performance.

Now turning to our second quarter results in more detail revenues of $755 million increased $43 5 million compared to $711 $5 million in the prior year quarter, excluding FX revenues increased $65 $5 million or nine 2%.

To the prior year quarter.

GAAP EPS of $1 43, and <unk> 22, compared to $1 77, and <unk> 21, adjusted EPS for the quarter were $1 43, which compares to $1 74 in the prior year quarter.

Net income of $51 4 million.

Compared to $62 8 million in the prior year quarter. This decrease is primarily because the six 1% growth in revenues was not sufficient to offset the increase in SG&A and compensation expenses.

SG&A expenses of $167 9 million or 22, 2% of revenues. This compares to SG&A of 139, and $133 9 million or 18, 8% of revenues in the second quarter of 2021.

Approximately half of the year over year increase in SG&A expenses was due to higher travel and entertainment expenses.

As Steve mentioned this quarter, we hosted many in person events for talent development team building and marketing and business development purposes.

Higher compensation and consulting expenses made up most of the rest of the year over year increase.

In EMEA.

In particular, we are.

Adding employees to support a larger business in the areas such as recruiting HR finance and legal.

Okay.

Second quarter 2022, adjusted EBITDA of $1, $76 2 million or 10, 1% of revenues compared to $92 3 million or 13% of revenues in the prior year quarter.

Our second quarter effective tax rate of 26% compared to 19, 3% in the prior year quarter.

For the balance of 2022, we expect that effective tax rate to be between 22 and 25%.

Fully diluted way so for Q2 of $35 9 million shares increased 535000 shares compared to 35 4 million shares and <unk> 21, primarily because of the diluted impact of our <unk>.

The Bill notes.

Our convertible notes had a potential dilutive impact on EPS of approximately one 2 million shares for the quarter included <unk> as our average share price of $164 97, this past quarter was above the $101.38.

Conversion threshold price.

Billable headcount increased by 482 professionals are 94% compared to the prior year quarter non billable head count increased by 155 professionals are 12% for the same period.

Now I will share some insights at the segment level and corporate finance and restructuring revenues of $277 1 million increased 20% compared to the prior year quarter.

Higher success fees compared to the prior year quarter.

Adjusted segment EBITDA of $55 million or 19, 8% of segment revenues compared to $40 2 million or 17, 4% of segment revenues in the prior year quarter.

Business transformation and transactions represented 60% of segment revenues, while restructuring represented 40% of segment revenues this quarter.

This compares to 56% for business transformation and transactions and 44% for restructuring and <unk> of 'twenty one.

The year over year business transformation and transactions grew 27% and restructuring revenues grew 11%.

On a sequential basis revenues increased nine 4%, primarily driven by an increase in demand for transactions and restructuring services.

Sequentially restructuring revenues grew 9%, primarily resulting from improved demand in North America.

Adjusted segment, EBITDA improved $1 $4 million as higher revenues were partially offset by annual merit increases and higher SG&A expenses.

<unk> and higher realized rates for our investigation services.

Adjusted segment EBITDA of $16 7 million or 10, 2% of segment revenues compared to $18 million or 11, 9% 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 seven 9% increase in billable headcount and higher SG&A expenses.

Sequentially revenues increased six 7%, primarily due to increased demand for our health solution services.

Our economic consulting segment revenues of $164 million decreased 10, 5% compared to the prior year quarter.

Excluding the estimated negative impact from FX revenues decreased six 6%.

The decrease was primarily due to lower demand for M&A related antitrust services.

And.

Lower realization primarily related to revenue deferrals for non M&A related antitrust services.

Which was partially offset by higher demand for such non M&A related antitrust services.

Adjusted segment EBITDA of $21 6 million or 13, 2% of segment revenues compared to $37 million or 16, 7% of segment revenues in the prior year quarter.

The decrease in adjusted segment EBITDA was due to lower revenues and higher SG&A expenses, which was partially offset by lower variable compensation.

Off note as I mentioned before.

Our economic consulting segment experienced more than the typical revenue recognition deferrals in the quarter, which negatively impacted the segment's performance for revenues and adjusted EBITDA.

Revenue was deferred on work already undertaken as certain client approvals necessary for revenue recognition had not yet been obtained.

We expect these deferrals to be reversed in the third quarter of 2020 due as all conditions for revenue recognition are met.

Sequentially revenues decreased one 2%, primarily due to lower realized rates and demand for financial economic services, excluding FX revenues increased one 2%.

In technology revenues of $77 $8 million decreased one 1% compared to the prior year quarter.

Excluding FX revenues increased one 4%.

Adjusted segment EBITDA of $8 4 million or 10, 8% of segment revenues compared to $18 $5 million or 23, 5% of segment revenues in the prior year quarter.

The decrease in adjusted segment EBITDA was due to higher compensation.

Which includes the impact of an 18, 2% increase in billable head count.

And an increase in as needed contractors as well as higher SG&A expenses.

Sequentially revenues decreased three 4%, primarily due to decreased demand for M&A related and litigation services at <unk>.

Segment, EBITDA declined $5 million, which was due to lower revenues, coupled with higher compensation expenses.

Revenues in strategic Communications segment of $71 9 million.

<unk>, 6% compared to the prior year quarter.

Segment, EBITDA of $11 5 million or 16% of segment revenues compared to $13 5 million or 19, 9% 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 13, 7% increase in billable headcount and higher SG&A expenses.

Sequentially revenues increased two 7% primarily due to higher demand for financial communication services adjusted segment EBITDA decreased $4 2 million.

As the increase in revenues was more than offset by higher compensation and SG&A expenses.

Now, let me discuss key cash flow and balance sheet items, we generated net cash from operating activities of $35 million, which decreased $96 million.

Compared to $125 6 million in the second quarter of two <unk> one the year over year decrease was largely due to higher compensation operating expenses and income tax payments as well as a decrease in cash collections compared to the same period last year.

We generated free cash flow of $22 million in the quarter.

Total debt net of cash of $65 million on June 30 of <unk> 22, compared to $159 4 million on June 30 of 'twenty, one and $60 1 million at March 31, 'twenty two.

Turning to guidance, we are reaffirming our full year 2022 guidance ranges for revenues and EPS as we expect performance in the second half of the year to be stronger than the first half.

We expect revenues will range between $2 92 billion and $3 <unk> 5 billion.

EPS is expected to range between $6 40 and seven.

$7 20.

We do not currently expect EPS and adjusted EPS to differ.

Before I close I want to emphasize a few key themes.

First as mentioned earlier.

We have seen an uptick in restructuring activity.

Particularly in North America.

But as of yet we have not seen an associated uptick in other geographies.

We have the world's leading team of restructuring experts, who are now better positioned than ever before to support any such increase in activity when it occurs globally.

Second our business has a diverse set of offerings across both geographies and services in this quarter in particular.

We had terrific performance in our health solutions business within our <unk> segment, and information governance privacy and security in our technology segment, and our corporate reputation business from strategic communications and in the Middle East.

Organic growth and acquisitions, when we see the right ones with that let's open the call up for your questions.

Thank you we will now begin the question and answer session.

To ask a question you May press star and one on your Touchtone phone.

If you are 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 for a moment to assemble our roster.

And our first question today will come from Andrew Nicholas of William Blair. Please go ahead.

Hi, good morning, Thanks for taking my questions.

Thanks Darren.

Thank you. Thank you.

Maybe maybe start.

Following up on the last thing you said about kind of not having seen a pickup in restructuring outside of North America.

What's your sense for kind of what's what's driving that is it.

And what kind of visibility do you have if any to that eventually buying outside the U S. Just kind of curious about the different dynamics impacting that end market.

Andrew The U S is more marked we can see it in the number of matters coming in and number of pitches and so on so forth.

Look I think it's a matter of time, but I can't predict that time.

And we certainly have all the visibility in the world we are the leading practice.

So.

I just didn't want us to get ahead of ourselves.

Sure.

And in terms of the business.

Transformation in transactions pipeline seems like that.

Continued to grow quite nicely.

I'm wondering.

Hoping you could kind of opine on.

The mix shift going forward from restructuring to BTT.

How long can can a quarter like this the second quarter last where youre seeing really good growth.

In both at some point would you expect that to flip further enough kind of share gains going on under the hood within BTG.

There can be.

Period of both of those sub businesses growing thank you.

Let me take a crack at that it's something we've talked about actively maybe Jay will add to it or.

Previous degree a few if you have a different view, but look I think I think you've hit on a good point look at a macro level some of the forces that trigger.

Restructurings and bankruptcies should negatively affect some of the other parts of that business right at the macro level interest rates go up we expect yields to decline therefore, the need for merger integration to decline or for financial due diligence decline et cetera.

You would expect at a macro level that those those macro forces with cuts in favor of one versus the year and against the other the other hand.

Not just.

Yes.

Both.

Building on the site anymore. I mean, we now have people who are actively gaining market share in in the.

And the non restructuring set of businesses and so even if the market goes down the question is how much.

The wave goes down but youre.

Waste flows, but your engine propelling new.

Net of those two.

One thing that we think about a lot and then the second thing is to your point we are not.

Equally in all parts of the market with our more middle market or upper middle market oriented than the Mega deal in Mcf.

And I Trust business, we tend to focus on the Mega deals.

<unk>.

In our.

Transformation services, we are more working with private equity firms on the mid market or upper mid market deals and as you noticed in the markets today.

Yes.

The middle market is more strong continued storm this year than the than the largest set of deals. So I think the question you're raising is how to all of those factors balanced out.

We're hopeful that this quarter is not an anomaly that we can continue to see a growth in restructuring and maintain.

I think we believe we can maintain some strength for sure in the transformation services, whether he can be impervious to the market I don't think any of us know.

At least talk to the question.

Andrew.

Yes, no that's very helpful. Thank you.

Thanks.

Hope youre getting some vacation in the summer.

And our next question today will come from Tobey Sommer with tourists Securities. Please go ahead with your question.

Thank you good morning.

Good morning.

Could you speak to.

The impact that you either are seeing or anticipate.

Associated with the big four firms or at least some of them considering splitting their auditing and consulting businesses.

Yeah look that's that's the subject of some discussion.

I would say as of right now its modest impact I mean, we've had a little bit of increase in.

And.

Seems it seems like a little bit of increase in reach outs from some people within a couple of the firms who.

As you know we've been having a lot of conversations with lots of other forms of laterals you want to comment.

East Molly seem to monitor an uptick in that in the last month or so.

Some of the noise happens there, but we don't know how.

What that trend is I mean in general I think this is going to play out over a very long period of time right. I mean, if you look at any analogous fields. These do not happen instantaneously.

They don't happen at the end of the day. These are complicated things to pull off.

And.

And Im sure. This one will be complicated as well. So I think this is a story that's going to unfold over.

Quarters not days.

I think thats slowly or who are saying look I think.

If you look at historical experience these things tend not to happen without some friction.

And we've already been seen as a very good destination for terrific talent from the big four around the world We suspect this globe.

Anything to add to that momentum, but we could have a dampening affect near term at the senior most level.

People are waiting to see whether they're going to have a base. Most typically the outflow from companies when this happened and to be at the level below the partner level and Thats actually where we're seeing that.

Bit of a spike up in inquiries at this point in time. So we're monitoring it I mean look I think our job is to focus on building our business.

If we do a.

A great job of building, our business, attracting great people and a.

Come seeing them succeed the word gets around on that.

There's lots of other people to come and so although we are monitoring. This our primary focus has always been which is doing the right things for our business and monitoring and see what opportunities come along but we would suspect that will be a process.

We're going to actively be monitoring over the next.

Many months so it could be.

Good question does that at least talk to the questions.

Does with us.

I'm curious what's your.

What are your thoughts.

Our own.

Has been sort of a sluggish rebound.

SLC.

Joel.

You highlighted some areas of strength, but.

Sure.

I would've thought based on what I've heard from other players around.

Court.

Throughput normalizing that the business would be operating at a higher level by now.

Yes look I think some parts of our business are a little bit behind where I thought they'd be in there.

Monitor to see I think those are temporary phenomenon, but I think some of what you are saying I agree with and certainly this quarter with meet the expectations of the leadership team and those that segment, but I do want to let me put that a little bit of context in two ways.

Some of the weakness is really just an investment we're making I mean, we're investing at a level we never have.

And particularly in India, but also in some of our other practices because we have leadership now that we believe we can so that was.

Beyond that there were some weakness in some businesses.

Our strong businesses and just had some historical weakness in our construction business, which is a great business for us.

Normally and I think that's a temporary thing.

Zoom out for a second here I think.

This is a really powerful business for us and if you really looked at it for a period of a decade.

It didn't didn't grow.

And what we've done over the last few years with new leadership team is invest heavily.

Ill turn this back into a growth engine.

And then you get hit by Covid and all of that there's a lot of noise, but if you look within that.

We have proven our ability to grow that business.

The cyber business, which we had nothing we invested in and now we have really a terrific terrific cyber business. Our data analytics business has continued to grow around the world and it's a key to some of the biggest job for winning around the world Health solutions.

Advocate case during COVID-19 in the midst of being a basket case, the doubles are almost double the number of SMB.

As investments and doubled the number of at close to double the number of head count.

And now that business is sorry, so we have proven that when you have the right teams and invest behind them overtime that grows and we have a leadership team committed to high believes the prospects for this business are terrific terrific, but for sure. This quarter weapons diverse does that it's up to your questions.

It does thank you.

From a.

Sort of a medium term perspective, you talked about investments a decent amount SG&A and revenue generating folks.

How do you think about it.

Incremental margin between your U S operations and your international operations over I'm, not asking for guidance, but over some decent stretch of quarters and years.

RJ may have more precise answers I've always resisted.

Setting.

Long term EBITDA percent.

<unk> targets.

Because.

I think what you have to do is.

Make sure you're investing enough behind the people and the growth potential on all the way, we're investing and of course, it will hit the EBITDA right and if you buy a company. It doesn't hit EBITDA you hire laterally people, who have non compete and non solicit get disruptive.

That is EBITDA higher junior people ahead of demand at the EBITDA and do this SG&A. It is EBITDA and so the way, we're investing it hits and PFS and if we have great investment opportunities I want to go after that even if temporarily depresses the EBITDA margins and so resisted giving EBITDA percent I think when we do that.

You would get with the Zig zag with restore with Zig Zag.

Over time, you get significant EBITDA dollar growth.

And we do it without financial shenanigans is not because youre doing financing things are weird things that because youre actually making the business longer and then and then because of that your EPS growth and you create shareholder value and so I am very focused on creating shareholder value, but I would not have been.

Resistance getting locked into any particular EBITDA percent target because I don't want to ever.

Ever pass up an ability to create a great group of people.

We will temporarily depress our our EBITDA.

Does that at least respond if not satisfied your question.

I was kind of.

That's helpful perspective, but I was kind of aiming more towards.

Incremental margin.

<unk> your North American U S business into international compare and contrast them can you talk about investing internationally.

But.

Should we be able to get sort of.

Differentiated kind of margin going forward as those businesses get scale. So I was aiming for a different angle.

Well I'll just say this and then maybe I'll do lag there are certain places on the continent of Europe , where our investments are negative EBITDA right now and we do not anticipate them being negative EBITDA in.

In the future. The reason I gave you that caveat environment longer view.

Return France.

But some business in France with investing in into profit margins you may choose to say, okay. We should go into market X or y and lose money there and so the aggregation, but yes, absolutely. We're we're investing today.

EBITDA margin almost by definition, where we're saying we're investing heavily.

EBITDA margins there are below our long term expectations does that does that more directly respond to what youre, saying.

It does thank you very much.

Thank you.

Okay.

And ladies and gentlemen at this time, we will conclude the question and answer session and we will also conclude FTR consulting second quarter 2022.

Our next conference call.

Thank you for your support.

Thank you.

Thank you all for attending today and you may now disconnect your lines.

Q2 2022 FTI Consulting Inc Earnings Call

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