Q3 2022 FTI Consulting Inc Earnings Call

October 27, 2022

I found as I look more closely in fact that a big driver of the extraordinary level of results. This quarter was not the underlying business performance.

A major one time factors that happened to cut in our favor this quarter. So thats less bullish point, but I'd also like to share in.

And the third point is the one that I think I don't need.

Quarters to think about is when I think about all the time and that we've talked about many times, which is a broader perspective point, which is that there are always quarterly zig zags.

To me they arent in any long term view, particularly significant what is far more important is the check in and say where are we as a whole the company in terms of the medium term trajectory.

And Thats, a bullish point that I'd like to close with because I'd like to close with sharing my view that right now in every segment in every geography around the globe.

We are continuing to build teams and the capabilities, we need to win for our clients and our firm, we're attracting and developing people who can help our clients with the most sophisticated issues.

And my experience is that when we do that those short term factors can either buoy a quarter as it did this quarter or hit a quarter as it hasnt sometimes in the past.

Over any extended period of time, when one does that the core underlying business will continue to soar.

So those are the three points I'd like to cover and with your permission I would like to dive a little bit more into each of them.

With respect to the first point.

As I said upfront I'm guessing a few of you may have had the same initial reaction that I had which to the numbers, which was Wow. These are amazing. If you haven't had a chance to look at them. Once again, we reported record revenues and record EPS in fact on the revenues, we delivered double digit organic revenue growth.

In the face of FX headwind.

If you exclude the FX headwinds it was 15% topline growth year over year.

And perhaps even more powerful and may be most surprising that translated to $2 15 and earnings per share.

When I saw that number I took out a calculator than just compared it to where.

The earnings of this company, where my first full year I was here because I thought this was about 50% higher than where we were and it turns out that's about right.

Quarterly earnings this quarter were 50% higher.

Then the entire year's earnings the first year I was here so when I do that calculation that was impressed by the number.

I became less bullish however.

When I began to isolate the underlying business from what were more onetime factors and.

We've talked about this before you always have to do that isolation, because even though over any longer period of time, one time factors tend to even out in any given quarter onetime factors like remeasurement gains FX remeasurement.

Gains or losses or tax rates or success fees can seriously affect quarterly results. If they happen to cut all negatively in the quarter the numbers in my opinion and up understating the.

The strength of the underlying business.

But conversely, if they all cut positively the reverse is true.

And in this quarter there were some major onetime factors that happened to cut in our favor.

One of those we talked about last quarter, which was the major revenue deferrals in econ deferrals that we expected to recoup this quarter than we did.

Those deferrals of course mean that last quarter's revenues and profits and some real sense understate the underlying performance of the business that quarter and this quarter's revenues and profits in some states over some sense overstate the same.

Overstate the underlying performance this quarter that of course, we knew about and we've talked about.

Perhaps more significant with two additional benefits for this quarter we.

We had substantial FX remeasurement gains this quarter those come and go they are very hard to predict but this quarter. They happened to cut very positively as Ajay will talk about in some detail and for a variety of reasons. We ended up this quarter with a very low <unk>.

Right.

If you strip out the effects of all those one time benefits it was not a bad quarter.

But neither was the extraordinary one that $2 15, and EPS would suggest.

That being said if you dive down a level some parts of our business did terrifically well.

And or better than our expectations.

But at the same time other parts did not perform as well as we expected or hoped and there are lots as always lots of examples.

But let me give you.

Just a flavor of some of the some of the Tucson froze.

Within Corp fin, our U S business continued to outperform but some overseas markets, particularly Europe were weak.

NFC health solutions in cyber continue to soar, while some other business has lagged our expectations.

In Tech, we had record revenues, but the investment we have made in head count and associated compensation together with price pressure.

And that EBITDA growth did not fully follow suit.

Now, let me spend a minute on EMEA as we've talked about EMEA I am and I think the entire.

Leadership team and the entire company is extraordinarily proud of the multiyear trajectory our teams in Europe have been able to build there and we are very bullish on the investments, we're making for the next generation of growth.

However, some of the extraordinary stresses going on in Europe have meant that in this quarter like in fact every quarter. This year that business has continued to fall short of our expectations.

Jay will give you more details on some of the various tools and throws but my takeaway.

Was overall that when you normalize for the onetime factors this feels more like a solid quarter.

A solid quarter, rather than extraordinary one with some parts of the business is doing great and other parts dealing with market realities and with work to do to more typical.

And extraordinary.

All of which leads me back to the third one.

Automatically keep in mind and tend to be focused on not just on quarterly timing, but always which is.

Orders are nice, but you have to look past the quarter.

You have to look to past the quarter to say where are we with respect to the multiyear trajectory that we aspire to for this company. The goal of always building an ever stronger company never more powerful company and more capable company. One that's focused on the right parts of the market being able to deliver for our clients to attract great talent to develop talent in there.

For build a company.

The performance for our clients.

That attracts performs for our people.

In performance for you our shareholders.

I think everyone on this call knows that over the last several years. The success. We have is not big because every business in every part of the world went up in a straight line every quarter.

The world the competitive landscape the markets the disruptions in the market always create zigzags zigzags that sometimes just require courage to stay the course to persevere through short term dislocations. When you have the right focus and the right teams and other points.

The exact that require work to do to adjust to new market realities.

My experience is when we have teams that are actively making those determinations are actively making those adjustments when we have teams focused that way.

We make we don't make the zigzags go away.

But we make the zig zag line over any extended period of time in every one of our businesses.

Zigzag around upward sloping line.

So when I take that step and look past the specifics of the quarter.

Is that more and my my view fundamental set of reflections when I talk with our teams around the world engagement strategy conversations with alone around the world talk.

Talk with the leaders of segments, and RJ and with our clients.

That leaves me.

And the most fundamentally bullish place.

It doesn't deny the realities of the world, Yes, when I talk to the restructuring market.

The restructuring markets with our teams in places around the World. Some places are still near all time lows.

So unless you believe restructurings have gone away.

The tremendous progress that our company has made that our teams have made and are making around the world and attracting and developing talent to build more leading positions in more places.

I have to believe that ultimately that will create enormous value for our clients, who will have big needs and therefore enormous value for our people and our shareholders, Yes in Europe both.

If you look at Europe today, both our teams and our clients are facing unbelievable disruptions. We all know them Theres a war there is an energy crisis, there's political tumult in many markets. There is inflation there supply stage disruptions. There are myriad government actions trying to cope with all those issues all of that.

Arguably makes us an incredibly challenging time for us to embark on the next tripling of Europe .

But it's also true today that if you had the experience that I have going around those countries talking with our people.

<unk> I believe we've come to the same conclusion I have which is by far we have today. The most capable set of teams we have ever had in Europe , not just in the U K, where we now have a strong team across almost all segments and have for a while but also today in Germany, and France in Brussels in Spain, The Netherlands, Italy, and the Middle East we have T.

<unk> in those markets that are out in the market focus on building businesses listening to clients. So they can adjust to the current needs to react to the current circumstances just their offerings to ensure we are anticipating in the needs of today.

In my experience. If you have terrific market focused teams you can still have short term disruptions like we've seen this year.

But my experience is also in the medium term is to have those teams they create value they create value that's relevant for our clients relevant the tased realities in those markets and the market ultimately recognizes that value.

So I see a fundamentally bullish story in the medium term for Corp, fin and for Europe as a whole.

As well as some of the other places we've had some shortfalls this year, whether it's parts of Asia or parts of MLC.

So let me come back to the three points of $2 15 on its space looks terrific, but I'm actually not that excited by it I actually think it overstates the underlying strength of the quarter.

But what I am excited about is the strategies the conversations and the ambitions of.

Our people around this firm.

To come away from those conversations to the view that this company has never.

And its long history in as good a shape as we are today has never had teams that are stronger and more client focused or more focused on building and supporting the people who can build businesses, who can make a difference who can drive major client results and attract and develop great people.

The need for.

Far more important than that $2 15, and EBIT EPS is that reality and it reinforces and meet a view that we are closer to the beginning of this country. This company's bright journey than we are to an end.

And that we can be and are continuing to be.

On a powerful multiyear trajectory.

To drive growth going forward.

With that.

Now, let me turn it over to you.

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 third quarter results, we reported both record revenues and EPS. This morning.

Year over year revenue growth.

Lower tax rate and an increase in FX re measurement gains more than offset the impact of higher compensation SG&A expenses and weighted average shares outstanding are wasteful.

And billable head count grew 414 professionals or seven 4% sequentially.

Though these headlines are impressive as Steve said they were in bar boosted by one time items in particular, there are three key onetime items this quarter that should not be extrapolated.

First when we announced Q2 results, we mentioned that in our economic consulting segment, we were unable to recognize significant revenues in the first half of the year.

More than the typical level of such revenue deferrals and.

And that we fully expected to be able to recognize such revenue in the second half of the year.

This quarter conditions for revenue recognition were met and such revenue was fully recognized and amounted to <unk>.

21 $4 million.

Second we were able to utilize our foreign tax credits against the licensing of our intellectual property our brand to additional foreign subsidiaries.

This resulted in a reduction of eight $3 million in book taxes that contributed to a tax rate of 17% this quarter.

Third we had FX remeasurement gains from the rise in the U S dollar that boosted pretax income by $7 1 million.

The outcome of FX re measurement is inherently volatile.

Our updated guidance for the year with only one quarter remaining is both narrower than the original range because of the passage of time and now has earnings per share in the bottom half of our original range.

It is in box shaped bylaw, our expectation that these one time items will not recur.

Now turning to our third quarter results in more detail.

Our revenues of $775 $9 million increase.

Increased $73 6 million or 10, 5% compared to revenues of $702 2 million in the prior year quarter.

Excluding FX revenues grew $103 7 million or 14, 8%.

The increase in revenues was due to higher realization, which includes the recognition of revenue previously deferred and higher demand across all business segments.

GAAP EPS of $2 15, and <unk> 22, compared to $1 96, and <unk> 21.

Adjusted EPS for the quarter were $2, 15, which compared to $2 <unk> in the prior year quarter.

Net income of $77 $3 million compared to $69 5 million in the prior year quarter. The increase in net income was primarily due to higher revenues and lower effective tax rate and increase in FX remeasurement gains and lower interest expense, which was partially offset.

By an increase in compensation, which included the impact of a 12, 4% increase in total head count.

As well as higher SG&A expenses.

SG&A of $159 2 million, we're at 25% of revenues.

This compares to SG&A of $138 6 million or 19, 7% of revenues in the third quarter of 2021.

The year over year increase in SG&A was primarily due to higher compensation as we continue to invest to support a larger and more global business.

And an increase in travel and entertainment expenses.

Sequentially SG&A decreased $8 8 million.

As we saw a step down in travel and entertainment expenses compared to the second quarter.

Though we continue to host many in person events for talent development team building and marketing and business development.

Third quarter 2022, adjusted EBITDA of $99 million or 12, 8% of revenues compared to $103 million or 14, 3% of revenues in the prior year quarter.

Noteworthy.

The year over year increase in SG&A more than offset the increase in gross profit.

Our third quarter effective tax rate of 17% compared to 21, 6% in the prior year quarter.

Our tax rate for <unk> was lower due to the previously mentioned $8 3 million tax benefit.

For the fourth quarter, we expect that effective tax rate to be between 20% and 23%.

Fully diluted wasteful of $35 9 million shares in <unk> 'twenty due increased by 556000 shares compared to 35 4 million shares and <unk> 21, primarily because of the dilutive impact of our convertible notes.

Our convertible notes had a dilutive impact on EPS of approximately one 2 million shares included in way so.

As our average share price of $168 19.

This past quarter was above the $101 38 conversion threshold price.

Billable headcount increased by 646 professionals are 12% and non billable head count increased by 182 professionals or 13, 7% compared to the prior year quarter.

Sequentially billable headcount increased by 414 professionals or seven 4% in.

In the third quarter, we welcomed approximately 300 graduates from university campuses, our largest class ever.

Now I will share some segment insights at the segment level.

In corporate finance and restructuring revenues of $265 $4 million increased 6% compared to the prior year quarter excluding.

Excluding FX revenues increased nine 6% the increase in revenues was primarily due to higher demand for restructuring and business transformation services, which was partially offset by lower demand for transaction services and a decline in success fees.

Adjusted segment EBITDA of 51, 5 million or 19, 4% of segment revenues compared to $55 $6 million or 22, 2% of segment revenues in the prior year quarter.

The year over year decrease was primarily due to higher compensation incur.

Including the impact of an 11, 5% increase in billable head count.

And higher SG&A expenses.

Business transformation and transactions.

Represented 57% of segment revenues.

While restructuring represented 43% of segment revenues this quarter.

This compares to 59% for business transformation and transactions.

And 41% for restructuring and <unk> of 2021.

Year over year restructuring revenues grew 10, 8% and business transformation and transactions grew two 7%.

On a sequential basis revenues decreased four 2%, primarily due to an eight 3% decline in business transformation and transaction revenues, driven primarily by lower success fees and transaction services that more than.

Offset growth in our business transformation services.

The restructuring revenues increased only one 9% sequentially.

Adjusted segment EBITDA decreased $3 4 million compared to <unk> of 2022.

Among the areas, where we have been helping our clients with the restructuring matters include.

Airlines oil and gas storage transportation production and exploration.

Specialized and consumer finance.

And independent power producers.

Turning to <unk> revenues of $159 9 million in.

Increased 10, 1% compared to the prior year quarter.

Excluding FX revenues increased 12, 7%.

The increase in revenues was primarily due to higher demand for our health solutions and investigation services and higher realization, which was partially offset by lower demand for disputes services.

Adjusted segment EBITDA of $18 2 million or 11, 4% of segment revenues compared to $16 6 million or 11, 4% of segment revenues in the prior year quarter.

The increase was due to higher revenues, which was partially offset by an increase in compensation, which includes nine 3% growth in billable head count as well as higher SG&A expenses compared to the prior year quarter seek.

Sequentially revenues decreased $4 $3 million, primarily due to lower demand for health solutions and dispute services adjusted segment EBITDA increased $1 5 million compared to <unk> 2020, due primarily due to a decline in compensation and outside <unk>.

Sultan.

Our economic consulting segment revenues of $193 $2 million increased 12% compared to the prior year quarter, excluding FX revenues increased 17, 4%.

The increase in revenues was due to higher realization primarily from the recognition of revenue previously deferred.

And higher demand for non M&A related antitrust services, particularly in North America, which was partially offset by lower demand for M&A related antitrust services compared to the prior year quarter.

Adjusted segment EBITDA of $32 9 million or 17% of segment revenues compared to $29 9 million or 17, 3% of segment revenues in the prior year quarter.

The increase was due to higher revenues, which was partially offset by higher compensation, primarily related to an increase in variable compensation and a seven 9% increase in billable headcount.

Sequentially revenues increased $29 1 million or 17, 8%, which was primarily driven by the recognition of $21 4 million of deferred revenues.

Adjusted segment EBITDA increased $11 3 million.

In technology record revenues of $84 $9 million increased 31, 3% compared to the prior year quarter.

Excluding FX revenues increased 34, 9% the increase in revenues was primarily due to higher demand for M&A related second request and investigation services compared to the prior year quarter.

Adjusted segment EBITDA of $13 2 million.

Our 15, 6% of segment revenues.

Third to $7 8 million or 12, 1% of segment revenues in the prior year quarter.

The increase was due to higher revenues, which was partially offset by an increase in compensation, including the impact of a 23, 7% increase in billable head count and an increase in contractors as well as higher SG&A expenses.

Sequentially revenues increased $7 1 million or nine 2%, primarily due to increased demand for M&A related second request services adjusted segment EBITDA increased $4 8 million sequentially.

Note that technology segment had one large M&A related second request client engagement in the quarter that accounted for 10, 6% of segment revenues. This engagement, both ramped up and largely concluded in the third quarter.

Revenues in the strategic communications segment of $72 $4 million increased four 3% compared to the prior year quarter.

Excluding FX revenues increased 12, 2% increase in revenues was largely due to higher demand for corporate reputation services, primarily driven by crisis communications work compared to the prior year quarter adjust.

Adjusted segment EBITDA of $12 9 million or 17, 9% of segment revenues compared to $15 5 million or.

R 22, 3% of segment revenues in the prior year quarter.

Adjusted segment EBITDA declined year over year as the increase in revenues was more than offset by higher compensation, which includes the impact of a 16, 4% increase in billable headcount and higher SG&A expenses compared to the prior year quarter.

Sequentially revenues in the strategic communications were flat excluding.

Excluding FX revenues increased $2 9 million or 4%.

Let me now discuss free cash flow and balance sheet items, we generated net cash from operating activities of $128 3 million.

Which decreased by $68 7 million.

Compared to $196 9 million in the third quarter of 2001 the.

The year over year decrease was largely due to higher compensation, primarily related to head count growth as well as the decrease in cash collections compared to the same period in the prior year.

We generated free cash flow of $115 million in the quarter.

Total debt net of cash of a negative debt position of $10 8 million at September 32022, compared to a negative debt position of $1 3 million at September 32021, and positive $65 million at June 32000.

22 <unk>.

The sequential decrease in total debt net of cash was due to an due to an increase in cash and cash equivalents.

During the quarter, we repurchased a 127791 shares at an average price per share of a $159 87.

For a total cost of $24 million.

At the end of the quarter, we had approximately $143 5 million remaining available for share repurchases under our current authorization.

Turning to our guidance.

With the past special three quarters, while remaining within the bands of our previously provided guidance. We are tightening our full year 2022 guidance ranges for revenues and EPS.

We expect revenues to range between $2 96 5 billion.

And $3 <unk> 5 billion, which compares to the previous range of between $2 92 billion and three or four or $5 billion.

We expect the EPS to range between $6 40.

$6 80.

Which compares to the previous range of between $6 40.

And $7 20.

We do not currently expect adjusted EPS to differ from UBS.

Our updated guidance is shaped by five key considerations.

First with three quarters behind us it is appropriate to narrow the range of possibilities.

Second, though we have seen sequential increases in restructuring work in U S Asia and Australia. The last several quarters the rate of this increased our pickup has been moderate.

We don't expect this to change significantly at least this year.

Third M&A related activity is seeing a downward trend and in the third quarter. We saw an associated decrease in demand for such services in both our economic consulting segment and our transactions business in corporate finance and restructure.

During.

Paul.

There are significant compensation related pressures in our business.

Lastly, the fourth quarter is typically a weaker quarter for us because of our seasonal business slowdown and locations at the end of the year.

Yes.

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

First as Steve said, the fragility and the dislocation of the World economy result in expanded market opportunities for SDI.

Second more so than ever before we are investing in talent. Our franchise has never been better positioned to support our clients as they navigate complex challenges and opportunities.

Third our culture, which nourishes diversity and inclusion is increasingly being recognized for attracting the best talent.

And finally, our balance sheet remains strong and provides us the ability to boost shareholder value through organic growth share buybacks and acquisitions when we see the right one.

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

Ladies and gentlemen at this time, we'll begin the question and answer session. Once again to ask a question. Please press star and then one.

To withdraw your question you May press Star two.

Our first question today comes from Andrew Nicholas from William Blair. Please go ahead with your question.

Hi, good morning.

Good morning.

I wanted to start with with restructuring perhaps not surprisingly.

You talked about seeing a moderate pick up quarter over quarter, and having seen that in the past several quarters.

But not expecting a major acceleration in the fourth quarter is there.

It's kind of the cadence of the signing of this restructuring market any different than maybe what you would've expected or what you've seen in prior kind of cyclical rebound in that business or.

Any just thoughts on on that cadence and looking ahead to next year.

And I'll give my view and then feel free to disagree if you have a different view I mean this is something we talk about a lot in here I think look I think.

History. It never is a perfect guide to anything certainly in our business and I think maybe in general in the world.

I would say.

My my sense is this is unfolding slower.

Then at least so many people.

Would have expected and may have unfolded slower than many times in the past.

There are multiple reasons for that I think.

<unk>.

First of all certainly in Europe , there still.

Governmental pressures to make sure that banks don't foreclose, because there's just a lot of agility in the economy and people are worried about.

Yes.

You have to clean up balance sheets at some point, but Theyre awards going on and Theres a lot of issues going on in Europe . So I think there are some headwinds that may not have been in other.

And other cycle.

Cycles. It's also the last.

X years.

The.

Covenants have become extraordinarily light in a whole lot of loans and that really does affect.

The creditor side business it affects how quickly banks or lenders can actually trigger a reexamination it doesn't necessarily affect the company side work.

But it does affect the creditor side work in a big way in the U S where both companies siding creditor side in many places around the world. We are primarily creditor side. So I think.

I think this is certainly unfolding slower than I think many people in our firm and elsewhere expected and.

I think I think that's kind of.

Realization and I think it may continue to unfold slower than than many people expect I do not believe the need for restructuring over leveraged balance sheets has gone away permanently and so he's here at both of those themes in our adjacent my comments, but it can.

It may on this may be.

I am trying to think of a baseball analogy, it's certainly not theres not 100 mile an hour fastball. There are some episodic pitches out there. This is a slowly unfolding scenario at least as we currently.

<unk> it.

Does that talk to your question Andrew.

Yes, no that's helpful.

And then maybe as my follow up switching over to SLC, obviously utilization.

Ticked down I believe quarter over quarter, it's still.

Solidly below pre pandemic levels at the same time. It does appear that you guys are continuing to hire pretty aggressively there I would imagine that speaks to your conviction in and utilization and demand trends picking back up but if you could kind of walk through that thought process and your outlook there that.

Would be helpful. Thank you.

Yes, no. Thanks for the question.

Yes look it's.

Somewhat look absolutely we are long term quite bullish on on on all our businesses, but but yes on <unk> long term trajectory of MLC.

And some parts of efficacy are actually performing quite well right now.

We were willing to whipsaw hiring based on current.

Business.

Would probably be high head count lower here.

Because some places an MLC are short from where we expected them to be.

But you don't hire just based on the quarterly results you hire based on a availability of talent.

And B actually.

The thing is the first year consultants have today or Youre senior directors of a few years from now and you're managing directors I, sometimes analogize this to our Scotch business.

It takes six years.

To grow Fabulous Scotch six year, Scott It takes 12 years.

To get great raw material season, it in the right environment to get 12 year Scotch and we're in the business not just this quarter we are in the business.

Developing fabulous six and 12 year old Scott <unk>.

Fabulous Mad managing directors and senior managing directors and so.

<unk>.

Yes, I don't think you say the hiring the fact that our continued hiring means we expect an immediate rebound in every business that is slow right now, but we do have but because we have those multiple objectives, but if you're asking me whether I have long term confidence in that business absolutely I do.

That's helpful. Thank you.

Our next question comes from Tobey Sommer from curious Securities. Please go ahead with your question.

Thank you.

From a multiyear perspective.

We are in.

Journey of geographic expansion for the firm.

Maybe not in its entirety, but.

Sort of major countries that you might want us.

Have a presence in or.

Slash outer presence and I'm asking from a perspective of trying to understand.

We anticipate.

When the incremental infrastructure investment that accompanies that.

They sort of peak crescendo, and then moderate allowing for a tailwind to profitability.

Now that that's a great question. So look I think there's a couple of different ways to look at that.

Let me talk about three different ways to look at the same question first of all I don't believe we need.

To be in any additional countries in order to the growth to grow this company extraordinarily over the next while and we have growth opportunities in the U S. We have yes, we are in France, Germany, I mean, all the countries I mentioned, but.

We have extraordinary opportunities to fill those countries out we have the landing team on the ground. We haven't we are nowhere near as big in those countries as we need to be and so we don't need.

To have to meet growth aspirations that ajay has or for shareholders.

We don't need to be in other countries I think the reality in professional services, though is it just there's always.

And we're in the major most of the major <unk>.

<unk> at this I mean, <unk>, whatever you want to call it.

I think the reality in professional services, though is.

As you continue to succeed.

There is there a spillover that you have.

People, who are great in Germany, who know people in Switzerland, you have people in the Middle East who know people in other parts of the Middle East you have and that's the nature. If you look at any great professional services firm as they grow even though if they didn't have to go have to go into those other countries.

You do extend into those other countries many of them you treat as adjuncts to your existing country companies. So you don't have to build out the entire infrastructure right next door and you can you can do that but.

But I. So I think we don't have to be in 30 more countries in five years, whether we are in a bunch more countries I suspect, we will be but but but without these sort of infrastructure that in Germany, or France or middle East.

And Italy all of those in the major countries would.

We'll require does that does that help a little bit.

So let me follow ups I could from.

From a peak investment in infrastructure at least on an incremental basis not absolute dollars of course.

Or are we somewhere or.

Are we somewhere in the peak process without trying to call it quarter or within a four.

Four six quarter period for that based on the bigger countries, where you do require infrastructure and don't have the sort of adjunct capability and sort of optimal setup.

No.

Notably we are not we're not for example to take in Germany, We I would not say we are in our peak infrastructure in Germany in the back office right now from it.

Early in our in our development there, but we have shared service centers and various other locations and I do not expect that we will replicate everything that we have in our shared service centers in every geography, either so in aggregate you should see diminishing percentages, but in.

Each in terms of non billable head count growth, but in each specific country. We're in early stages.

Yes, I mean, let me make that come alive, a little bit I mean, we have hired fabulous people in Germany.

We don't have a website in German if we don't have contracts in Germany, we don't have contracts that actually conform with German law.

Those those those professionals are handicapped and they actually don't feel emotionally supported but.

Americans don't automatically or are folks in the U K don't automatically know the nuance of employment law in Germany, or France or.

No.

If part of the commitment to grow out for those countries is to put infrastructure not luxurious infrastructure, we're not serving caviar everyday but putting the basic infrastructure in place to support professionals, who are building our business and we have started that process, but certainly in the countries. We're in today, it's not peaked absolutely does that.

I think that's consistent with what you said RJ.

And then if I could ask another question about.

Hiring if you could describe it from us.

A few angles.

In ultra upper middle to most senior levels.

What are the trends been.

Internal promotions in contrast.

Laterals, and maybe comment on the extent to which the brand and or external market changes are.

Triggering the phone to ring, a little bit more thanks.

No I think thats, a continuation of of where we've been told me it's.

That's one of the most gratifying part of the job both sides of that I mean, sometimes when you think you'll get the phone ringing externally.

Thank all with so there's not going to be promotions and thats not the case the phone continues to ring externally in many more places around the world than it once did.

But we've also had.

Absolute record promotions internally.

Mollie can probably dig out the numbers and give you that I think we did publish those numbers right. So we can get to those numbers, but it's a really it's a really great thing and I had a conversation yesterday with.

The win Mds Thats, a group of very talented.

Women.

You are at Who're, just either just at the managing director level or have been there for a while who are very high potential and you just look at that you talk with those folks and you say wow the potential for us to continue to grow.

Is just there from internally.

And so that.

That is something in one of the source of my Bullishness Tobey. So far both sides of that are really really fabulous that respond.

Yes.

Do you have a current sort of modern day example of a new service line.

Exiting 'twenty two into 'twenty three.

Do you expect to be a contributor and something we talk about.

<unk> two adjacencies that you've launched.

During your tenure in previous years.

Look we have lots of them I mean every quarter I sit down with every segment and we we've talked about.

Where we are with our core businesses, where we are our core geographies, which geographies. We think we can extend into which adjacencies are we investing in the adjacencies has been proving out do we want to double down investment and are there new adjacencies and so.

With Sophie I talk about.

E discovery I talked about our thrust to not only broadened our law firm relationships in the U S. But also our corporate relationships in the U S.

The equivalent in the markets that we're now in Europe , where we werent there, but also new services that we've done information governance.

Which ties to our corporate offering most recently the exco has been talking about blockchain and crypto, where theres a lot of people in the world, who who can spout like me, who can spout, what you read in an article about blockchain and crypto, we happen to have people internally, who have testified in some of the.

Biggest trials fraud trials valuation trials, who understand who built built blockchain and crypto businesses and who can actually.

The value added in there and so we're scaling that business up to because there is a lot of people can talk about it there are a few of US a few folks who can actually do it. So it is a constant conversation and.

I don't think I want to competitively list all the areas where the.

The one additional one that.

As ESG, Okay sure we.

We're the firm that helps companies make their major transitions.

And boy as ESG ever a transition. So so we have a full court press and tremendous capabilities, there and we had a tremendous capabilities in various segments and I don't know if do we publicly announced the fact that we.

We unify that under a leader to make sure we're bringing the entire firm because strategic communications around this is different and helping somebody get there their emissions in line, but.

There's value in bundling those together so we asked a woman in our organization Marian <unk> coordinate that across the firm for a recently so those are a couple of examples does that help tobey.

Yes, very generous I have one last question.

Can you double the size of the firm.

Yes, I mean week, we can double the size of the firm can we double the size of the firm while I'm still CEO maybe maybe.

But this potential is enormous we are I think somebody like me said something I still believe we are closer to the beginning of this journey than we are to the end.

That's helpful.

Any other question, ladies and gentlemen.

Well, let me say it's Andrew.

Let me just say thanks moderator, let me just say thank you all again for your continued attention and support for our firm we really appreciate it and if you have further questions. Please reach out to.

<unk>. Thank you for attending today.

And ladies and gentlemen, with that we'll conclude today's conference call and presentation. We do thank you for joining you may now disconnect your lines.

[music].

Good morning, everyone and welcome to the STI consulting third 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 and then one on your telephone keypad.

So what's your all your questions you May press star two.

You also note that event is being recorded.

At this time I would like to turn the floor over to Mollie Hawkes, Vice President of Investor Relations and <unk>.

Please go ahead.

Good morning, welcome to the STI consulting conference call to discuss the company's third 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 of the Securities Act of $19 33, and section 21 of the Securities Exchange Act of $19 34 that involve risks and uncertainties forward looking statements include statements.

<unk> concerning plans objectives goals strategies future events future revenues future results and performance expectations plans or intentions relating to financial performance acquisition share repurchases business trends.

<unk> 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 of risk factors and forward looking information in our quarterly report on Form 10-Q for the quarter ended September 32020 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 the date of this earnings call and will not be updated.

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

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

Lastly, there are two items that have been posted to the Investor Relations section of our website for your reference these.

These include a quarterly earnings presentation, and an excel and PDF of our historical financial and operating data, which have been updated to include our third quarter 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 and as I've said are available on the Investor Relations section of our website.

With these formalities out of the way I am joined today by Steven Gunby, Our President and Chief Executive Officer, and Ajay Silver, while our Chief Financial Officer.

At this time I will turn the call over to President and Chief Executive Officer, Steven Gunby. Thank you Mollie and welcome everyone and thank you all for joining us this morning.

As always Ajay will go through the numbers in some detail, but first with your permission I.

I'd like to share a few perspectives that hit me some thoughts that hit me as I review those numbers.

The first reaction I had which may be similar to the reaction that some of you had when you first saw this numbers. This morning was wow.

The numbers this quarter our amazing this is another extraordinary quarter. Another in a long line of extraordinary quarters. So we're very bullish reaction I would like to share.

The second reaction I had as I looked at the numbers a little more fully was less bullish and I want to also share that.

As I examined the numbers, a little closer the numbers and some real sense overstated.

Underlying strength of the business. This quarter. So there were parts of the business that did extraordinarily well in fact parts.

Exceeded <unk> expectations in fact more parts of the business underperformed adjacent my expectations then over performed.

We had in the words I've used before a few more <unk>. This quarter. What I found is I look more closely in fact that a big driver of the extraordinary level of results. This quarter was not the underlying business performance.

That's a major onetime factors that happened to cut in our favor this quarter, so thats less bullish point.

I'd also like to share.

And the third point is the one that.

I think I don't need.

Sure.

Quarters to think about is when I think about all the time and that we've talked about many times, which is a broader perspective point, which is that there are always quarterly zig zags.

To me they arent in any long term view, particularly significant what is far more important is the <unk>.

In and say where are we as a whole the company in terms of the medium term trajectory now.

And Thats, a bullish points I'd like to close with because I'd like to close with sharing my view that right now in every segment in every geography around the globe.

We are continuing to build teams and the capabilities, we need to win for our clients and our firm, we're attracting and developing people who can help our clients with the most sophisticated issues.

And my experience is that when we do that those short term factors can either full year quarter as it did this quarter or hit a quarter as it hasnt sometimes in the past.

Over any extended period of time, when one does that the core underlying business will continue to soar.

So those are the three points I'd like to cover and with your permission I would like to dive a little bit more into each of them.

With respect to the first point.

As I said upfront I'm guessing a few of you may have had the same initial reaction that I had which to the numbers, which was Wow. These are amazing.

If you haven't had a chance to look at them. Once again, we reported record revenues and record EPS in fact on the revenues, we delivered double digit organic revenue growth in the face of FX headwinds.

If you exclude the FX headwinds it was 15% topline growth year over year.

And perhaps even more powerful and may be most surprising that translated to $2 15 and earnings per share.

When I saw that number I took out a calculator and just compared it to where.

The earnings of this company, where my first full year I was here because I thought this was about 50% higher than where we were and it turns out that's about right.

The quarterly earnings this quarter were 50% higher.

Then the entire year's earnings the first year I was here so when I say that calculation that was impressed by the number.

I became less bullish however.

When I began to isolate the underlying business from what were more onetime factors.

We've talked about this before you always have to do that isolation, because even though over any longer period of time, one time factors tend to even out.

In any given quarter onetime factors like Remeasurement gains FX remeasurement.

Gains or losses or tax rates or success fees can seriously affect quarterly results. If they happen to cut all negatively in the quarter the numbers in my opinion and up understating.

The strength of the underlying business.

But conversely, if they all cut positively the reverse is true.

And in this quarter there were some major onetime factors that happened to cut in our favor.

One of those we talked about last quarter, which was the major revenue deferrals in E Con deferrals that we expected to recoup this quarter than we did.

Those deferrals of course mean that.

Last quarter's revenues and profits and some real sense understate, the underlying performance of the business that quarter and this quarter's revenues and profits in some states over some sense overstate the same center.

<unk> the underlying performance this quarter that of course, we knew about and we've talked about.

Perhaps more significant with two additional benefits for this quarter.

We had substantial FX remeasurement gains this quarter those come and go they are very hard to predict but this quarter. They happened to cut very positively as Ajay will talk about in <unk>.

Some detail.

And for a variety of reasons, we ended up this quarter with a very low tax rates.

If you strip out the effects of all those one time benefits it was not a bad quarter.

But neither was the extraordinary one that $2 15, and EPS would suggest.

That being said if you dive down a level some parts of our business did terrific Lee well.

And were better than our expectations.

But at the same time other parts did not perform as well as we expected or hoped and there are lots as always lots of examples in.

But let me give you just a flavor of some of the some of the Tucson froze.

Within Corp fin, our U S business continued to outperform but some overseas markets, particularly Europe were weak.

<unk> health solutions, and cyber continue to soar, while some other business has lagged our expectations.

Check we had record revenues, but the investment we have made in head count and associated compensation together with price pressure.

The EBITDA growth did not fully follow suit.

Now, let me spend a minute on EMEA as we've talked about EMEA.

And I think the entire.

However, some of the extraordinary stresses going on in Europe have meant that in this quarter like in fact every quarter. This year that business has continued to fall short of our expectations.

Jay will give you more details on some of the various tools and froze, but my takeaway.

Was overall that when you normalize for the onetime factors this feels more like a solid quarter.

A solid quarter, rather than extraordinary one with some parts of the business is doing great and other parts dealing with market realities and with work to do so more typical.

And extraordinary.

All of which leads me back to the third one.

Automatically keep in mind intend to see focused on not just on quarterly timing, but always which is.

Orders are nice, but you have to look past the quarter.

You have to look to past the quarter to say where are we with respect to the multiyear trajectory that we aspire to for this company. The goal of always building an ever stronger company never more powerful company more capable company. One that's focused on the right parts of the market being able to deliver for our clients to attract great talent to develop talent in there.

<unk> build the company.

The performance for our clients.

That attracts performs for our people and performance for you our shareholders.

I think everyone on this call knows that over the last several years. The success. We have has not been because every business in every part of the world went up in a straight line every quarter.

The exact that require work to do to adjust to new market realities.

My experience is when we have teams that are actively making those determinations are actively making those adjustments when we have teams focused that way.

We make we don't make the zigzags go away.

But we make the zigzag line over any extended period of time in every one of our businesses.

<unk> around upward sloping lines, so when I take that step and look past the specifics of the quarter.

Is that more and my my view fundamental set of reflections when I talk with our teams around the world engagement strategy conversations with alone around the world.

Talk with the leaders of segments, and RJ and with our clients.

That leaves me.

And the most fundamentally bullish place.

It doesn't deny the realities of the world, Yes, when I talk to the restructuring market about the restructuring markets with our teams in places around the World. Some places are still near all time lows.

So unless you believe restructurings have gone away.

The tremendous progress that our company has made that our teams have made and are making around the world and attracting and developing talent to build more leading positions in more places.

I have to believe that ultimately that will create enormous value for our clients, who will have big needs and therefore enormous value for our people and our shareholders, Yes Europe both.

If you look at Europe today, both our teams and our clients are facing unbelievable disruptions, we all know them as the war there is an energy crisis, there's political tumult in many markets. There is inflation there supply stage disruptions. There are myriad government actions trying to cope with all those issues all of that.

Arguably makes us an incredibly challenging time for us to embark on the next tripling of Europe .

But it's also true today that if you had the experience that I have going around those countries talking with our people I believe we've come to the same conclusion, IHOP, which is by far we have today. The most capable set of teams we have ever had in Europe , not just in the U K, where we now have a strong team across almost all segments and have for a while.

But also today in Germany, and France in Brussels in Spain, The Netherlands, Italy, the Middle East we have teams in those markets that are out in the market focused on building businesses listening to clients. So they can adjust to the current needs to react to the current circumstances just their offerings to ensure we're anticipating in the needs of to date.

In my experience. If you have terrific market focused teams you can still have short term disruptions like we've seen this year.

But my experience is also in the medium term is to have those teams they create value they create value that's relevant for our clients relevant to today's realities in those markets and the market ultimately recognizes that value.

So I see a fundamentally bullish story in the medium term for Corp, fin and for Europe as a whole.

As well as some of the other places we've had some shortfalls this year, whether it's parts of Asia or parts of MLC. So.

Let me come back to the three points with $2 15 on its space.

Looks terrific, but I'm actually not that excited by it I actually think it overstates the underlying strength of the quarter.

But what I am excited about is the strategies the conversations and the ambitions.

Our people around this firm.

To come away from those conversations with the view that this company has never.

To me.

Far more important than that $2 15, and EPS is that reality and it reinforces and meet a view that we are closer to the beginning of this country. This company is bright journey than we are to an end.

And that we can be and are continuing to be.

On a powerful multiyear trajectory.

To drive growth going forward.

With that.

Jay Let me turn it over to you.

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 third quarter results, we reported both record revenues and EPS. This morning.

Year over year revenue growth.

Lower tax rate and an increase in FX re measurement gains more than offset the impact of higher compensation SG&A expenses and weighted average shares outstanding are wasteful.

And billable head count grew 414 professionals or seven 4% sequentially.

Though these headlines are impressive as Steve said they were embark boosted by one time items in particular, there are three key onetime items this quarter that should not be extrapolated.

First when we announced Q2 results, we mentioned that in our economic consulting segment, we were unable to recognize significant revenues in the first half of the year.

More than the typical level of such revenue deferrals and.

And that we fully expected to be able to recognize such revenue in the second half of the year.

This quarter conditions for revenue recognition were met and such revenue was fully recognized and amounted to <unk>.

21 $4 million.

Second we were able to utilize our foreign tax credits against the licensing of our intellectual property our brand to additional foreign subsidiaries.

This resulted in a reduction of eight $3 million in book taxes that contributed to a tax rate of 17% this quarter.

Third we had FX remeasurement gains from the rise in the U S dollar that boosted pretax income by $7 1 million.

The outcome of FX re measurement is inherently volatile.

Our updated guidance for the year with only one quarter remaining is both matter, where then the original range because of the passage of time and now has earnings per share in the bottom half of our original range.

It is in fact shaped by our our expectation that these one time items will not recur.

Now turning to our third quarter results in more detail.

Our revenues of $775 $9 million increased $73 6 million or 10, 5% compared to revenues of $702 $2 million in the prior year quarter.

Excluding FX revenues grew $103 7 million or 14, 8%.

The increase in revenues was due to higher realization, which includes the recognition of revenue previously deferred and higher demand across all business segments.

GAAP EPS of $2 15, and <unk> 22, compared to $1 96, and <unk> 21.

Adjusted EPS for the quarter were $2, 15, which compared to $2 <unk> in the prior year quarter.

Net income of $77 $3 million compared to $69 5 million in the prior year quarter. The increase in net income was primarily due to higher revenues and lower effective tax rate and increase in FX re measurement gains and lower interest expense, which was partially offset.

By an increase in compensation, which included the impact of a 12, 4% increase in total head count.

As well as higher SG&A expenses.

SG&A of $159 $2 million were 25% of revenues. This compares to SG&A of $138 6 million or 19, 7% of revenues in the third quarter of 2021.

The year over year increase in SG&A was primarily due to higher compensation as we continue to invest to support a larger and more global business.

And an increase in travel and entertainment expenses.

Sequined truly SG&A decreased $8 8 million.

As we saw a step down in travel and entertainment expenses compared to the second quarter.

Though we continue to host many in person events for talent development team building and marketing and business development.

Third quarter 2022, adjusted EBITDA of $99 million or <unk>, 8% of revenues compared to $103 million or 14, 3% of revenues in the prior year quarter.

Noteworthy.

The year over year increase in SG&A more than offset the increase in gross profit.

Our third quarter effective tax rate of 17% compared to 21, 6% in the prior year quarter.

Our tax rate for <unk> was lower due to the previously mentioned $8 $3 million tax benefit.

For the fourth quarter, we expect that effective tax rate to be between 20% and 23%.

Fully diluted wasteful of $35 9 million shares in <unk> 'twenty due increased by 556000 shares compared to $35 4 million shares and <unk> 21, primarily because of the dilutive impact of our convertible notes.

Our convertible notes had a dilutive impact on EPS of approximately one 2 million shares included in way so.

As our average share price of $168 19.

This past quarter was above the $101 38 conversion threshold price.

Billable headcount increased by 646 professionals are 12% and non billable head count increased by 182 professionals or 13, 7% compared to the prior year quarter.

Sequentially billable head count increased by 414 professionals or seven 4%.

In the third quarter, we welcomed approximately 300 graduates from university campuses, our largest class ever.

Now I will share some segment insights at the segment level.

In corporate finance and restructuring revenues of $265 $4 million increased 6% compared to the prior year quarter excluding.

Adjusted segment EBITDA of $51 5 million or 19, 4% of segment revenues compared to $55 $6 million or 22, 2% of segment revenues in the prior year quarter.

The year over year decrease was primarily due to higher compensation.

Including the impact of an 11, 5% increase in billable headcount.

And higher SG&A expenses.

Business transformation and transactions.

It represented 57% of segment revenues.

While restructuring represented 43% of segment revenues this quarter.

This compares to 59% for business transformation and transactions.

And 41% for restructuring in <unk> of 2021.

Year over year restructuring revenues grew 10, 8% and business transformation and transactions grew two 7%.

Offset growth in our business transformation services.

Our restructuring revenues increased only one 9% sequentially.

Adjusted segment EBITDA decreased $3 4 million compared to <unk> of 2022.

Among the areas, where we have been helping our clients with the restructuring matters include.

Airlines oil and gas storage transportation production and exploration.

Specialized and consumer finance.

And independent power producers.

Turning to <unk> revenues of $159 9 million increased 10, 1% compared to the prior year quarter, excluding FX revenues increased 12, 7%.

Adjusted segment EBITDA of $18 2 million or 11, 4% of segment revenues compared to $16 6 million or 11, 4% of segment revenues in the prior year quarter.

Sultan.

Our economic consulting segment revenues of $193 $2 million increased 12% compared to the prior year quarter, excluding FX revenues increased 17, 4%.

The increase in revenues was due to higher realization primarily from the recognition of revenue previously deferred.

Adjusted segment EBITDA of $32 9 million or 17% of segment revenues compared to $29 9 million or 17, 3% of segment revenues in the prior year quarter.

The increase was due to higher revenues, which was partially offset by higher compensation, primarily related to an increase in variable compensation and a seven 9% increase in billable headcount.

Sequentially revenues increased $29 1 million or 17, 8%, which was primarily driven by the recognition of $21 4 million of deferred revenues.

Adjusted segment EBITDA increased $11 3 million.

In technology record revenues of $84 $9 million increased 31, 3% compared to the prior year quarter.

Excluding FX revenues increased 34, 9% the increase in revenues was primarily due to higher demand for M&A related second request and investigation services compared to the prior year quarter.

Adjusted segment EBITDA of $13 2 million or 15, 6% of segment revenues compared to $7 8 million or 12, 1% of segment revenues in the prior year quarter the.

Sequentially revenues increased $7 1 million or nine 2%, primarily due to increased demand for M&A related second request services.

Adjusted segment, EBITDA increased $4 8 million sequentially.

Note that technology segment had one large M&A related second request client engagements in the quarter that accounted for 10, 6% of segment revenues. This engagement, both ramped up and largely concluded in the third quarter.

Revenues in the strategic communications segment of $72 $4 million increased four 3% compared to the prior year quarter.

Adjusted segment EBITDA of $12 9 million or 17, 9% of segment revenues compared to $15 5 million or 22, 3% of segment revenues in the prior year quarter.

Sequentially revenues in the strategic communications were flat.

Excluding FX revenues increased $2 9 million.

Four 4%.

Let me now discuss key cash flow and balance sheet items, we generated net cash from operating activities of $128 3 million.

Which decreased by $68 7 million.

Compared to $196 9 million in the third quarter of 'twenty one the.

The year over year decrease was largely due to higher compensation, primarily related to head count growth as well as a decrease in cash collections compared to the same period in the prior year.

We generated free cash flow of $115 million in the quarter.

Total debt net of cash of a negative debt position of $10 8 million at September 30 of 2022 compared to a negative debt position of $1 3 million at September 32021, and positive $65 million at June 32000.

22 <unk>.

The sequential decrease in total debt net of cash was due to an due to an increase in cash and cash equivalents.

During the quarter, we repurchased a 127791 shares at an average price per share of a $159 87.

For a total cost of $24 million.

At the end of the quarter, we had approximately $143 5 million remaining available for share repurchases under our current authorization.

Turning to our guidance.

With the past initial three quarters, while remaining within the bands of our previously provided guidance. We are tightening our full year 2022 guidance ranges for revenues and EPS.

We expect revenues to range between $2 96, 5 billion and $3 <unk> 5 billion.

Which compares to the previous range of between $2 92 billion and $3 <unk> 5 billion.

We expect the EPS to range between $6 40.

$6 80.

Which compares to the previous range of between $6 40.

And $7 20.

We do not currently expect adjusted EPS to defer from UBS.

Our updated guidance is shaped by five key considerations.

First with three quarters behind us it is appropriate to narrow the range of possibilities.

Second, though we have seen sequential increases in restructuring work in U S Asia and Australia. The last several quarters the rate of this increased our pickup has been moderate.

We don't expect this to change significantly at least this year.

During.

Fourth there are significant compensation related pressures in our business.

Lastly, the fourth quarter is typically a weaker quarter for us because of our seasonal business slowdown and locations at the end of the year.

Yes.

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

First as Steve said the <unk>.

For agility and the dislocation of the World economy result in expanded market opportunities for STI.

Second more so than ever before we are investing in talent. Our franchise has never been better positioned to support our clients as they navigate complex challenges and opportunities.

Third our culture, which nourishes diversity and inclusion is increasingly being recognized for attracting the best talent.

And finally, our balance sheet remains strong and provides us the ability to boost shareholder value through organic growth share buybacks and acquisitions when we see the right one.

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

Ladies and gentlemen at this time, we'll begin the question and answer session. Once again to ask a question. Please press star and then one.

To withdraw your question you May press Star two.

Our first question today comes from Andrew Nicholas from William Blair. Please go ahead with your question.

Hi, good morning.

Good morning.

I wanted to start with with restructuring perhaps not surprisingly.

You talked about seeing a moderate pick up quarter over quarter, and having seen that the past several quarters.

But not expecting a major acceleration in the fourth quarter is there.

It's kind of the cadence of the signing of this restructuring market any different than maybe what you would've expected or what you've seen in prior kind of cyclical rebound in that business or.

Any just thoughts on that cadence and looking ahead to next year.

And I'll give my view and then feel free to disagree if you have a different view I mean this is something we talk about a lot in here I think look I think.

History. It never is a perfect guide to anything certainly in our business and I think maybe in general in the world.

I would say.

My my sense is this is unfolding slower.

Then at least many people.

I would've expected in may have unfolded slower than many times in the past.

There are multiple reasons for that I think.

First of all certainly in Europe , Theres still Gov.

Governmental pressures to make sure that banks don't foreclose, because there's just a lot of agility in the economy and people are worried about.

Yes.

To clean up balance sheets at some point, but the reward is going on and Theres a lot of issues going on in Europe . So I think there are some headwinds that may not have been in other.

And other.

Cycles. It's also the last.

Next years.

The.

Covenants have become extraordinarily light.

A whole lot of loans and that really does affect.

On the creditor side business as it affects how quickly banks or lenders can actually trigger a reexamination it doesn't necessarily affect the company side work.

But it does affect the creditor side work in a big way in the U S, where both companies side and creditor side in many places around the world, We're primarily creditor side, So I think.

I think this is certainly unfolding slower than I think many people in our firm and elsewhere.

And I think I think that's kind of.

Realization and I think it may continue to unfold slower than than many people expect I do not believe the need for restructuring over leveraged balance sheets.

Don away permanently and so he's here at both of those themes and <unk> in my comments, but it can it may on this may be.

I am trying to think of a baseball analogy. It's certainly not it is not 100 mile an hour fastball. There are some episodic pitches out there. This is a slowly unfolding scenario at least as we currently.

See it.

Does that talk to your question Andrew.

Yes, no that's helpful.

And then maybe as my follow up switching over to SLC, obviously utilization.

Ticked down I believe quarter over quarter, it's still.

Would be helpful. Thank you.

Yes, no. Thanks for the question.

Yes look.

Somewhat look absolutely we are long term quite bullish on on on all our businesses, but but yes on MLC in the long term trajectory of MLC.

And some parts of efficacy are actually performing quite well right now.

We were willing to whipsaw hiring based on current.

Business.

Would probably be high head count lower here.

Because some places and efficacy are short from where we expected them to be.

But you don't hire just based on the quarterly results you hire based on a availability of talent.

And B actually.

The thing is the first year consultants are today or Youre senior directors of a few years from now and you're managing directors I, sometimes analogize this to our Scotch business.

It takes six years.

To grow Fabulous Scotch six year, Scott It takes 12 years.

To get great raw material season is in the right environment to get 12 year Scotch and we're in the business not just this quarter we are in the business.

Developing fabulous six and 12 year old Scott <unk>.

Fabulous Mad managing directors and senior managing directors and so.

<unk>.

Yes, I don't think you say the hiring the fact that we're continuing hiring means we expect an immediate rebound in every business that is slow right now, but we do have but because we have those multiple objectives, but if you're asking me whether I have long term confidence in that business absolutely I do.

That's helpful. Thank you.

Our next question comes from Tobey Sommer from curious Securities. Please go ahead with your question.

Thank you.

From a multiyear perspective.

Do you think we are in.

Journey of geographic expansion for the firm.

Maybe not in its entirety, but.

Sort of major countries that you might want us.

Have a presence in or.

Flesh out our presence and I'm asking from a perspective of trying to understand.

We anticipate.

When the incremental infrastructure investment that accompanies that.

May sort of peak crescendo, and then moderate allowing for a tailwind to profitability.

That's a great question. So look I think there's a couple of different ways to look at that.

Let me talk about three different ways to look at the same question first of all I don't believe we need.

To be in any additional countries in order to to growth to grow this company extraordinarily over the next while that we have growth opportunities in the U S. We have yes, we're in France, Germany, I mean, all the countries I mentioned, but.

We have extraordinary opportunities to fill those countries out we have the landing team on the ground. We haven't we are nowhere near as big in those countries as we need to and so we don't need.

To have to meet growth aspirations that Ajay has or for.

For shareholders.

We don't need to be in other countries I think the reality in professional services, though is it just there's always.

And we are in the major most of the major geographies at this I mean, <unk> whatever you want to call it.

I think the reality in professional services, though is.

As you continue to succeed.

There is there is there a spillover that you have.

People, who are great in Germany, who know people in Switzerland, you have people in the Middle East who know people in other parts of the middle East.

You have and Thats the nature, if you look at any great professional services firm as they grow even though they didn't have to go have to go into those other countries you do extend into those other countries. Many of them you treat as adjuncts to your existing country companies. So you don't have to build out the entire infrastructure right next door and you.

You can do that but.

But I. So I think we don't have to be in 30 more countries and five years, whether we are in a bunch more countries I suspect, we will be but but but without the sort of infrastructure that Germany, or France or middle East.

In Italy, all of those major countries.

It will require does that does that help a little bit.

It does so let me follow ups I could be from <unk>.

From a peak investment it infrastructure at least on an incremental basis.

Absolute dollars of course.

Are we somewhere are we somewhere in the peak process without trying to call a quarter or within a.

Four six quarter period for that based on the bigger countries, where you do require infrastructure and don't have this sort of adjunct capability and sort of optimal setup.

No.

No there'll be we are not.

For example, take a Germany, we I would not say we are in a peak infrastructure in Germany in the back office right now from it.

We're early in our in our development there, but we have shared service centers and various other locations and I do not expect that we will replicate everything that we have in our shared service centers in every geography, either so in aggregate you should see diminishing percentages, but.

And each in terms of non billable head count growth, but in each specific country. We're in early stages.

Yes, I mean, let me make that come alive, a little bit I mean, we have hired fabulous people to Germany.

If we don't have a web site in German if we don't have contracts in German we don't have contracts that actually conform with German law.

So those those those professionals are handicapped and they actually don't feel emotionally supported but.

Americans don't automatically or are folks in the U K don't automatically know the nuance of employment law in Germany, or France or so.

We have started that process, but certainly in the countries. We're in today. It's not peaked absolutely does that I think that's consistent with what you said RJ.

And then if I could ask another question about.

Hiring if you could describe it from us.

Few angles.

Upper middle to most senior levels.

What are the trends been.

The internal promotions and contrast that to <unk>.

Laterals, and maybe comment on the extent to which the brand and or external market changes are.

Triggering the phone to ring a little bit more.

No I think thats, a continuation of of where we've been told me it's.

That's one of the most gratifying parts of the job both sides of that I mean, sometimes when you think you'll get the phone ringing externally.

Thank all with so there's not going to be promotions and thats not the case the phone continues to ring externally in many more places around the world than it once did.

But we've also had.

Absolutely record promotions internally.

Mollie can probably dig out the numbers and give you that I think we did publish those numbers right. So we can get you those numbers, but it's a really it's a really great thing and I had a conversation yesterday with.

Yes.

The win Mds, that's a group of very talented.

Women.

You are at Who're, just either just at the managing director level or have been there for a while who are very high potential and you just look at that you've talked to the folks that need to say wow the potential for us to continue to grow.

It is just there from internally.

And so that.

That is something that one of the source of my bullishness Tobey. So far both sides of that are really really fabulous that respond.

Yes.

Do you have a current sort of modern day example of a new service line.

Exiting 'twenty two into 'twenty three.

You expect to be a contributor and something we talk about.

<unk> two adjacencies that you've launched.

During your tenure in previous years.

But we have lots of them I mean every quarter I sit down with every segment and we talk about.

Where we are with our core businesses, where we are our core geographies, which geographies. We think we can extend into which adjacencies are we investing in have the adjacencies been proving out do we want to double down investment and are there new adjacencies and so.

With Sophie I talk about.

E Discovery I talk about our thrust to not only broaden our law firm relationships in the U S. But also our corporate relationships in the U S.

Equivalent in the markets that we're now in Europe , where we werent there, but also new services that we've done information governance, which ties to our corporate offering. Most recently the exco has been talking about blockchain and crypto, where theres a lot of people in the world, who who can spout like me who can spout.

What you read in an article about blockchain and crypto, we happen to have people internally, who have testified and some of the biggest trials fraud trials valuation trials, who understand who built.

Blockchain and crypto businesses and who can actually.

I don't think I want to competitively list all of the areas where the.

The one additional one that can be.

As ESG, Okay sure we.

We're the firm that helps companies make their major transitions.

And boy as ESG ever a transition. So so we have a full court press and tremendous capabilities, there and we have tremendous capabilities in various segments and I don't know if it can be publicly announced the fact that we.

We unified that under a leader to make sure we're bringing the entire firm because strategic communications around this is different than helping somebody get there their emissions in line, but.

There is value in bundling those together so we asked a woman in our organization Marian <unk> coordinate that across the firm for a recently so those are a couple of examples does that help tobey.

Yes, very generous I have one last question.

Can you double the size of the firm.

Yes, I mean, we can double the size of the firm can we double the size of the firm while I'm still CEO maybe maybe.

But this potential is enormous we are I think somebody like me said something I still believe we are closer to the beginning of this journey than we are to the end.

That's helpful and.

Any other question, ladies and gentlemen.

Well, let me say, let me just say thanks moderator, let me just say thank you all again for your continued attention and support for our firm we really appreciate it and if you have further questions. Please reach out to.

Somalia or Ajay Thank you for attending today.

And ladies and gentlemen, with that we'll conclude today's conference call and presentation. We do thank you for joining you may now disconnect your lines.

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