Q4 2023 FTI Consulting Inc Earnings Call

Operator: Good morning everyone, and welcome to the FTI Consulting fourth quarter and full year 2023 earnings conference call. All participants will be in a listen-only mode.

Good morning, everyone and welcome to the F T I consulting fourth quarter and full year 2023 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.

Operator: If you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press the star key and then one on your telephone keypad.

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

Ask a question you May press Star and then one on your telephone keypad.

Operator: To withdraw your questions, you may press star and 2. Please also note today's event is being held. At this time, I'd like to turn the floor over to Molly Hawkes, Head of Investor Relations. Ma'am, please go ahead.

All your questions you May press star two.

Please also note today's event is being recorded.

At this time I'd like to turn the floor over to Mollie Hawkes head of Investor Relations Ma'am. Please go ahead.

Molly Hawkes: Good morning, welcome to the FTI Consulting Conference call to discuss the company's fourth quarter and full year 2023 earnings results as reported this morning. Management will begin with several 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 27A of the Securities Act of 1933 and Section 21 of the Securities Exchange Act of 1934 that involve risk and uncertainty. Forward looking statements include statements concerning plans, initiatives, projects, prospects, policies, processes, and practices, objectives, goals, commitments, Strategies, Future Events, Future Revenues, Future Results and Performance, Future Capital Allocations and Expenditures, Expectations, Plans or Intentions Relating to Acquisitions, Share Repurchases, and Other Matters, Business Trends, ESG Related Matters, New or Changes to Laws and Regulations, Scientific or Technological Development, and Other Information or Other Matters that are not historical, including statements regarding estimates of our future financial results and other matters.

Mollie Hawkes: Good morning, welcome to the <unk> consulting conference call to discuss the company's fourth quarter and full year 2023 earnings results as reported this morning.

Management will begin with Paul's remarks, after which they will take your questions.

Mollie Hawkes: Before we begin I would like to remind everyone that this conference call may include forward looking statements with any of the meaning of section 27, eight the Securities Act of 1933 and section 21 of the Securities Exchange Act of 1934.

Risks and uncertainties forward looking statements include statements concerning plans initiatives projected prospect policies processes and practices.

Jeff This goes commitments.

Mollie Hawkes: Gratitude future events future revenues future results or performance future capital allocation and expenditures expectations plans or intentions relating to acquisitions share repurchases and other matters business trend ESG related matters.

Mollie Hawkes: Our changes to laws and regulations scientific or technical logical development and other information or other matters that are not starkel, including statements regarding estimates of our future financial results and other matters.

Molly Hawkes: For a discussion of risk 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.fticonsulting.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 year ended December 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.

Mollie Hawkes: 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 statements 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 disclose.

Mollie Hawkes: Under the headings risk factors and forward looking information in our quarterly report on our annual report on Form 10-K for the year ended December 31st 2023, 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 day.

Mollie Hawkes: This earnings call and will not be updated.

Molly Hawkes: 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 reconciliations. 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 fourth quarter and full year 2023 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.

Mollie Hawkes: 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.

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

Mollie Hawkes: 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 fourth quarter and full year 2023 result.

Mollie Hawkes: During today's prepared remarks management will not speak directly to the quarterly earnings presentation posted to the Investor Relations section of our website.

Mollie Hawkes: Our disclosures are consistent these slides provide the similar details as they have historically and as I've said are available on the Investor Relations section of our website.

Steve Gumby: To ensure our disclosures are consistent, these slides provide the same details as they have historically and, as I have said, are available on the Investor Relations section of our website. With these formalities out of the way, I'm joined today by Stephen Gumby, our President and Chief Executive Officer, and Ajay Sabharwal, our Chief Financial Officer. At this time, I will turn the call over to our President and Chief Executive Officer, Steve Gumby. Thank you, Molly.

Steve Gunby: With these formalities out of the way I'm joined today by Steven Gunby, Our President and Chief Executive Officer, and Ajay Sovereign wealth, our Chief Financial Officer at this time I will turn the call over to our President and Chief Executive Officer, Steve Gunby. Thank you Mollie and welcome everyone and thank you all for joining us this morning.

Steve Gunby: I'm sure. Many of you saw in this morning's press release, we delivered Fabulous results in the fourth quarter and Fabulous results more generally in the second half of the year.

Mollie Hawkes: Those results in turn turn the year the whole year into one that was terrific overall.

Mollie Hawkes: The results at the end of this year exceeded our expectations and I suspect many of yours as well.

Mollie Hawkes: So what I'd like to do before turning this over to Ajay who will go through the quarter in more detail just to take a moment to reflect on the entire year.

Steve Gumby: Welcome, everyone, and thank you all for joining us this morning. As many of you saw in this morning's press release, we delivered fabulous results in the fourth quarter and fabulous results more generally in the second half of the year. Those results, in turn, turned the year, the whole year, into one that was terrific overall. The results at the end of this year exceeded our expectations, and I suspect many of yours as well. So what I'd like to do, before turning this over to Ajay, who will go through the quarter in more detail, is take a moment to reflect on the entire year. In particular, to reflect on the variation we saw in some of the performance metrics across the quarter, and talk about how we thought about what actions we should take and what actions we shouldn't take as the year went on.

Ajay Sovereign: In particular to reflect on the variation we saw in some of the performance metrics across the quarters.

Ajay Sovereign: And talk about how we thought about what actions we should take.

Ajay Sovereign: And what actions, we shouldn't take as the year went on.

Mollie Hawkes: Hoping those reflections support more general conversations that we've had from time to time.

Mollie Hawkes: How do we think about the twin objectives of being responsible stewards of this company for you our shareholders being seen as responsible stewards.

Mollie Hawkes: Also not losing sight of the core ultimate objective, which of course is not quarterly earnings which can be very transient.

Mollie Hawkes: Rob There is building something more powerful ever more capable organization.

Mollie Hawkes: A more welcoming organization.

Mollie Hawkes: When they can make ever more difference for our clients one that's ever more able to attract great people and support them. So they can develop themselves and the people around them.

Mollie Hawkes: And through that creates something real.

Mollie Hawkes: Something durable.

Mollie Hawkes: For our clients and for our people and for you our shareholders.

Mollie Hawkes: Looking back I'm sure. Many of you will recall, our first quarter's earnings were well below our internal expectations below street's expectations and down versus the prior year, even halfway through the year earnings were only flat versus the first half of the year.

Steve Gumby: I'm hoping those reflections support the more general conversations that we've had from time to time about how we think about the twin objectives of being responsible stewards of this company for you as shareholders, and being seen as responsible stewards. Also, not losing sight of the core ultimate objective, which, of course, is not quarterly earnings, which can be very transient, but rather building something more powerful, an ever more capable organization, a more welcoming organization. One that can make an ever more difference for our clients. One that's ever more able to attract great people and support them so they can develop themselves and the people around them, and through that do something real, something durable, for our clients, for our people, and for you, our shareholders. Looking back, I'm sure as many of you will recall, our first quarter's earnings were well below our internal expectations, below the street's expectations, and down versus the prior year. Even halfway through the year, earnings were only flat versus the first half of the year.

Mollie Hawkes: So the responsibility point when you have periods of time, where earnings are down or flat you have to as a responsible management team look at the underlying causes and challenge ourselves.

Mollie Hawkes: If the results are down because youre, losing traction with clients.

Mollie Hawkes: Professionals are departing and drove so youre not attracting more great professionals. Those are serious indicators indicators you may have fundamental problems and you may need to react in fundamental ways.

Mollie Hawkes: We look at the company's performance actually on an ongoing basis after every quarter.

Mollie Hawkes: In a very good quarter and ask those questions, but of course, we particularly ask them one quarters are down.

Mollie Hawkes: And if you remember during the first half of the year that was the time when the number of competitors were talking about difficult market conditions and when some of them were taking major actions.

Mollie Hawkes: And that sort of commentary et cetera actions also has caused <unk> to reflect.

Mollie Hawkes: So we reflected.

Mollie Hawkes: Yeah.

Mollie Hawkes: Interestingly and importantly, when we looked at our first half of the year. We continued to feel good about what was going on yes, our EPS was down but we were doing great work for our clients. We're supporting brand building assignments in those efforts were showing up they were showing up in qualitative terms like awards and client.

Mollie Hawkes: Feedback and I know that always can be or something you use a little skeptical out how are you measuring and so forth.

Steve Gumby: To the responsibility point, when you have periods of time where earnings are down or flat, you have to, as a responsible management team, look at the underlying causes and challenge oneself. If the results are down because you're losing traction with clients, or professionals are departing in droves, or you're not attracting more great professionals, those are serious indicators that you may have fundamental problems, and you may need to react in fundamental ways. We look at the company's performance on an ongoing basis after every quarter, in every good quarter, and ask those questions. But, of course, we particularly ask them when quarters are down. And if you remember, during the first half of the year, that was a time when the number of competitors was talking about difficult market conditions and when some of them were taking major action. And that sort of commentary and set of actions also has to cause one to reflect. Do we reflect that?

Mollie Hawkes: It also showed up pretty tangibly and quantitatively and measurably for.

Mollie Hawkes: For example in terms of revenue growth, where we had 13% revenue growth in the first half of the year and importantly, actually had more great people than we expected because.

Mollie Hawkes: Because we had as we have in recent years had real opportunities to invest in terrific talent.

Mollie Hawkes: Which of course, we always take advantage of whether the quarter is good or not.

Mollie Hawkes: So some of the extra talent that we had was because our ability to attract.

Mollie Hawkes: Terrific talent, but in 2023, we also had the fact that attrition was down significantly.

Mollie Hawkes: Lower than we expected lower than the prior year in the first half of the year.

Mollie Hawkes: So those were the main goals of the fact that our revenue was up so terrific Lee in the first half of the year and yet our profits were not we also had some higher SG&A really hoped for and so we took a look at that with the deeper look said most of that not all but most of that was driven either by onetime factors or some key investments we felt good about.

Mollie Hawkes: So you go through that analysis and when you. After you go through the analysis you have to file reports so what do we do.

Mollie Hawkes: And this is at the time when we knew some others were doing substantial layoffs and others were negative on campus offers are forcing delay arrivals.

Mollie Hawkes: After reflection our conclusion was.

Mollie Hawkes: We did not need to do any of that and more important.

Steve Gumby: Interestingly, though, and importantly, when we looked at our first half of the year, we continued to feel good about what was going on. Yes, our EPS was down, but we were doing great work for our clients. We were supporting brand building assignments, and those efforts were showing up. They were showing up in qualitative terms, like awards and client feedback, and I know that can always be something you're a little skeptical about: how are you measuring it, and so forth. But they also showed up pretty tangibly, quantitatively, and measurably.

Mollie Hawkes: We could not see how that would help the multiyear trajectory of this company.

Mollie Hawkes: Instead, we decided to do was actually pretty modest actions things I think you would all think of a sensible actions and of course, we continued performance management as we are committed to do in good times and in bad times at.

Mollie Hawkes: At the same time, however, we continued to invest aggressively where we had great opportunities to add talent.

Mollie Hawkes: Across a whole range of I think every segment across the firm.

Mollie Hawkes: The one thing we did a little different at this point was that we substantially tapered some of the hiring in the second half of the year, which is not something I actually like to do because you always want that influx of new talent.

Mollie Hawkes: But here given the given the first half of the year, we tapered it aggressively in places, where we had little or no attrition and sustained low utilization.

Steve Gumby: For example, in terms of revenue growth, where we had 13% revenue growth in the first half of the year. And importantly, we actually had more great people than we expected because we had, as we have in recent years, had real opportunities to invest in terrific talent, which, of course, we always take advantage of whether the quarter is good or not. So some of the extra talent that we had was because of our ability to attract terrific talent.

Mollie Hawkes: And that was a little different than we've done and of course, we of course, we looked at our SG&A and re prioritized.

Mollie Hawkes: These were not radical actions I think most people would think they are modest they were prudent actions.

Mollie Hawkes: Importantly, we did not actually expect those actions to yield the sorts of results that we reported this morning.

Mollie Hawkes: Primarily because they werent that radical.

Mollie Hawkes: But also because we did not expect to continue the incredible rate of growth in revenue in the second half of the year that we saw.

Mollie Hawkes: But more important than the tapering of the growth rate of course, as Ajay will talk about.

Steve Gumby: But in 2023, we also had the fact that nutrition was down significantly, lower than we expected, lower than the prior year, in the first half of the year. So those were the main goals of the fact that our revenue was up so terrifically in the first half of the year, and yet our profits were not. We also had some higher SG&A than we hoped for, and so we took a look at that, but the deeper look said most of that, not all, but most of that was driven either by one-time factors or some key investments we felt good about. So you go through that analysis, and after you go through the analysis, you have to decide, of course. So what do we do?

Mollie Hawkes: As we did not see the slowdown in sales growth that we expected.

Mollie Hawkes: Instead, we have a strengthening in our restructuring business a business that as you know has been getting ever more powerful.

Mollie Hawkes: Globally year after year.

Mollie Hawkes: But all of them well beyond that we had stronger than expected results in many many other places for example, our tech business, which has been soaring for awhile now our econ consulting business.

Mollie Hawkes: Frankly, they will.

Mollie Hawkes: Whole lot of places in Europe.

Mollie Hawkes: So we cannot take credit and say Oh. The results today were delivered by tough actions and we did not take actions designed to deliver the sorts of results that we reported today.

Mollie Hawkes: Rather we took actions we thought were modest prudent steps.

Mollie Hawkes: And important steps that would not interfere.

Mollie Hawkes: With the multiyear growth trajectory that we are so committed to.

Mollie Hawkes: As Im sure.

Mollie Hawkes: Whereas I hope most of you know now.

Mollie Hawkes: Our goal has never been to target great quarters.

Steve Gumby: And this is at a time when we knew some others were doing substantial layoffs, and others were negating on-campus offers or forcing delayed arrivals. After reflection, our conclusion was... that we did not need to do any of that, and more important, we could not see how that would help the multi-year trajectory of this company. Instead, what we decided to do was actually pretty modest things, things I think you would all think of as sensible actions.

Mollie Hawkes: In fact, if I had known just how strong the revenue was going to be in the fourth quarter I, probably would not have allowed us to be as tight on tapering.

Mollie Hawkes: As tight as hiring as we actually work not because they don't like strong quarters, who doesn't like strong quarters.

Mollie Hawkes: Because some places that we have previously low utilization are busier than we expected at that point in time.

Mollie Hawkes: None that I surely would have hired more into those segments, which would have hurt the quarter.

Mollie Hawkes: Of course would have benefited us in the medium term and then general guidance our goal.

Mollie Hawkes: The intention is not to ever focus one quarters.

Mollie Hawkes: The.

Mollie Hawkes: The intent to not focus a lot on quarters is not because we don't feel a sense of responsibility.

Steve Gumby: Of course, we continue performance management as we are committed to doing in good times and in bad times. At the same time, however, we continued to invest aggressively where we had great opportunities to add capital across a whole range of, I think, every segment across the firm. The one thing we did a little differently at this point was that we substantially tapered some of the hiring in the second half of the year, which is not something I actually like to do because you always want that influx of new talent. But here, given the first half of the year, we tapered it aggressively in places where we had had little or no attrition and sustained low utilization. And that was a little different than we've done before. And, of course, we looked at our SG&A and reprioritized. These were not radical actions. I think most people would think they're modest.

Mollie Hawkes: It's because ensuring we are on the right long term trajectory.

Mollie Hawkes: Swamps the effect.

Mollie Hawkes: A huge margin.

Mollie Hawkes: Of any quarter.

Mollie Hawkes: Let me give an example.

Mollie Hawkes: We delivered the quarter, we just reported this year or far weaker and for the year only hit the midpoint of our guidance.

Mollie Hawkes: Either way the adjusted EPS in 2023 would still have been more than tripled.

Mollie Hawkes: The EPS, we delivered just six years ago.

Mollie Hawkes: For us it's that multiyear focus on building a more powerful institution that matters, it's positioning ourselves for the next tripling of earnings it matters not whether this quarter is good or bad and so we try to keep our eyes on what's required to deliver that.

Mollie Hawkes: Which in my view.

Mollie Hawkes: <unk> is all about.

Mollie Hawkes: Crafting the people who can help you build a more powerful institution for your clients finding and supporting those people who can build those relationships.

Mollie Hawkes: We want to build their business, we want to attract the next generation of great people inventory and people are just passionate about collaborating to make a difference.

Mollie Hawkes: When we find those people and we support them and we support them, even if it hurts the bottom lines and individual quarter, it might cheap that quarter a little bit.

Mollie Hawkes: In terms of earnings.

Mollie Hawkes: But to me by so doing we put this company on a sustained path.

Steve Gumby: Although they were prudent actions, important, we did not actually expect those actions to yield the sorts of results that we reported this morning. Primarily because they weren't that radical, but also because we did not expect to continue the incredible rate of growth in revenue in the second half of the year that we saw. Well, more important than the tapering of the growth rate of costs, as Ajay will talk about, is that we did not see the slowdown in sales growth that we expected. Instead, we have a strengthening in our restructuring business, a business that, as you know, has been getting ever more powerful, globally, year after year.

Mollie Hawkes: For the medium term and in critically this as a professional services environment. The only asset is passionate people by doing that we create an environment, where the best people want to come and the best people want to stay in they thrive and they make a difference they make a difference for themselves they make a difference for each other.

Mollie Hawkes: So that is the choice we made this year. It's the choice we tried to make every quarter.

Mollie Hawkes: And to me, it's the choice that I believe if we continue to make will mean this company.

Mollie Hawkes: Is only at the beginning where we can go.

Mollie Hawkes: With that I know a lot of you have detailed questions about the quarter RJ, maybe you'll take this down to a more detailed level. Thank you.

RJ: Thank you, Steve and good morning, everybody and.

RJ: In my prepared remarks, I will take you through our company wide and segment results.

RJ: And guidance for 2024.

Steve Gumby: But also well beyond that, we had stronger than expected results in many, many other areas. For example, our tech business, which has been soaring for a while now, or our economic consulting business, and frankly, a whole lot of places in Europe. So we cannot take credit and say, oh, the results today were delivered by tough actions. In fact, we did not take actions designed to deliver the sorts of results that we reported today.

RJ: Beginning with our full year 2023 results.

RJ: We reported record revenues of $3 four $9 billion.

RJ: $463 million or 15, 2% compared to revenues of three point or $3 billion in 2022.

RJ: We also reported record earnings per share of $7 71.

RJ: Up $1, 13, or 17, 2% compared to EPS of $6 58 and 2022.

RJ: As a reminder, in the fourth quarter of 2022, there was a $8 3 million special charge related to severance and other employee related costs, which reduced earnings per share last year by <unk> 19.

Steve Gumby: Rather, we took actions we thought were modest, prudent steps and important steps that would not interfere with the multi-year growth trajectory that we are so committed to. As I'm sure... or as I hope most of you know now, our goal has never been to target great quarters.

RJ: Adjusted earnings per share of $7 71.

RJ: In 2023 increased 19, 4%.

Steve Gumby: In fact, if I had known just how strong the revenue was going to be in the fourth quarter, I probably would not have allowed us to be as tight on tapering, as tight on hiring as we actually were. Not because I don't like strong quarters; who doesn't like strong quarters? But because some places that we had previously low utilization were busier than we expected at that point in time. If I had known that, I surely would have hired more into those segments, which would have hurt the quarter. But of course, we've benefited in the medium term, and in general, that is our goal. The intention is not to ever focus a lot on quarters. The intention to not focus a lot on quarters is not because we don't feel a sense of responsibility. It's because ensuring we are on the right long-term trajectory swamps the effect by a huge margin...of any quarter. Let me give you an example.

RJ: Our 13, 9% from $6 77 in 2022.

RJ: Net income of $274 9 million.

RJ: Compared to $235 $5 million in 2022 <unk>.

RJ: Adjusted EBITDA of $424 $8 million.

RJ: Was also a record and was.

RJ: It was up $67 2 million or 18, 8% from $357 6 million in 2022.

RJ: The sharp increase in adjusted EBITDA is primarily a result of our superb revenue growth of 15%.

RJ: Noteworthy in the first half of the year revenues grew 13% year over year.

RJ: And in the second half of the year revenue growth accelerated to 17, 3% compared to the prior year period.

RJ: This revenue growth occurred in a year, where total head count grew four 6%, which is lower than we have seen our target in recent years.

RJ: Revenue growth exceeded the growth in direct costs and SG&A, excluding depreciation and amortization.

Steve Gumby: Whether we delivered the quarter we just reported this year or far weaker and for the year only hit the midpoint of our guidance, either way, the adjusted EPS in 2023 would still have been more than triple the EPS we delivered just six years ago.

RJ: Resulting in a record adjusted EBITDA.

RJ: All segments delivered record revenues in our corporate finance and restructuring segment also delivered record adjusted segment EBITDA.

RJ: Overall growth was particularly strong for restructuring investigations and litigation non merger and acquisition related anti trust and corporate reputation services.

Steve Gumby: For us, it's that multi-year focus on building a more powerful institution that matters. It's positioning ourselves for the next tripling of earnings that matters, not whether this quarter is good or bad, and so we try to keep our eyes on what's required to deliver that, which, in my opinion, VIEW is all about. Tracking the people who can help you build a more powerful institution for your clients. Finding and supporting those people who can build those relationships, who want to build their business, who want to attract the next generation of great people and mentor them.

RJ: Okay.

Speaker Change: Now I will turn to fourth quarter results.

Speaker Change: For the quarter record revenues of $924 $7 million increased 19, 4% or 18%, excluding FX driven by higher demand across all business segments.

Speaker Change: This quarter is truly exceptional.

Speaker Change: Many of our segments corporate finance and restructuring economic consulting and technology delivered record quarterly revenues in what is typically our slowest quarter of the year as professionals and clients tend to take time off during the holidays.

Steve Gumby: And people are just passionate about collaborating to make a difference. When we find those people, and we support them, and we support them, even if it hurts the bottom line in an individual quarter, it might cheat that quarter a little bit. Terms of Earnings. But to me, by so doing, we put this company on a sustained path for the medium term, and critically, this is a professional services environment. The only asset is passionate people. By doing that, we create an environment where the best people want to come, and the best people want to stay, and they thrive, and they make a difference. They make a difference for themselves, and they make a difference for each other. So that is the choice we made this year. It's the choice we try to make every quarter.

Speaker Change: Net income of $81 6 million <unk>.

Speaker Change: Compared to $47 5 million in the fourth quarter of 2022 and.

Speaker Change: GAAP EPS of $2 28, compared.

Speaker Change: Compared to $1 33 in the prior year quarter.

Speaker Change: Adjusted EPS of $2 28, compared to $1 52 in the prior year quarter.

Speaker Change: Adjusted EPS excludes special charges of which we had $8 $3 million or <unk> 19 per share in Q4 of 2022.

Speaker Change: SG&A of $194 $6 million was 21% of revenues.

Speaker Change: This compares to SG&A of $165 million or 21, 3% of revenues in the fourth quarter of 2022.

Speaker Change: The year over year increase was primarily due to higher compensation and bad debt.

Speaker Change: Fourth quarter 2023, adjusted EBITDA of $127 4 million or 13, 8% of revenues compared to $92 million or 11, 9% of revenue news in fourth quarter 2022.

Steve Gumby: And to me, it's the choice that I believe, if we continue to make, will mean this company is only at the beginning of where we can go. With that, I know a lot of you have detailed questions about the quarter. Ajay, maybe you'll take this down to a more detailed level. Thank you. Thank you, Steve. Good morning, everybody.

Speaker Change: Our fourth quarter effective tax rate of 28% compared to 25, 3% in fourth quarter of 2022, the lower effective tax rate was primarily due to an increase in tax credits.

Ajay Sabharwal: In my prepared remarks, I will take you through our company-wide and segment results and guidance for 2024, beginning with our full year 2023 results. We reported record revenues of $3.49 billion, up $460.3 million or 15.2% compared to revenues of $3.03 billion in 2022. We also reported record earnings per share of $7.71, up $1.13 or 17.2% compared to EPS of $6.58 in 2022. As a reminder, in the fourth quarter of 2022, there was an $8.3 million special charge related to severance and other employee-related costs, which reduced earnings per share last year by 19 cents.

Speaker Change: We expect our effective tax rate for 2024 to be between 24% and 26%.

Speaker Change: Weighted average shares outstanding are way so for for Q4 of $35 8 million in shares compared to 35 7 million shares in the prior year quarter.

Speaker Change: Now turning to our performance at the segment level for the fourth quarter.

Speaker Change: In corporate finance and restructuring our record revenues of 365 $6 million increased 19, 7% compared to Q4 of 2022.

Speaker Change: The increase in revenues was primarily due to higher demand for business transformation and strategy.

Speaker Change: And restructuring services.

Speaker Change: In the fourth quarter restructuring represented 45% of segment revenues.

Ajay Sabharwal: Adjusted earnings per share of $7.71 in 2023 increased 94 cents or 13.9% from $6.77 in 2022. Net income of $274.9 million compared to $235.5 million in 2022. Adjusted EBITDA of $424.8 million was also a record and was up $67.2 million or 18.8% from $357.6 million in 2022. The sharp increase in adjusted EBITDA is primarily a result of our superb revenue growth of 15 percent.

Speaker Change: Business transformation and strategy are represented 34% of segment revenues.

Speaker Change: And transactions represented 21% of segment revenues.

Speaker Change: The business transformation and strategy revenues grew 13, 5% year over year.

Speaker Change: Restructuring revenues grew 20% year over year and transactions revenues were essentially flat.

Speaker Change: Adjusted segment EBITDA of $65 4 million or 17, 9% of segment revenues compared to $49 1 million or 16, 1% of segment revenues in the prior year quarter.

Speaker Change: This increase was primarily due to higher revenues, which was partially offset by higher compensation, which includes the impact of a five 5% increase in billable headcount and higher contractor costs as well as an increase in SG&A.

Ajay Sabharwal: Noteworthy, in the first half of the year, revenues grew 13% year-over-year, and in the second half of the year, revenue growth accelerated to 17.3% compared to the prior year period. This revenue growth occurred in a year where total headcount grew 4.6%, which is lower than we have seen or targeted in recent years. Revenue growth exceeded the growth in direct costs and SG&A, excluding depreciation and amortization, resulting in record adjusted EBITDA. All segments delivered record revenues, and our corporate finance and restructuring segment also delivered record-adjusted segment EBITDA.

Speaker Change: Spencers compared to the prior year quarter.

Speaker Change: Sequentially, corporate finance and restructuring revenues increased $18 million or five 2%.

Speaker Change: Adjusted segment EBITDA decreased.

Speaker Change: $2 $7 million as the increase in revenues was more than offset by higher variable compensation and an increase in contractor costs and higher SG&A expenses.

Speaker Change: Business transformation and strategy revenues increased 9% sequentially transaction revenues increased 4% and restructuring revenues grew 2% compared to the third quarter of 2023.

Speaker Change: Increased volume of work on.

Ajay Sabharwal: Overall, growth was particularly strong for restructuring, investigations, litigation, non-merger and acquisition-related antitrust, and corporate reputation services. Now I will turn to fourth quarter results. For the quarter, record revenues of $924.7 million increased 19.4%, or 18% excluding effects, driven by higher demand across all business segments. This quarter is truly exceptional.

Speaker Change: Sustained business transformation matters in the public sector technology and telecom industries.

Speaker Change: Performance and business transformation and strategy.

Speaker Change: Higher volumes of restructuring activity in the United States, Germany, and the UK.

Speaker Change: And higher success fees under completion of transactions engagements also contributed to the growth in corporate finance and restructuring sequentially.

Ajay Sabharwal: Three of our segments, Corporate Finance and Restructuring, Economic Consulting, and Technology, delivered record quarterly revenues in what is typically our slowest quarter of the year as professionals and clients tend to take time off during the holidays. Net income of $81.6 million compared to $47.5 million in the fourth quarter of 2022. Gap EPS of $2.28 compared to $1.33 in the prior year quarter. Adjusted EPS of $2.28 compared to $1.52 in the prior year quarter. Adjusted EPS excludes special charges, of which we had $8.3 million or $0.19 per share in Q4 of 2022.

Speaker Change: Industries, where we have been helping clients with restructuring matters, where we saw sequential increases in revenues include healthcare construction materials and food and beverage among others.

Speaker Change: In forensic and litigation consulting or SLC fourth quarter revenues of $165 5 million increased 11, 9% compared to Q4 of 2020 do.

Speaker Change: The increase in revenues was primarily due to higher demand for investigations.

Speaker Change: And construction solution services.

Speaker Change: Adjusted segment EBITDA of $19 2 million.

Speaker Change: Our 11, 6% of segment revenues compared to $17 1 million or 11, 6% of segment revenues in the priority of quarter.

Ajay Sabharwal: SG&A of $194.6 million was 21% of revenue. This compares to SG&A of $165 million, or 21.3% of revenues, in the fourth quarter of 2022. The year-over-year increase was primarily due to higher compensation and bad debt. Fourth quarter 2023 adjusted EBITDA of $127.4 million, or 13.8% of revenues, compared to $92 million, or 11.9% of revenues in the fourth quarter of 2022; our fourth quarter effective tax rate of 20.8% compared to 25.3% in the fourth quarter of 2022. The lower effective tax rate was primarily due to an increase in tax credits.

Speaker Change: This increase was primarily due to higher revenues, which was partially offset by an increase in compensation and higher SG&A expenses.

Speaker Change: Sequentially revenues were flat.

Speaker Change: And adjusted segment EBITDA decreased by $2 $2 million, primarily due to higher SG&A expenses largely related to an increase in travel and entertainment expenses compensation and bad debt.

Speaker Change: Economic consulting and record revenues of $206 1 million.

Speaker Change: Increased 19, 8% compared to Q4 of 2022.

Speaker Change: The increase in revenues was primarily due to higher financial economics, non M&A related antitrust and international arbitration matters, which was partially offset by a decline in M&A related antitrust matters.

Speaker Change: Adjusted segment EBITDA of $38 3 million or.

Speaker Change: Our 18, 6% per segment revenues compared to $27 3 million or 15, 9% of segment revenues in the prior year quarter.

Ajay Sabharwal: We expect our effective tax rate for 2024 to be between 24% and 26%, and weighted average shares outstanding, or WESO, for Q4 of 35.8 million shares compared to 35.7 million shares in the prior year quarter. Now, turning to our performance at the segment level for the fourth quarter. In corporate finance and restructuring, record revenues of $365.6 million increased 19.7% compared to Q4 of 2022. The increase in revenues was primarily due to higher demand for business transformation and strategy, and restructuring services. In the fourth quarter, restructuring represented 45% of segment revenue.

Speaker Change: The increase in adjusted segment EBITDA was primarily due to higher revenues, which was partially offset by an increase in compensation, which includes the impact of an eight 1% increase in billable headcount and higher SG&A expenses compared to the prior year quarter.

Speaker Change: Sequentially economic consulting revenues increased $12 2 million or.

Speaker Change: Our six 3%, primarily due to higher financial economics, and the M&A related antitrust revenues, which was partially offset by a decline in non M&A related antitrust revenues.

Speaker Change: Adjusted segment EBITDA increased $10 6 million.

Speaker Change: Primarily due to higher revenues.

Speaker Change: In technology record revenues of $109 million increase.

Speaker Change: Increased 21, 4%.

Speaker Change: Compared to Q4 of 2020 due the increase in revenues was primarily due to higher demand for M&A related second request.

Ajay Sabharwal: Business transformation and strategy represented 34% of segment revenues, and transactions represented 21% of segment revenues. Business transformation and strategy revenues grew 35% year over year. Restructuring revenues grew 20% year over year and transactions revenues were essentially flat; adjusted segment EBITDA of $65.4 million, or 17.9% of segment revenues, compared to $49.1 million, or 16.1% of segment revenues in the prior year quarter. This increase was primarily due to higher revenues, which was partially offset by higher compensation, which includes the impact of a 5.5% increase in billable headcount and higher contractor costs, as well as an increase in Sequentially, corporate finance and restructuring revenues increased $18 million, or 5.2%. However, adjusted segment EBITDA decreased.

Speaker Change: And litigation services.

Speaker Change: Adjusted segment EBITDA of $12 4 million or 12, 3% of segment revenues compared to $11 8 million or 15, 3% of segment revenues in the prior year quarter.

Speaker Change: The increase was primarily due to higher revenues, which was largely offset by higher as needed consultant costs.

Speaker Change: An increase in compensation, which includes the impact of a 12, 9% increase in billable headcount and higher SG&A expenses compared to the prior year quarter.

Speaker Change: Sequentially technology revenues increased $2 $1 million or two 1%, primarily due to higher demand for M&A related second request and litigation services, which was partially offset by a decline in demand for investigation services.

Speaker Change: Adjusted segment, EBIT EBITDA decreased $2 5 million.

Speaker Change: Primarily due to higher SG&A expenses.

Speaker Change: Lastly, in strategic communications revenues of $86 $6 million increased 19, 6%.

Speaker Change: Compared to Q4 of 'twenty two the.

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

Speaker Change: Adjusted segment EBITDA of $15 $6 million or 18% of segment revenues.

Ajay Sabharwal: $2.7 million, as the increase in revenues was more than offset by higher variable compensation, an increase in contractor costs, and higher SG&A expenses. Business transformation and strategy revenues increased 9% sequentially. Transaction revenues increased 4%, and restructuring revenues grew 2% compared to the third quarter of 2023. Increased volume of work on existing business transformation matters in the public sector, technology, and telecom industries shape performance in business transformation and strategy.

Speaker Change: <unk> to $10 5 million or 14, 5% of segment revenues in the prior year quarter.

Speaker Change: This increase was primarily due to higher revenues, which was partially offset by an increase in compensation and higher SG&A expenses.

Speaker Change: Sequentially strategic communications revenues were flat and adjusted segment EBITDA increased $2 2 million.

Speaker Change: I will now discuss certain cash flow and balance sheet items.

Speaker Change: Net cash provided by operating activities of $224 $5 million for the year ended December $31 23, compared to $188 $8 million for the year ended December 31 2022.

Ajay Sabharwal: Higher volumes of restructuring activity in the United States, Germany, and the UK, and higher success fees on the completion of transactions engagements also contributed to the growth in corporate finance and restructuring sequentially. Industries where we've been helping clients with restructuring matters, where we saw sequential increases in revenues, include health care, construction materials, and food and beverage, among others. In Forensic and Litigation Consulting, or FLC, fourth quarter revenues of $165.5 million increased 11.9% compared to Q4 of 2022. The increase in revenues was primarily due to higher demand for investigations and Construction Solutions Services.

Speaker Change: Year over year increase in net cash provided by operating activities was primarily due to higher cash collections.

Speaker Change: Everything from increased billings.

Speaker Change: This increase was partially offset by higher compensation expenses, primarily related to head count growth and increase in other operating expenses.

Speaker Change: Higher use of working capital required for growth.

Speaker Change: Cash and cash equivalents and short term investments of $328 $7 million at December 31, 23% compared to $491 7 million at December 31, 2022.

Speaker Change: This decline in cash and cash equivalents and short term investments was primarily because our convertible debt matured in Q3.

Speaker Change: And related borrowings under the credit facility were paid off in full in the fourth quarter of 2023.

Speaker Change: Total debt net of cash and short term investments was a negative debt position of $328 7 million at December 31st 2023, which compares to a negative debt position of $175 5 million at December 31, 2022.

Ajay Sabharwal: Adjusted segment EBITDA of $19.2 million, or 11.6% of segment revenues, compared to $17.1 million, or 11.6% of segment revenues, in the prior year quarter. This increase was primarily due to higher revenues, which was partially offset by an increase in compensation and higher SG&A expenses. sequentially, revenues were flat, and adjusted segment DBA decreased by $2.2 million, primarily due to higher SG&A expenses, largely related to an increase in travel and entertainment expenses, compensation, and bad debt.

Speaker Change: And a positive debt position of $59 4 million at September 30th 2023.

Speaker Change: Earlier in the year, our cash collections were not keeping pace with revenues because of slower billings from a transition to a new enterprise resource planning or ERP system.

Speaker Change: In the fourth quarter billings improved and cash collections were significantly stronger.

Speaker Change: Fourth quarter free cash flow was $376 7 million.

Speaker Change: Primarily because of such strong collections.

Ajay Sabharwal: Economic Consulting's record revenues of $206.1 million increased 19.8% compared to Q4 of 2022. The increase in revenues was primarily due to higher financial economics, non-M&A-related antitrust, and international arbitration matters, which was partially offset by a decline in M&A-related antitrust matters. Adjusted segment DBA of $38.3 million, or 18.6% of segment revenues compared to $27.3 million, or 15.9% of segment revenues in the prior year quarter.

Speaker Change: There were no share repurchases during the quarter.

Speaker Change: In 2020 and training during the first quarter, we repurchased 112139 shares at an average price per share of $158 and 70.

Speaker Change: For a total cost of $17 8 million.

Speaker Change: As of December 31, 2023, approximately $467 million remained available under our stock repurchase authorization.

Speaker Change: Turning to our 2020 for guidance.

Speaker Change: We are as usual providing guidance for revenues and EPS.

Speaker Change: We estimate that revenues will range between $3 65 billion and $3 $79 billion.

Ajay Sabharwal: The increase in Adjusted Segment DBDA was primarily due to higher revenues, which was partially offset by an increase in compensation, which includes the impact of an 8.1% increase in billable headcount and higher SG&A expenses compared to the prior year quarter. Sequentially, economic consulting's revenues increased $12.2 million, or 6.3%, primarily due to higher financial economics and M&A-related antitrust revenues, which was partially offset by Adjusted segment EBITDA increased $10.6 million, primarily due to higher revenue.

Speaker Change: We expect our EPS to range between $7, 75% and $8 50.

Speaker Change: Our 2024 guidance range.

Speaker Change: As Shane.

Speaker Change: Several considerations.

Speaker Change: First let me acknowledge that in 2023 and restructuring grew even more than our expectations.

Speaker Change: Increasing 32% compared to 2022.

Speaker Change: In 2024.

Speaker Change: We expect restructuring to remain strong.

Speaker Change: But steady at levels similar to Q4 of 2023.

Speaker Change: However, with financial liquidity now increasing four challenged companies.

Speaker Change: We did see a slowdown later in the year.

Speaker Change: Second we expect the improvement in M&A to drive increased demand for services in our economic consulting and technology segments.

Ajay Sabharwal: In technology, record revenues of $100.9 million increased 31.4% compared to Q4 of 2022. The increase in revenues was primarily due to higher demand for M&A-related second request and litigation services; adjusted segment EBITDA of $12.4 million, or 12.3% of segment revenues compared to $11.8 million, or 15.3% of segment revenues in the prior year quarter. The increase was primarily due to higher revenues, which was largely offset by higher as needed consultant costs, an increase in compensation, which includes the impact of a 12.9% increase in billable headcount, and higher SG&A expenses compared to the prior year quarter. sequentially, technology revenues increased $2.1 million, or 2.1%, primarily due to higher demand for M&A-related second requests and litigation services, which was partially offset by a decline in demand for investigation services. Adjusted segment EBITDA decreased $2.5 million primarily due to higher SG&A expenses.

Speaker Change: As well as our transactions business and corporate finance.

Speaker Change: However.

Speaker Change: There are economic uncertainties.

Speaker Change: Such as the pace of interest rate reductions that could impact M&A.

Speaker Change: Third we expect margins in economic consulting to decline.

Speaker Change: Compared to 2023.

Speaker Change: Primarily due to higher compensation from a combination of increased head count Merit increases.

Speaker Change: And competitive pressures.

Speaker Change: Additionally, because of the anticipated roll off of certain large engagements. We expect revenue will not offset this increased cost.

Speaker Change: Further similar to last year, we expect significant deferrals of revenue from early in the year to be recognized later in 2024.

Speaker Change: Paul.

Speaker Change: As we have discussed.

Speaker Change: We slowed down hiring in 2023, particularly in the second half of the year.

Speaker Change: In 2024, we are assuming headcount growth will exceed the level achieved in 2023.

Speaker Change: And as Steve mentioned, we.

Speaker Change: We continue to see opportunities to invest in great professionals in more places around the world as well as to expand the scope of our services to meet the evolving needs of our clients.

Speaker Change: We have both the appetite and the opportunity for investments.

Ajay Sabharwal: Lastly, in strategic communications, revenues of $86.6 million increased 19.6%, compared to Q4 of 22. The increase in revenues was primarily due to higher demand for corporate reputation and public affairs services, adjusted to segmented D.A. of $15.6 million, or 18% of segment revenues compared to $10.5 million, or 14.5% of segment revenues in the prior year quarter. This increase was primarily due to higher revenues, which was partially offset by an increase in compensation and higher SG&A expenses. sequentially, strategic communications revenues were flat, and adjusted segment EBITDA increased $2.2 million.

Speaker Change: Such investments could at least initially have a downward impact on earnings.

Speaker Change: Fifth.

Speaker Change: We expect increased compensation costs throughout our company due to competitive pressures, which may not be offset by pricing increases.

Speaker Change: Six, though we expect SG&A to grow at a more moderate pace than in 2023, we may invest more as we expect to remain in the forefront of changing technologies such as in AI.

Speaker Change: Lastly, we expect to revert to our normal seasonal pattern of lower utilization in Q4 because of vacations.

Speaker Change: I must point out that our assumptions define our midpoint and we provided a range of guidance around such midpoint, which I characterize as our current best judgment.

Ajay Sabharwal: I will now discuss certain cash flow and balance sheet items. Net cash provided by operating activities of $224.5 million for the year ended December 31, 2023 compared to $188.8 million for the year ended December 31, 2022. The year-over-year increase in net cash provided by operating activities was primarily due to higher cash collections resulting from increased billing.

Speaker Change: Often we find actual results are outside of such range because ours is largely a fixed cost business in the short term.

Speaker Change: And small variations in revenue may have an outsized impact on earnings.

Speaker Change: And as Steve has said due to such variations one should not take the earnings in a single quarter and multiply them by four.

Speaker Change: A comparison of earnings for the first half versus the second half of 2023 is an excellent illustration of how sharply results can vary during the course of the year without any underlying substantive change in our business.

Ajay Sabharwal: This increase was partially offset by higher compensation expenses primarily related to headcount growth and an increase in other operating expenses and higher use of working capital required for growth. Cash and cash equivalents and short-term investments of $328.7 million at December 31, 2023, compared to $491.7 million at December 31, 2022. This decline in cash and cash equivalents and short-term investments was primarily because our convertible debt matured in Q3 and related borrowings under the credit facility were paid off in full in the fourth quarter of 2023. Total debt, net of cash and short-term investments, was a negative debt position of $328.7 million at December 31, 2023, which compares to a negative debt position of $175.5 million at December 31, 2022 and a positive debt Earlier in the year, our cash collections were not keeping pace with revenues because of slower billings from a transition to a new enterprise resource planning, or ERP, system. In the fourth quarter, billings improved, and cash collections were significantly stronger. Fourth quarter free cash flow was $376.7 million, primarily because of such strong. There were no share repurchases during the quarter.

And now I will close my remarks by emphasizing a few key themes first we are a unique company in terms of the scope of our services and the scale of our capabilities.

We help our clients navigate through their most complex opportunities and challenges such as data breaches restructuring mergers antitrust proceedings enterprise transformations fraud investigations crisis management and more.

Second we continued to deliver excellent revenue growth.

And attract great professionals.

Speaker Change: While over time and remaining focused on utilization.

Third our diverse portfolio of businesses, adding drill and turn Friday, regardless of business cycle.

Speaker Change: And finally, we have an enviable balance sheet that provides us the flexibility.

To boost shareholder value through organic growth.

Share buybacks and acquisitions.

When we see the right ones.

Let's open the call up for your questions.

Ladies and gentlemen, we will now begin the question and answer session to ask a question you May Press Star and then one on your telephone keypad.

We are using a speaker phone, we do ask that you. Please pickup your handset prior to pressing the keys to ensure the best sound quality.

Withdraw your question you May press Star two.

But again that is star and then wanted to join the question queue, we'll pause momentarily to assemble the roster.

Our first question today comes from James <unk> from Goldman Sachs. Please go ahead with your question.

Good morning, and thank you for taking my questions.

Starting with a bigger picture one I think at the midpoint your.

Guidance for 'twenty 'twenty, four implies 7% revenue growth year on year. This would be the lowest year on year revenue growth since 2020, a year in which faced significant headwinds, especially from court speak shot.

Is there anything we should take away from this lower growth rate guidance in terms of the demand equation for your business next in 2024 beyond lapping the strong 2023 restructuring results that Ajay touched upon or is there something else.

I'll give you a high level answer is Glenn RJ disagree with me or add to it. However, he chooses look I think there is nothing.

Not as concerned about the long term demand structure of our company actually one of the concerns I have is to be under higher in the second half of the year, which you can't see aggregate utilization things because we have so many little sub businesses that even if the aggregate is X.

Ajay Sabharwal: In 2023, during the first quarter, we repurchased 112,139 shares at an average price per share of $158.70 for a total cost of $17.8 million. As of December 31st, 2023, approximately $460.7 million dollars remained available under our stock repurchase authorization. Turning to our 2024 guidance, We are, as usual, providing guidance for revenues and ETFs. We estimate that revenues will range between $3.65 billion and $3.79 billion. We expect our ETS to range between $7.75 and $8.50. Our 2024 guidance stream is shaped by several considerations. First,

A sub part of that business can be 30 points above X and so when when you under higher sometimes end up in different places around im going to turn down work. So that worries me and there's always variation as RJ says we don't know.

The revenue in July at this point in time, I mean, there's always variation, but there is no underlying concern about the overall growth potential of our company I will say that.

I think the two year growth in here.

Pretty consistent with where we've been over the multiple years I think.

I think 19 was extraordinary in 'twenty as you pointed out was less and so forth. So this is in line with.

Our two year numbers, but but I think that's more coincidence than anything else, but I hope I answered I am not worried about long term growth. If we do the right things continue to do the right things about getting the talent and supporting them James did I answer your question.

Ajay Sabharwal: Let me acknowledge that in 2023, restructuring grew even more than our expectations, increasing 32% compared to 2022. In 2024, we expect restructuring to remain strong but steady at levels similar to Q4 of 2023. However, with financial liquidity now increasing for challenged companies, we could see a slowdown later in the year. Second, we expect improvement in M&A to drive increased demand for services in our economic consulting and technology segments, as well as our transactions business in corporate finance. However, there are economic uncertainties, such as the pace of interest rate reductions that could impact M&A. Third, we expect margins in economic consulting to decline compared to 2023, primarily due to higher compensation from a combination of increased headcount, merit increases, and competitive pressures. Additionally, because of the anticipated roll-off of certain large engagements, we expect revenue will not offset this increased cost. Furthermore, similar to last year, we expect significant deferrals of revenue from early in the year to be recognized later in 2024. Boom.

Yes that was excellent. Thank you.

Maybe just one on restructuring I appreciate your comments Ajay.

On the guide for 'twenty, two before but I just wanted to take a step back in and.

Get your perspective on two different scenarios, which is one.

As a soft landing and then the second one is higher rates for longer presumably of course higher rates for longer would be stronger, but just how youre thinking about that.

The two of those and what that means for the restructuring longer term outlook.

James.

Characterized it correctly those those would shape.

A whole variety of scenarios around our mid point and go transcend into next year as well clearly higher rates for longer with extend the restructuring cycle.

But we are we are beginning to see.

The yields.

Does the yield spread has tightened.

And so those are the most challenged companies are beginning to get financing we are seeing that in the marketplace. Today. So the general theme for us at this at this juncture is we're proceeding carefully.

In our in our in the way, we think and the way we are presenting to you we're proceeding carefully.

Okay, that's very clear.

Just one.

One on encompass lexicon I know there've been some senior leadership changes there I just wanted to get your thoughts on the senior leadership changes there and does that represent.

Went a different direction for the firm and whether it changes the growth profile.

For a couple of thanks, again, specifically and whether that changes the growth profile for that business.

Yes look let me be clear I'm very excited about the people who were running compass lexicon I spent was over in Europe.

Ajay Sabharwal: As we have discussed, we slowed down hiring in 2023, particularly in the second half of the year. In 2024, we are assuming headcount growth will exceed the level achieved in 2023. And, as Steve mentioned, we continue to see opportunities to invest in great professionals in more places around the world, as well as to expand the scope of our services to meet the evolving needs of our clients. We have both the appetite and the opportunity for investment. Such investments could, at least initially, have a downward impact on earnings. Chris

At the beginning part of this year.

With Jorge and three people were running running Europe underneath them Lorenzo Neal and Kirsten.

I got to tell you there's nobody a person on this call who wouldn't love having time with those those people before he is the guy who founded Compass Europe for US I mean, it's been an amazing growth engine, but he has built a team underneath him and as great as Lorenzo Neal <unk>.

Spent time in Spain and U C.

In Brussels, and Paris, and London, I mean that is an amazing amazing place with multiplicity of talent. The U S. As you know Dan for shallow im not sure Theres a more distinguished powerful.

Ajay Sabharwal: We expect increased compensation costs throughout our company due to competitive pressures, which may not be offset by price increases. Thank you. Though we expect SG&A to grow at a more moderate pace than in 2023, we may invest more as we expect to remain in the forefront of changing technologies, such as AI. Lastly, we expect to revert to our normal seasonal pattern of lower utilization in Q4 because of vacation. I must point out that our assumptions define a midpoint, and we provide a range of guidance around such a midpoint, which I characterize as our current best judgment. Often, we find actual results are outside of this range because ours is largely a fixed cost business in the short term, and small variations in revenue may have an outsized impact on earnings. And as Steve has said, due to such variations, one should not take the earnings in a single quarter and multiply them by four.

Incredibly respected in impressive person in professional services and he sees these bleeding.

I guess the tightly as chairman, but he is the father of Compass lexicon in some ways and I mean, theres multiple fathers, but he's an incredible asset I think probably people know mark Israel less well.

Mark is very different than Dan, but theyre very different personalities, but.

These are have.

<unk> younger maybe little more than half generation younger and is equally as impressive. So we have a we have an amazing leadership team and they're all focused on building it.

So just to put the point on the table, we had a senior person leave.

It's always unfortunate.

When one senior person leaves and I would say that the circumstances around that departure were.

Particularly.

Unfortunate, but it doesn't give me any lack of confidence in where this business is the proposition has.

And the ability of that leadership team to take it forward not only that leadership team, but the people below them does that answer your question for Steve to your question James That's great. That's very clear Steve. Thank you. So much just last one just on the longer term ramifications of AI on your business, maybe you could talk about the puts and takes there what how does that benefit your business.

Ajay Sabharwal: A comparison of earnings for the first half versus the second half of 2023 is an excellent illustration of how sharply results can vary during the course of the year without any underlying substantive change in our business. And now, I will close my remarks by emphasizing a few key themes. First, we are a unique company in terms of the scope of our services and the scale of our capability. We help our clients navigate through their most complex opportunities and challenges, such as data breaches, restructuring, mergers, antitrust proceedings, enterprise transformations, fraud investigations, crisis management, and more. Second, we continue to deliver excellent revenue growth and attract great professionals, while over time remaining focused on utilization. Third, our diverse portfolio of businesses can grow and thrive regardless of the business cycle. And finally, we have an enviable balance sheet that provides us with the flexibility to boost shareholder value through organic growth, share buybacks, and acquisitions when we see the right one.

What are the potential risks and then.

Investor question I've gotten is just are there any risks that certain parts of your business could be replaced by AI tools on the other hand of course that could make you more efficient and increase margins. So just the puts and takes there over the longer term yes.

Yes look so I think there are for every company right well first of all let's be let's be clear right everybody has definitive opinions on new technology, which means some of it's some of it's wrong and you figure it out over time right, but it's obviously an area, where we're focused on and I suspect and I think.

The team that's looking at this within the segments and across all believe that this will change.

Some of our businesses I mean this has already happened.

Our tech business, our Ediscovery business has been using machine learning for reviewed for years now and they are cutting edge and they know that if they fall behind.

The changes.

It doesn't matter what success, we've had we won't have it going forward to the contrary actually their ability to innovate.

Ajay Sabharwal: With that, let's open the call up for your questions. Ladies and gentlemen, we'll now begin the question and answer session. To ask a question, you may press star and then one on your telephone keypad. If you are using a speaker phone, we do ask that you please pick up your handset prior to pressing the keys to ensure the best sound quality.

Been one of the reasons they have been outperforming the industry in the last few years in terms of emerging data and so forth and so that mental mindset is is with the way. We are looking at this and we're looking at this within segments. Each segment is looking at both of those questions. What's the threat.

Which way is can it lower value added presumably I wasn't around I don't think you are around when people did.

Operator: To withdraw your questions, you may press SHIFT+A> and then one to join the question queue. We'll pause momentarily to assemble the roster. Our first question today comes from James Yarrow from Goldman Sachs. Please go ahead with your question. Good morning and thank you. Microsoft Office Word Document MSWordDoc Word.

Handwritten spreadsheets.

But you cant Bill for hand, written spreadsheets, and then a recalculation of handwritten spreadsheet. These days anymore XL made a difference on that and the same thing happens all the time. So yes of course 13 week cash flows, but are we going to need as much time to do it or is it going to take less. These are all the questions. We're asking across the business I will say.

James Yarrow: Document.8, I think at the midpoint, your guidance for 2024 implies 7% revenue growth year-on-year. This would be the lowest year-on-year revenue growth since 2020, a year in which we've seen the most revenue growth. Lincoln-Hedwin.

Me too.

Two things right.

Right now I would say none of us feel like Theres more threat than there is opportunity, but we are monitoring both the other thing I would say is.

Universal's in the face of new technology are always a little scary, but our firm is not a commodity firm.

Our firm is we're talking about for shell in Israel I mean.

Steve Gumby: Courts being shut. Is there anything we should take away from this lower growth rate guidance in terms of the demand equation for your business next in 2024, beyond lapping the strong 2023 restructuring results that Ajay touched upon? I'll give you a high-level answer. Let Ajay disagree with me or add to it however he chooses.

You are in the middle of a huge litigation you want one of those persons with their capabilities testifying for you.

And I think it.

Well their AI helps streamline some of the preparation that makes our people more efficient it gives them a long time before you have a computer testifying in court and the same thing is true for any sort of crisis situation, which is crisis communication.

Steve Gumby: Look, there is nothing... That has me concerned about the long-term demand structure of our company. You know, actually, one of the concerns I have is, you know, being under-hired in the second half of the year, which you can't see aggregate utilization things because we have so many little sub-businesses that even if the aggregate is active, you know, a sub part of that business can be 30 points above X. And so when you under-hire, you know, you sometimes end up in different places around having to turn down work.

M&A crisis, and I think thats, our firm position there so as long as we do the right things and challenge ourselves I suspect we will be fine if we get lazy, we won't be but my job is to help us not get lazy does that at least start with the question.

That's really helpful. Steve. Thank you so much for answering my questions.

Our next question comes from Tobey Sommer from <unk> Securities. Please go ahead with your question.

Thank you.

<unk>.

Could could you expand a little detail that piqued my interest at the end of your prepared remarks talking about the guidance about the deferred revenue and competitive pressures.

Steve Gumby: So that worries me. And there's always variation, as Ajay says. You know, we don't know the revenue for July at this point in time. I mean, there's always variation, but there is no underlying concern about the overall growth potential of our company. I will say that I think the two-year growth here is, you know, pretty consistent with where we've been over the past few years. I think 19 was extraordinary, and 20, as you point out, was less, and so forth.

In the guidance commentary.

Sure Tobey, let me talk about the competitive pressures and I'll, let I'll, let him talk about deferred revenues look look.

<unk>.

I think you've noticed Tobey and we appreciate the comments you're right about the success. We've had unfortunately competitors also notice that too and so we are routinely attack now the reality is.

So far we are hiring many more people than we lose but it remains we have to be on our toes on competitive comp and thats across the board in our company and so.

You know.

That's that's a reality of life and I mean, that's at a high level the answer to that I'll, let I'll, let Andre talk to the other point.

Okay.

Thanks, Steve.

Toby you might recollect advanced two years in economic consulting we have been saying in the first quarter and also in the second quarter I think in 2022.

Steve Gumby: So this is in line with, you know, our two-year numbers. But I think that's more a coincidence than anything else. But I hope I answered you correctly. I am not worried about long-term growth.

2021.

In 2022, sorry in 2022, even in the second quarter, we said that there's a whole bunch of utilization, which didn't translate into revenue because the conditions for revenue recognition were not met.

James Yarrow: If we do the right things, continue to do the right things about getting the talent and supporting them. James, did I answer your question? Yeah, that was excellent.

And we've had that happen in 'twenty, two and 'twenty, three and now I'm, saying, we're going to have that happen in 2024 as well.

And Thats, what we just communicated.

Okay.

That makes sense.

James Yarrow: Thank you. Maybe just one on restructuring. I appreciate your comments, Ajay, on the guide for 2024, but I just wanted to take a step back and get your perspective on two different scenarios, which is, you know, one is a soft landing and the second one is higher rates for longer. Presumably, of course, higher rates for longer would be stronger, but just how you're thinking about the two of those and what that means.

<unk>.

What's the right way to think about head count growth in 'twenty four.

Given sort of the lower starting point in the fourth quarter and I was hoping you could also speak to the.

Whatever metrics you'd care to reveal about what drove the sequential head count.

Decline in the fourth quarter, maybe commenting on employee attrition trends sort of inputs into that thank you.

Yes look let me let me let me clear I mean, we didn't have a massive outpouring of people our attrition levels for last year were well below our expectations and below prior last.

At least the prior year at maybe the year before that I don't remember the year before that right. Now we did the real issue is I took the action I mentioned of tapering hiring well, let me be clear I got recommendations to do and I reluctantly agreed to do that I'm, probably the more bullish guy on head count one of the more bullish people on head count.

Ajay Sabharwal: For more information, visit www.fti.gov James, you characterized it correctly. Those would shape a whole variety of scenarios around our midpoint and go, you know, transcend into next year as well. Clearly, higher rates for longer would extend the restructuring cycle.

RJ as more my quarterly conscience and up for what do we need to do to make this business what we want it to be in the next two to three years and I'm. The health care is what the utilization is this quarter. So we have a yin and Yang within our firm.

Ajay Sabharwal: But we are, you know, we are beginning to see that the yields, the yield spread has really tightened, and so the most challenged companies are beginning to get financing. We are seeing that in the marketplace today. So the general theme for us at this juncture is that we are proceeding carefully. In our, in our, the way we think, in the way we are presenting it to you, we are proceeding carefully. That's very clear. I just wanted to get your thoughts on the senior leadership changes there and if that represents a different direction for the firm and whether that changes the growth profile for Compass Lexicon specifically and whether that changes the growth profile for that firm. Yeah, look, let me be clear.

But I agreed to.

A substantial tapering of head count just because of the conditions that was in the middle of the year. So I think we ended up the year. This year lower than we probably should have lower than if I had known how strong the year was going to be I would have guided us too. So we're going to have to make that up because our goal is not to maximize the profits in 2024, our goal is and it's not.

Just as to sort of build a business that you and we can see.

The next tripling Novartis and frankly, most of our people don't care about the next tripling the runs but they do tariffs a team that is winning that's attracting great people winning the great assignments just happens to be that is consistent with our multi year trajectory. So we are going to have to.

We're going to have to make up for some of the shortfall in hiring this year and so.

Ajay Sabharwal: I'm very excited about the people who are running Compass Lexicon. I mean, I was over in Europe in the beginning part of this year with, you know, Jorge and three people who are running Europe underneath them, you know, Lorenzo, Neil, and Kirsten. I mean, I got to tell you, there's nobody on this call who wouldn't love having time with those people.

I would be very surprised if it's not up over last year and much more in line with what we've been doing over time.

I don't think we give more specifics on that do we.

No.

Youre right. So we have specifically said we expect.

Headcount growth in 2020 for Dolby to be higher than what we achieved in 2023. So that we have explicitly said.

We've also said on top of that we have an appetite to make investments and we're seeing opportunities now.

Steve Gumby: Jorge is the guy who founded Compass Europe for us. I mean, it's been an amazing growth engine, but he's built a team underneath them. And as great as Lorenzo, Neil, and Kirsten are, you know, I went, you know, spent time in Spain and you see the, Brussels, Paris, and London.

The one of the reasons, we don't give a specific percentages.

These things are not easy.

Z to accomplish there is also there is a certain amount of attrition that takes place in the business and you've got to offset that and let them grow. So theres a lot of work that comes in in all of this but that clearly is our ambition and that is factored into the guidance.

Steve Gumby: I mean, it is an amazing, amazing place with a multiplicity of talent. The US, as you know, Dan Fischel, I'm not sure there's a more distinguished, powerful, you know, incredibly respected and impressive person in professional services. And he's leading, I guess the title he has as chairman, but he's, you know, he's the father of Compass Lexicon in some ways.

Okay perfect.

What.

I heard your general comments about restructuring demand in 'twenty, four and sort of how to think about that puts and takes.

From a domestic versus international perspective are there any.

Contours that may be different than the overall commentary and how do you think the company's performance reflects.

On sort of market share trends within that.

The business.

So I'll, let me give a top level answer and then J wants to give more specifics.

Steve Gumby: I think probably most people know Mark Israel Leswell. Mark is very different than Dan, but, you know, they're very different personalities, but, and he's a half generation younger, maybe a little more than a half generation younger, and is equally as impressive. So we have an amazing leadership team, and they're all focused on building it. You know, as to just put the point on the table, we had a senior person leave. It's always unfortunate.

The dynamics are different around the world just because a sometimes economic situations are different and sometimes there is if you remember from the Covid days their government policies to peer but also it also depends on what parts of the restructuring we are in.

In the U S. We are in both company side and creditor side.

In overseas many places we are.

Primarily creditor side and there is a timing difference.

The company will often hire you.

Steve Gumby: When one senior person leaves, and I would say that the circumstances around that departure were particularly unfortunate, but it doesn't give me any lack of confidence in where this business is in the position it has and the ability of that leadership team to take it forward. Not only that leadership team but the people below them. Does that answer your question or speak to your question, James? That's very, that's very clear, Steve. Thank you so much.

Months before they have decided to do a filing.

Creditors don't of course are not usually and so there is those timing dynamics, which vary around the world and frankly meant that I think the U S was busier earlier.

Then many places around the world.

And that those dynamics change over time, so that's a kind of a.

The high level answer.

<unk> I don't know how do you want to give anything more on top of that.

I just.

Some slicing that more Germany has been really strong recently.

The UK also kind of caught up to some of the trends we were seeing in the United States. So our international pieces were part of the part of the surprise growth or <unk> growth more than we thought has come from EMEA, Germany in particular.

James Yarrow: Just one last one, just on the longer-term ramifications of AI on your business, maybe you could talk about the puts and takes there. How does AI benefit your business? What are the potential risks?

So that for whatever it's worth that's additional additional color there does that answer sufficiently Dolby, yes, yes. Thank you very much I'll get back in the queue.

Steve Gumby: And then, you know, an investor question I've gotten is just, you know, are there any risks that certain parts of your business could take? Please see the complete disclaimer at https://sites.google.com or at https://sites.google.com.au. Yeah, look, so I think there are for every company, right? Well, first of all, let's be clear, right? Everybody has definitive opinions on new technology, which means, you know, some of it's right, some of it's wrong, and you figure it out over time. But it's obviously an area we're focused on, and I suspect and I. You know, the team that's looking at this within the segments and across all believe that this will change some of our businesses. I mean, this has already happened.

And our next question comes from Andrew Nicholas from William Blair. Please go ahead with your question.

Hi, Good morning, I. Appreciate you taking my questions, maybe I'll follow up there on your last comment RJ and take a step higher like in terms of the biggest areas of sequential improvement or areas that surprised you positively in the fourth quarter could you just provide a little bit more color or.

Thoughts there. It's first time I can remember with this type of fourth quarter step up and obviously better than your guide from last quarter or so.

If you could just isolate the main areas that surprised you positively that'd be helpful.

Hi.

I am so proud of our practitioners can be just.

Just look at the statistics put them on a piece of paper and stare at them, which I do quite a bit.

Q3 of last year utilization in corporate finance and restructuring was 61% Q4, it dropped to 56% 5% decline.

Steve Gumby: I mean, you know, our tech business, our e-discovery business, has been using machine learning for review for years now, and they're cutting edge. And they know that if they fall behind on the changes, and we're looking at this in segments. Each segment is looking at both of those questions. What's the threat? you know, which ways can it lower the value added? Presumably, you know, I wasn't around. I don't think you were around when people did handwritten spreadsheets.

<unk> was flat at 53, and economic consulting declined from 67% to 64% decline expect folks to take some time off alright look at this year from Q3 to Q4, 60% to 61% in corporate finance and restructuring, 57% to 56 higher than last year.

And somewhat flattened FMC and 65% to 65 in economic consulting.

This is this is incredible this says our folks care for their clients are and do the most most important things for them and are there when they need them, regardless of whether it's Christmas or new year and that five percentage points in utilization makes all the difference to revenues.

Steve Gumby: But, you know, you can't bill for handwritten spreadsheets and then the recalculation on the handwritten spreadsheet these days, right? You know, Excel made a difference in that. And the same thing happens all the time.

Steve Gumby: So, yes, of course, you know, 13-week cash flows. Are we going to need as much time to do it, or is it going to take less? These are all the questions we're asking across the business. I will say two things.

And then look at Bill rates when you look at Bill rates.

Can see this.

In economic consulting and third quarter was $559 per hour to 586.

We do the harvest when M&A gets really really hard we get hired and this says that the top people were the ones that we're working so those rates that makes that utilization is what delivered these results.

Steve Gumby: Right now, I would say none of us feel like there's more threat than there is opportunity, but we're monitoring both. The other thing I would say is, you know... Universals in the face of new technology are always a little scary, but our firm is not a commodity firm. You know, our firm is we're talking about Fischel and Israel. I mean, you're in the middle of a huge litigation. You want one of those persons with their capabilities testifying for you. And I think it's, will their AI help streamline some of the preparation and make some people more efficient? I think it's gonna be a long time before you have a computer testifying in court.

Shouldnt I mean, I'm not trying to shortchange anybody but business transformation some of the largest matters out there across the globe in different geographies in technology, we crossed $100 million in revenue this quarter and our tech segment.

So this was this was really really good.

Pretty pretty broad based.

Taken.

In terms of utilization you talked about the sequential trend, but maybe over.

Over over the and looking at the annual trend line in utilization in FL see another year of improvement, but still below pre COVID-19 levels. Just wondering how we should think about that business getting back to those levels potentially over the next couple of years.

James Yarrow: And the same thing is true for any sort of crisis situation, which is crisis communication in an M&A crisis. And I think that's our firm's position there. So, as long as we do the right things and challenge ourselves, I suspect we will be fine. But, if we get lazy, we won't. But my job is to help us not get lazy. Does that at least answer the question? That's really helpful, Steve. Thank you so much for answering.

And what gives you confidence in that business is trajectory.

Look I've got a lot of confidence in that business trajectory I will say that.

I Hope I've said this in the past, but I always I always hate it when somebody looks at 2019 as a benchmark for our company or our business because that was a place where we got caught short on head count and we have to make it up on a couple of years later and so I can't remember what the utilization was for or.

For MLC, but I know we were.

Like sold out in Europe.

Tobey O'Brien Sommer: Our next question comes from Tobey Sommer from Truist Securities. Please go ahead with your question. Thank you.

We werent answering the phones on new leads for some places because because of the business we had so.

Ajay Sabharwal: Could you expand on a little detail that piqued my interest at the end of your prepared remarks talking about the guidance on deferred revenue and competitive pressures? uh... when the guidance comes, let me talk about the competitive pressures, and I'll let him talk about deferred revenues. I think you've noticed, Toby, and we appreciate the comments you write about the success we've had. Unfortunately, competitors also notice that, too. And so, you know, we are routinely attacked. Now, the reality is... Um, so far, we are hiring many more people than we do, but, but, you know, it means we have to be on our toes on competitive comp, and that's across the board in our company. And so, you know, that's the reality of life. And I mean, that's at a high level of the answer to that. I'll let, I'll let Audrey talk about the other points.

No.

Look it's a weird thing because you say, 6% or 65% utilization and you say how can we be sold out well part of it is.

I can tell you how we account for it differently than other people, but part of it is just the sub parts of our business and so you can have people who are just 100% utilized our 90% utilized.

When you add that in.

So I.

I think I think we're on the right trajectory.

And.

NFC it's.

It's one of our growth engines and it has it is making progress on I think the upside is enormous so if you're asking me is as good as it gets no and do I have in patients for us of course, they do but sort of the team leading it and I feel pretty good about it does that at least talk to the point Andrew.

Absolutely and then maybe if I could just wrap up with one last one on M&A related.

<unk> is a really good quarter.

Seemingly on that front, but if you could talk to the momentum in.

In M&A and maybe the M&A environment broadly to start 2024, you talked about.

About narrowing spreads and its impact on the restructuring environment, but are you seeing kind of a.

And offset.

They're in M&A to this point or is that potential for.

Ajay Sabharwal: Thanks, Steve. Stobey, you might recollect in the last two years, in economic consulting, we've been saying in the first quarter and also in the second quarter, I think in 2020, 2021, and 2022, sorry, in 2022, even in the second quarter, we said that there was a whole bunch of utilization, which didn't translate into revenue because the conditions for revenue recognition were not met. And we had that happen in 22 and

Some sort of air pocket between those those two dynamics.

To persist for a little bit here is everyone finds their footing. Thank you.

So the key words again are proceeding care for me.

<unk>.

Good.

This is not the time to be definitive.

There are folks out there.

Maybe interest rates will not come down as much. There is also an election cycle. This year. So to say we are now definitively on an M&A growth curve would be premature, but we are seeing I mean transactions was up a little bit as you noticed on the on the technology side. The second request piece was up.

Steve Gumby: And now I'm saying we're gonna have that happen in 2024 as well. And that's what we just communicated. Okay, that makes sense. Um, what's the right way to think about headcount growth in 24? given sort of the lower starting point in the fourth quarter. And I was hoping you could also speak to them. What metrics do you care to reveal about what drove the sequential headcount decline in the fourth quarter, maybe commenting on employee attrition trends or the inputs into that? Yeah, look, let me be, let me be clear. I mean, we didn't have a massive outpouring of people, you know; our attrition levels for last year were well below our expectations and below the prior, at least the prior year and maybe the year before that. I don't remember the year before that right now.

Up in our economic consulting we do the really hard stuff so that can happen in either cycle.

No.

This is not based on any major trend one way or the other.

Andrew Let me close them I think we're out of time, let me just maybe add to that and say look let me express sympathy for all the analysts on this call buy side sell side to anybody.

You guys try to figure out where we're going to be the next quarter and its part as RJ says over the next three each of the next quarters, it's very hard to be definitive about that what I think we can be definitive on and I think the last 10 years have shown.

As if you focus on getting the right people with the right attitudes and the right capabilities and we support them you don't know what the damn excuse me don't know what the quarters are going to look like but.

But what you can put the company on is a multi year trajectory that is up.

And that is is is something that is predictable and we predicted it and we can deliver on it we've delivered on it and we can so.

I'm, sorry, we can't be.

I wish you luck on the quarters, it's just hard it's hard but I just want to make sure I underscore the definitiveness of our conviction around the multiyear trajectory.

Steve Gumby: We did, the real issue was, you know, I took the action I mentioned of tampering with hiring. Well, let me be clear. I got recommendations to do, and I reluctantly agreed to do that.

Absolutely Thanks, Andrew Thanks Ajay.

Steve Gumby: I'm probably the more bullish guy on headcount, or one of the more bullish people on headcount. Ajay is more my quarterly conscience and I'm more look what do we need to do to make this business what we want it to be in the next two to three years and who the hell cares what the utilization is this quarter so we have a yin and yang within our firm but I agreed to and you know a substantial tapering of head count just because of the conditions that was in the middle of the year so I think we end up the year this year lower than we probably should have well lower than if I had known how strong the year was going to be I would have guided us to so we're gonna have to make that up because our goal is not to maximize the profits in 2024 our goal is and it's not just verb is to sort of build a business that you and we can see, The next tripling of earnings.

Alright, and thank you all for joining the call we really appreciate your attention and support.

Ladies and gentlemen that will conclude today's conference call and presentation. We thank you for joining you may now disconnect your lines.

[music].

Steve Gumby: And frankly, most of our people don't care about the next tripling of earnings, but we do care if a team that is winning, that's attracting great people, winning the great assignments, just happens to be that is consistent with a multi-year trajectory. So we're going to have to make up for some of the shortfall in hiring this year. And so I would be very surprised if it's not up over last year and much more in line with what we've been doing over time. I don't think we'll get any more specifics than that, will we? Oh, no; you're right.

Ajay Sabharwal: So we've specifically said we expect headcount growth in 2024, Tobey, to be higher than what we achieved in 2023. So that we have explicitly said. We've also said, on top of that, we have an appetite to make investments, and we're seeing opportunities. One of the reasons we don't give a specific percentage is that these things are not easy to accomplish.

Ajay Sabharwal: Also, there's a certain amount of attrition that takes place in the business, and you've got to offset that and then grow. So there's a lot of work that comes with all of this, but that clearly is our ambition, and that is factored into the guidance. Okay, perfect.

Tobey O'Brien Sommer: What I heard your general comments about restructuring demand in 24 and sort of how to think about that put some things in perspective. From a domestic versus international perspective, are there any contours that may be different than the overall commentary? And how do you think the company's performance will be? reflects on sort of market share trends within that. So I'll let me give a top-level answer, and then Fadje wants to get more specifics. Look, the dynamics are different around the world just because A, sometimes economic situations are different, and sometimes it's there, if you remember from the COVID days, their government policies interfere. But it also depends on what parts of the restructuring we're in. In the U.S., we are on both the company side and the creditor side, and overseas, in many places, we are primarily on the creditor side, and there's a timing difference. The company will often hire you months before they have to decide to file for Chapter 7 or Chapter 13. The creditors, of course, don't, or not usually.

Steve Gumby: And so there's those timing dynamics which vary around the world and frankly meant that I think the U.S. was busier earlier than many places around the world and that those dynamics change over time. So that's a kind of high-level answer. I don't know. How do you want to give anything more on top of that?

Ajay Sabharwal: and I just, some slicing a little bit more. Germany has been really strong recently. The UK also kind of caught up to some of the trends we were seeing in the United States. So our international pieces were, you know, part of the surprise growth or, you know, growth more than we thought had come from Germany in particular. So for whatever it's worth, that's additional color there.

Tobey O'Brien Sommer: Does that answer your question sufficiently, Tobey? Yes, yes. Thank you very much.

Andrew Owen Nicholas: I'll get back to you. And our next question comes from Andrew Nicholas from William Blair. Please go ahead with your question. Hi, good morning.

Andrew Owen Nicholas: I appreciate you taking my questions. Maybe I'll follow up on your last comment, Ajay, and take it a step higher. Like, in terms of the biggest areas of... www.FTISupport.org, obviously better than your guide from last quarter, so if you could just isolate the main areas that surprised you positively, that'd be helpful.

[music].

Ajay Sabharwal: I am so proud of our practitioners. I mean, just, Just look at the statistics, put them on a piece of paper and stare at them, which I do quite a bit. In Q3 of last year, utilization in corporate finance and restructuring was 61%; in Q4 it dropped to 56%, a 5% decline. FLC was flat at 53%, and economic consulting declined from 67% to 63%, a 4% decline.

Ajay Sabharwal: Expect folks to take some time off, right? Look at this year from Q3 to Q4, 60% to 61% in corporate finance and restructuring. 57% to 56%, higher than last year and somewhat flat in FLC. And 65% to 65% in economic consulting. This is incredible.

Ajay Sabharwal: This says our folks care about their clients and do the most important things for them and are there when they need them, regardless of whether it's Christmas or New Year. And that five percentage points in utilization makes all the difference to revenue. Then look at bill rates; we look at bill rates, you know, I mean, you can see this in economic consulting in the third quarter was $559 per hour. We do the hardest stuff.

Ajay Sabharwal: When M&A gets really, really hard, we get hired. And this says that the top people were the ones that were working. So those rates, that mix, that utilization is what delivered these results. I shouldn't, I mean, I'm not trying to shortchange anybody, but business transformation, some of the largest matters out there across the globe in different geographies, in technology, we crossed a hundred million dollars in revenue this quarter in our tech segment. I mean, so this was this this was really, really good.

Ajay Sabharwal: Pretty, pretty broad point taken in terms of utilization; you talked about the sequential trend, but maybe. Looking at the annual trend line in utilization in FLC, another year of improvement, but still below pre-COVID levels. Just wondering how we should think about that business getting back to those levels potentially over the next couple of years and what gives you confidence in that business's trajectory. Look, I've got a lot of confidence in that business's trajectory. I will say that I, I hope I've said this in the past, but I always have always hated when somebody looks at 2019 as a benchmark for our company or our business, because that was a place where we got caught short on headcount, and we had to make it up for a couple years later. And so I can't remember what the utilization was for FLC.

Steve Gumby: But I know we were, like sold out in Europe and and we weren't answering the phones on new leads for some places because because of the busyness we had. So, you know, Look, it's a weird thing because you say 60 or 65% utilization and you say, how can we be sold out? Well, part of it is, Um I mean, I can tell you how we account for it differently than other people, but part of it is just the sub parts of our business. And so you can have people who are just a hundred percent utilized or 90% utilized and, and when you have that.

Steve Gumby: And so, um, I think we're on the right trajectory in, in, uh, in, NFLC. It's, you know, it's one of our growth engines, and it is making progress on it. I think the upside is enormous. So if you're asking me, is this as good as it gets? No, and do I have impatience for us? Of course, I do, but so does the team leading it, and I feel pretty good about it.

Andrew Owen Nicholas: Does that at least talk to the point, Andrew? Absolutely. And then maybe if I could just wrap up with one last one on M&A-related businesses, a really good quarter, seemingly on that front, but if you could talk about the momentum. In M&A and maybe the M&A environment broadly to start 2024, you talked about narrowing spreads and their impact on the restructuring environment, but are you seeing kind of an offset there in M&A to this point, or is there the potential for it? You know, some sort of air pocket between those two dynamics to persist for a little bit as everyone finds their footing.

[music].

Andrew Owen Nicholas: The key words again are proceeding carefully. This is not the time to be definitive. You know, there are folks out there who think maybe interest rates will not come down as much. There's also an election cycle this year.

Ajay Sabharwal: So to say we are now definitively on an M&A growth curve would be premature. We are seeing, I mean, transactions were up a little bit, as you noticed on the technology side, the second request piece was up. In our economic consulting, we do the real hard stuff, so that can happen in either cycle. So this is not based on any major trend one way or the other.

Steve Gumby: Andrew, let me close the questions. I think we're out of time. Let me just maybe add to that and say, look, let me express sympathy for all the analysts on this call, buy side, sell side, anybody. You guys try to figure out where we're going to be the next quarter. And it's hard, as Ajay says, in the next three, each of the next quarters, it's very hard to be definitive on that

Steve Gumby: What I think we can be definitive about, and I think the last 10 years have shown, is if you focus on getting the right people, the right attitudes, and the right capabilities, and you support them, you don't know what the damn court, excuse me, you don't know what the court is going to look like. But what you can put the company on is a multi-year trajectory that is up, and that is something that is predictable, and we've predicted it, and we can deliver on it. We've delivered on it, and we can do it again. I'm sorry, I wish you luck in the quarters; it's just hard, it's hard, but I just want to make sure I underscore the definitiveness of our conviction around the multi-year trajectory. Absolutely not.

Andrew Owen Nicholas: Thanks, Andrew. Thanks, Ajay. Alright, and thank you all for joining the call. We really appreciate your attention and support. Ladies and gentlemen, that will conclude today's conference call and presentation. We thank you for joining us. You may now disconnect your line.

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