FTI Consulting Q1 2010 Earnings Call Transcript

FTI Consulting Q1 2010 Earnings Call Transcript
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FTI Consulting (FCN)

Q1 2010 Earnings Call

May 05, 2010 9:00 am ET


Jack Dunn - Chief Executive Officer, President and Director

David Bannister - Chief Financial Officer, Chief Development Officer and Executive Vice President

Eric Boyriven - Investor Relations

Dennis Shaughnessy - Executive Chairman

Dominic DiNapoli - Chief Operating Officer and Executive Vice President

Jorge Celaya -


Tobey Sommer - SunTrust Robinson Humphrey Capital Markets

Joseph Foresi - Janney Montgomery Scott LLC

Kevin McVeigh - Macquarie Research

Paul Ginocchio - Deutsche Bank AG

Scott Schneeberger - Oppenheimer & Co. Inc.

T. Robillard - Signal Hill Capital Group LLC

Arnold Ursaner - CJS Securities, Inc.

William Sutherland - Boenning and Scattergood, Inc.

James Janesky - Stifel, Nicolaus & Co., Inc.

Timothy McHugh - William Blair & Company L.L.C.



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Good day, and welcome to the FTI Consulting conference call. [Operator Instructions] For opening remarks and introductions, I'd like to turn the call over to Eric Boyriven of FD. Please go ahead, sir.

Eric Boyriven

Good morning, and welcome to the FTI Consulting conference call to discuss the company's 2010 first quarter results which were reported earlier this morning. Management will begin with formal remarks after which we 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 21 of the Securities Exchange Act of 1934 that involve uncertainties and risks. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues, future results and performance expectations, plans or intentions, business trends and other information that is not historical, including statements regarding estimates of our future financial results. For a discussion of risks and other factors that may cause actual results or events to differ from those contemplated by forward-looking statements, investors should review the Safe Harbor statement in the earnings press release we issued this morning; a copy of which is available on our website at www.fticonsulting.com, as well as the disclosures under the heading Risk Factors and Forward-Looking Information in our most recent Form 10-K and in our filings with the Securities and Exchange Commission.

Investors are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this earnings call. During the call, we will discuss certain non-GAAP financial measures such as EBITDA. For a discussion of these non-GAAP financial measures, as well as reconciliations of these non-GAAP financial measures to the most nearly comparable GAAP measures, investors should review the earnings press release we issued this morning.

With these formalities out of the way, I’d like to turn the call over to Jack Dunn, President and Chief Executive Officer. Jack, please go ahead.

Jack Dunn

Thank you, Eric. Good morning and thank you for joining us to discuss our first quarter 2010 results. These results were released first thing this morning and I hope you have had a chance to review them. If you have not, they are available on our website at www.fticonsulting.com.

With me on the call this morning are Dennis Shaughnessy, our Chairman; David Bannister, our Chief Financial Officer; Dom DiNapoli, our Chief Operating Officer; and Rob Carlyle our Chief Administrative Officer. I will review the quarter briefly and then we'll be happy to answer your questions.

First, while I try not to do it often, in deference to your tedium, I would like to reiterate something that was said in the press release this morning. The first quarter of 2009, as we said at the time, was going to be a monster to beat. The restructuring market was warring and we were up to our elbows in two of the largest financial frauds of all time. And while I’m a realist enough to know that perhaps no one heard, no listened or perhaps even cares about that challenge, it should not be lost in assessing this quarter. We had a record year last year and in an economy and in the market where many didn’t and it is a tribute to our game plan of diversified services and, most of all, to our great people that we are solidly off to another.

In the quarter, the evolution in the global economy that we discussed two months ago when reporting our year-end results continued to determine the narrative. First quarter GDP growth in the U.S. slowed from the fourth quarter, sending mixed signals. The financial markets continue to improve with the Dow up 500 points from the quarter and corporate earnings very strong. But revenue growth is still constrained and unemployment appears to be stuck at almost 10%. Globally, the headlines are: Ash drowning the airways; oil drowning the waterways and Greece drowning the euro. Asia appears stronger, even to the point of capacity concerns, that a rising response for protectionism has caused some concerns about a bubble bursting in China. So our crystal ball, like that of many of you, missed it in oil, ash and Greece, remain cloudy.

Given that background, we believe the first quarter was a good test of our game plan to build a diversified platform of services to help our clients in all phases of the economic cycle. I am happy to say it has unfolded much as we anticipated.

First, as you would expect, as a major participant in business restructuring and bankruptcy matters, we saw a slowing of new matters. During the first quarter, improving corporate earnings prospects, coupled with the strongest high-yield market in history, allowed many financially unstable companies to refinance obligations or at least kick the can down the road, effectively deferring the need for our services to some later date. Despite this, we expect 2010 to be a good year for the restructuring business. In fact, the second best in its history; just not quite up to the standards that were set in the record results of 2009.

Evidence of the return of economic stability and hints of an upturn were most evident in our Economic Consulting segment. This practice tends to see opportunities early, relative to other practices, because of its intimate involvement in the strategy, feasibility and planning of our clients. Be it investigating potential strategic mergers, consultation on complex damage claims or preparedness to respond to regulatory enforcement, our professionals tend to get the call first. New matter openings were up about 25% compared to the prior year, so the phones are definitely ringing.

The segment that is arguably most sensitive to corporate spending and management confidence, Strategic Communications, saw a second consecutive quarter of net annualized retainer increases pretending some return to normalcy as companies seek to address their ongoing communications needs. Still, corporate budgets are tight and transaction work, M&A and IPO activity, continue at a much slower pace than in the 2005 to 2008 timeframe.

FLC and Technology both had good quarters, especially in light of lapping a quarter that had the Madoff and Stanford matters at their heights. With revenues up nicely from the fourth quarter, and as importantly, a number of engagements in new, high-profile matters for major companies. As a result, consolidated revenues were up from last year and from the fourth quarter. Consolidated EBITDA margins were strong at 21.7% and adjusted EPS of $0.67 was up 12%.

Before I discuss the individual segments, I'd like to go over a couple of items that affect these results. As we discussed with you in our year-end call, we took a number of actions in the first quarter and, as a result, incur a special charge totaling $30.2 million or $0.38 per share. The actions underlying this charge were carefully planned and are intended to eliminate a number of redundancies in people and real estate that resulted from the 20 acquisitions we had completed over the last several years. We also needed to realign our headcount to existing demand and have reduced headcount by approximately 150.

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