FTI Consulting, Inc. (FCN) Q4 2010 Earnings Report, Transcript and Summary

Good day, and welcome to the FTI Consulting Fourth Quarter 2010 Earnings Conference Call. [Operator Instructions] For opening remarks and introductions, I would like to turn the conference over to Mr. Eric Boyriven of FD. Please go ahead, sir.

Good morning, and welcome to the FTI Consulting Conference Call to discuss the company's 2010 fourth 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 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 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.

Thank you, Eric, and thanks to everyone for joining us this morning. With me on the call are Dennis Shaughnessy, our Chairman; David Bannister, our Chief Financial Officer; Dom DiNapoli, our Chief Operating Officer; and Roger Carlile, our Chief Administrative Officer. Our results were released first thing this morning, and I hope you've had a chance to review them. If you have not, they are available on our website at www.fticonsulting.com. In the fourth quarter, we continued the momentum we began to see in the third quarter. Revenues were $356 million, up almost 4% from $342.9 million a year ago and up from $346 million in the prior quarter. In aggregate, four of our five segments reported average year-over-year revenue growth of almost 13%, which more than offset the decline in corporate finance restructuring from the prior year's historic levels. This complementary relationship continued to validate our business model, although it will still take time for our pro cyclical businesses, for the most part, to grow into the margins enjoyed by core restructuring at its height. The investments we have made in growing our business in markets outside the United States continue to pay off. Non-U.S. revenues grew approximately 13% as compared to the prior year quarter, reflecting both organic growth and the contributions from the acquisitions we made during the year in Asia. Revenue outside the United States accounted for 21% of our total revenue compared to 19% in the same quarter last year. Our markets in Asia-Pacific and Latin America showed outstanding growth. Asia Pacific revenue grew in the quarter by 63% relative to last year. Our recent acquisition of FS Asia Advisory is off to a strong start. Latin America was also robust, increasing 27% in the quarter year-over-year. As we have said before, we see very attractive opportunities to build our full platform in the global markets, and we expect our non-U.S. business to be a key driver of our future growth. Our adjusted EBITDA in the quarter was $69.3 million or 19.5% of revenue. This was down from $80.8 million a year ago on a smaller contribution from Corporate Finance, but it was still a good performance, up from the margins of 18.8% in the second and third quarters of this year. Most of our segments recorded margins that were flat or up compared to a year ago and recent quarters, and Corporate Finance, even though down from the last year, was still one of our most profitable segments. As we announced in January, we decided to unify substantially all of our operations under a consolidated FTI Consulting brand. We recorded approximately $22 million in net special charges in the quarter, most of which related to the write-off of trade names from certain acquired businesses and assets. I will discuss this initiative in more depth later on in the call. We reported GAAP earnings per share in the quarter of $0.23, which included the special charge impacting EPS by $0.33. Excluding the special charge, adjusted earnings per share were $0.56 compared to $0.71 a year ago and up from $0.54 in the prior quarter. The share count in the quarter was 46.7 million, down 4.7 million shares or about 9% from a year ago due to the shares repurchased under our current authorization. It was again a strong period for cash generation. Cash flow from operations was about $99 million in the quarter, the second best quarterly result in our history, and we exited the year with approximately $385 million in cash and equivalents, up from $331 million at the end of the third quarter. And as we speak today, we stand at over $425 million in cash and cash equivalents. We used about $14.5 million of our cash to repurchase 416,000 shares in the quarter under our $500 million repurchase authorization. We have about $209 million remaining under that authorization. For the full year, our cash flow from operations was almost $195 million compared to adjusted net income of $109 million. So as you can see, we continue to be an exceptional converter of net income in the cash flow, a trademark of FTI for a long time and hopefully for a long time to come. This internal cash generation, combined with the funds we raised in the third quarter through our debt offering, provide us with robust resources to invest in our people and our businesses to expand our capabilities and geographical presence and take advantage of opportunities that are presented to us. Now I'll talk about some of the performance of the segments. Revenues in our Corporate Finance and Restructuring segment in the quarter were $113.2 million, a decline of $12 million or 9% from a year ago, but an increase from the $110 million we reported in the third quarter. Our fourth quarter revenues compare against the period that was just half the peak of the restructuring cycle in the middle of 2009, and the market is clearly less robust than it was in 2009. Nevertheless, we did see stronger demand compared to the third quarter, and we are encouraged that the Transaction Advisory practice, under its new leadership, has begun to see an upturn in activity since around midyear, as M&A activity begins to return. Our developing businesses outside the U.S. continue to perform well. Europe had a strong quarter, and FS Asia Advisory maintained strong momentum since they joined us in August. While there's of course some seasonal impact, given the fourth quarter and the fact that companies tend to look at their futures during that period, it is noteworthy that in the fourth quarter, new case openings in bankruptcy matters, non-bankruptcy restructurings and transaction support were significantly stronger than in the third quarter, especially with regard to matters in the financial institutions and services sector and retail. Adjusted segment EBITDA for Corporate Finance was $28.9 million in the quarter, equal to 25.5% of revenues. Margins were not as high as the extraordinary levels we enjoyed last year generated at the height of the restructuring cycle, but 25.5% margin is still a very respectable figure. We continue to manage the restructuring and bankruptcy side of the business through the down cycle and benefited from the actions we took early in the year to bring our resources in the line with the new reality of the market. The Forensic and Litigation Consulting segment had an excellent quarter. Revenues increased more than 14% compared to a year ago to $81 million from $71 million. While two large cases remain important contributors to this segment, they are beginning to tail off to lower rates of activity compared to the peak levels, so the fact that we were able to not only replace those revenues but actually grow meaningfully is a very good indicator of perhaps a strengthening market as well as our relative strength in that market. There was a solid increase in the overall level of litigation activity. Our core litigation practice in the U.S. grew almost 20%. Regulated industries maintained their strong performance, especially the Healthcare practice, and Trial Services sustained their improved results, while the Asian investigations practice continued to recover from the slower periods during the credit crisis and really is getting stride. Adjusted segment EBITDA in Forensic/Litigation was $18.9 million, equal to 23.4% of revenues, up from $16.6 million a year ago. Adjusted segment EBITDA margins were flat compared to a year ago and consistent with recent quarters. The Economic Consulting segment rebounded from a slow summer as the momentum in antitrust and strategic M&A that we saw in September continued through the quarter. As a result, segment revenues increased to $64.4 million from $63.2 million a year ago and $59.4 million in the third quarter. Our European practice continues to gain momentum and had far and away its best revenue quarter ever, with revenue increasing 44% over a year ago. Adjusted segment EBITDA for Econ was $12.9 million or 20% of revenue, about the same as last year. Adjusted EBITDA margins in the quarter were consistent with our performance over the course of the year and are impacted by investments we're making and continue to make in our European and Canadian practices to take advantage of market opportunities that we see there. Technology had another excellent result in the fourth quarter. Revenues increased almost 24% to $47.7 million, driven by increased litigation, investigations in bankruptcy activity, strong direct licensing revenues and continued success of our new Acuity Document Review service offering. All of these served to offset lower M&A Second Request activity. Adjusted segment EBITDA in the quarter increased 32% to $17.9 million, and the adjusted segment EBITDA margin in the quarter was an excellent 37.4% due to the strong revenue. We have aggressively managed expenses to maintain margins in the face of the continued pricing environment for our hosting business. Strategic Communications had a solid result in the quarter. Revenues increased 10% to $50 million, driven by a strong performance in the U.S. and Asia-Pacific from strategic advice on the one hand and natural resources trends on the other. They recorded the fifth consecutive quarter of net annualized retainer wins, but growth was restrained by weak demand for capital markets work. Adjusted segment EBITDA margin was 14.9% in the fourth quarter, flat with last year due to a higher proportion of pass-through revenues, which can carry relatively little margin. We have constantly sought to build the premiere practices in their respective fields, and we're very pleased that their stature has been recognized continually by their peers and industry followers. For example, our Corporate Finance/Restructuring practice remains the largest global crisis management firm by a wide margin according to The Deal magazine. Global Competition Review magazine ranked our Economic Consulting team again number one amongst competition specialists. And this segment's International Arbitration practice was named the leader in Expert Witness Research category by Who's Who Legal. Finally, our Strategic Communications practice continues to be a leader in its industry. It was recently ranked by mergermarket at the top of the M&A league tables by transaction volume and was named PR Firm of the Year by the Financial Times/mergermarket for both Europe and Asia. In Europe, it's been the leader on the league tables for a record 10th time. We look forward to even greater success for our practices as we unite them, many for the first time, under the common brand of FTI Consulting. We have made over 25 acquisitions over the past five years and have taken great pains to seamlessly integrate these outstanding firms into the FTI infrastructure, while retaining their key professionals and brand equity. With much of the behind-the-scenes work now completed, the final step is to pull these entities into one organization from an external perspective and harness the power of more than 3,500 employees in 26 countries under one mantle. This will be an important initiative for us in 2011. Going to market under one brand will enable us to better provide comprehensive solutions to our clients from our exceptional range of skills and capabilities. It will also enhance our ability to gain traction in regions where we are relatively new and do not have the broad set of relationships and long history of success that we do in markets where FTI is more established. We intend to do this in a deliberate fashion, leveraging the rebranding to inform our clients and prospects of the integrated capabilities of our FTI professionals. We expect to have all our practices migrated into FTI Consulting by November of this year. Let me now turn to our guidance for 2011. This will be a year of improvement and a year of investment. By way of context for our guidance, we are basing our outlook on the assumption that the current environment for our markets continues through 2011 and that the dynamics reflecting our businesses do not change significantly. In terms of the drivers of our business, as most of you know, the keys are bankruptcy and restructuring, capital markets activity, investigations and litigations. If there is one driver that could probably affect our segments across the board more than any other it would be a return to robust M&A activity, and we think we're beginning to see the signs of that. We expect the climate for bankruptcy and restructuring work will continue to be challenged by an improving economy and readily accessible debt markets that will contribute to lower default rates. Recently, the leading agencies have reduced default rates almost by half to below 2% by the end of this year. While this will create similar headwinds for us in 2011 that we experienced in 2010, it should begin to be a tailwind for our other pro cyclical businesses. And again, when you saw their growth rates over the fourth quarter, we're believing to see that. Capital markets activity should be a net positive factor this year across our segments. The M&A environment has obviously improved, as has the calendar for IPOs, and we are seeing a backlog of opportunities to pitch for new work, and certainly people are predicating their 2011 budgets, et cetera, our clients are, on the fact that there will be M&A activity. Although neither are back to their frothy pre-crisis levels, we are encouraged by the direction that the market is going. Because it's tough to make a bet on the capital markets, we are assuming some modest push in this area, but it could be a great source of positive upside for us. On the Investigations side, we expect to see [indiscernible] from the Department of Justice and the SEC, as well as interesting to look at the Financial Services Authority in the U.K. and their new mandate. We also expect to see greater demand for Litigation services. These activities are clearly picking up, as I mentioned, as we look at our core business in the U.S., and we expect to participate in more than our fair share of the cases. The trajectory will likely diverge from previous experience, as corporations and law firms look for new ways to do business, but FTI has always been at the forefront of designing those new ways, and we look forward to, again, working in partnership with our clients to solve that puzzle. As I said earlier, we will look to markets outside the U.S. for a significant portion of our growth this year. The practices we have launched in those markets are seeing good traction and solid prospects. It is also a priority for us to look for further opportunities to invest our capital, similar to what we've done in Asia in the second half of 2010. As a result, we would expect a proportion of our revenue coming from outside the U.S. to continue to increase, both as a positive number and as a percentage of our results. Summing all that up, we are projecting total revenues of between $1.43 billion and $1.49 billion for the year, an increase of about 5% and resulting adjusted earnings per share of between $2 and $2.20. This includes significant continuing discretionary investment in our people, our infrastructure, particularly, in response to demands of our growing international and regional expansion, and, as we talked before, our brands. You should note that these figures do not assume any acquisitions or additional share repurchases. And I'd like to remind you of what we said in our third quarter conference call, namely that we are carrying a $0.04 per share quarterly or 16% per share annual handicap from the disparity between the interest earned on the capital raised in our debt financing versus the higher interest rates we are paying on that capital. It is certainly not our intention to just sit on the cash, but since the timing and contribution from anything we would do with the capital is not certain, we are not incorporating any such actions in our guidance. If we do something that is material and warrants an upside revision, we'll be happy to do so. In conclusion, the successful execution of our strategy to date allowed us to successfully mitigate a meaningful decline in our largest segment during 2010, as we replace the lost revenues through growth in our other segments. We exited the year in excellent financial shape, and our success in building out the breadth of our skills and enabling us to serve clients on a global basis becoming an ever more important competitive factor. We look forward to the opportunities during 2011 to extend and solidify our leadership in each of our practices. The outlook for our markets is excellent. Only the timing remains unclear. Against this backdrop, we will continue to extend our leadership position as we invest to enhance the durability of our long-term business model. We are pleased with the progress we are making in that regard, and we look forward to continued success, but more importantly, for the results and dividends from those efforts. With that, I'd like to turn it over for your questions.

[Operator Instructions] And we'll take our first question from Tim McHugh with William Blair & Company. Timothy McHugh - William Blair & Company L.L.C.: First, I wanted to ask a little bit on the discretionary spending you're talking about for next year. Can you give us a little more color or some more specifics on each of the three items you mentioned, that being kind of branding, I guess, international expansion or I guess the structure for international and the compensation?

Yes. Tim, it's Dennis. I'll try to give you a little color on that. I think Jack already said we're coming out of the gate with a $0.16 penalty due to the increased interest. We've got about $430 million in cash as we sit, which, clearly, we're not baking that into these numbers, how we apply it. Plus as you know, we'll generate at least net after CapEx, about $150 million more this year if we simply hit the lower end of these results. So we would offset the $0.16, clearly, with the application of the cash in the form of external growth and share repurchases. We'll spend about $0.10 a share, and it will be in three categories. We're finishing the rollout globally of our CRM system, which has been a major investment for us in the last two years, and the design and testing. It actually will be rolled out this year. That's about $0.035. We are building an Asian network operating service center. We'll quickly be over $100 million in revenues in Asia. We could hit that this year, if we're lucky. And we need to have the support center in that time zone to be able to support that level of business and the number of people. We are building a larger NOC and service center in Europe, as well as recruiting some new top management over there, which has been baked into these numbers. That will be about another $0.035. So all told, you would have about $0.16 of interest, which will be on an apples-to-apples basis, not in last year's numbers. You would have about $0.11, which would be in CRM Asia service center and Europe expanded service center and increased new management recruiting and acquisition cost. We'll spend about -- now those are ongoing expenses, so the interest isn't going to go away. It has to be offset by the application, of, obviously the large cash buildup that we have. The network operating center will be there, but obviously, it does not grow incrementally like the penalty to this year's interest. Once you have it in place, it grows at a much slower rate and should be more than offset by revenue growth in the future. And then we are going to spend between $0.04 and $0.5 on brand integration this year. Some of that is in Corporate, some of that is down in the brands themselves. That will be spent predominantly in the first three quarters as we roll these brands up into FTI. Obviously, it's a celebration for us, not a penalty. I think everybody is really looking forward to the long-term benefits of it. But we have budgeted on a one-time basis significantly more dollars to be applied to, not only the nuts and bolts of brand integration, everything as mundane as signage to websites, to letterheads and things like that. But obviously, the more salivatory advertising, both media as well as sponsorship to talk about the brand. So overall, you're at about a $0.31 penalty versus last year to put in either new infrastructure/management and pay for the debt and then pay for the brand integration, of which, I would say -- and it doesn't mean we won't continue to spend marketing in 2012 at that level, but marketing can be componentized into something that could fall off, and then the rest of it is scale and contribution. And then finally, we all know we have to offset the negative arbitrage on the interest with the application of cash. Timothy McHugh - William Blair & Company L.L.C.: How do you feel -- or where is your international infrastructure going to be after these investments? It's obviously a big focus of yours to grow the international piece. Is there a risk that we're at a point where it's a multiple of years of having to increase the investment and build out that infrastructure, or are these types investments enough that they set you up to significantly grow that for a couple of years now going forward?

Let me answer it generally, then I'd like to ask Roger Carlile to give you specifics, since he's in charge in building a lot of it out. I think, we'll add $1 billion in revenue over the next four years through growth and through acquisitions. I think, the vast bulk of that will be Europe, Asia, Latin America. I think Europe is already north of $200 million and could make a significant jump there through acquisitions this year. And we just had to make sure we were prepared to support that kind of infrastructure, given that kind of volume, because it's growing very rapidly. I think Asia, we've gone from nothing practically to about $75 million run rate there, which I think, again, very soon will be over $100 million. And we did not have the infrastructure out there. So I think you have to spend to support the quality of the offerings. But clearly, once you put this in, first, it slows down dramatically. And we have made a sizable investment globally in leadership and leadership development, which we think is now going to pay off significantly in cooperation, cross-selling and in increasing the rapid growth of these geographies. It's the predicate and the foundation that's allowing us to do this brand integration in a very seamlessly way. Roger, do you have any more color on that?

Yes, it's Roger Carlile. I think Asia is probably the best example of this, but it's happening in Latin America and Europe, Middle East and Africa as well. These are foundational spends, so we're putting in place the capacity, for example, in our Information Technology, in our data centers that have, in the case of Asia, about a $3 million annual increase to the spend, but that provides us capacity such that each office we add has been -- comes at a much cheaper cost, and it would have otherwise, as we go forward. And that each revenue dollar will, as we grow, will bury lesser cost than it would have otherwise. So it's really foundational spend that we're adding capacity, and the burden on the revenue will tail off as we add revenue and grow in those locations.

Jim, this is Jack. To follow down, I guess it's collateral to your question. But I mean, obviously, not only the focus of your community, but our community, is on our margins, so we've drilled down very carefully. We don't believe, with the exception of what's going on that we clearly told you about with the pricing in our hosting business, that there is this systemic change in our industry regarding pricing. We believe that it's strictly a matter of our markets getting stronger. We are a company that for 2011 is very much a positioning year. There's so much pent-up capital; there's so much pent-up demand; there's so much activity in terms of the private equity firms; there's so much pent-up, frankly, litigation from the populism in the credit crisis that we are betting very big on an increase in volume over the next several years. We can't ring the bell, but that we have drilled down with each of our leaders. And Dom, you might talk a minute about the ability for our margins to increase when we get over the breakeven point.

As Jack and Dennis have mentioned, we've built -- I don't believe we've ever been in a stronger position to grow incremental hours based upon the headcount that we have. In each of our practices over the year, particularly Corporate Finance, we rightsized the staff for the current economic conditions that each of the respective markets were facing. I think, when you look at our utilization rates in the 70s, we can easily go into the high 70s, and we can spike in the 80s. We've got plenty of capacity to run through a lot more volume. I think the quality of our people has never been higher, as I said. We're still in the market recruiting senior people with books of business. So I think after we have all these investments in place, particularly Asia that Roger mentioned, because we are betting a lot on Asia being a big contributor in the future, that we've got the infrastructure in place to more profitably handle the incremental revenue that we believe that we're going to be seeing.

Tim, I think, the other thing we tried to do too that would go right to margin is, as you know, we have definitely been the beneficiary of some monster assignments over the last two years. They're still going on. I think our guys have tried to be realistic in forecasting the runway in this year on those assignments, some of which, you've read about people speculating what we will or what we won't make on some of these. I think if we're conservative there, and we've asked -- or David, in particular, can speak for himself. He's asked our people to be conservative on the runway. Then clearly, these numbers are going to lift, because your incremental business that should come in won't have to offset one-to-one of declining revenue trend from these large assignments that burn off. And I think it's a difficult year to forecast that in. They're still all moving; they're still all here; they're still all billing at a significant rate, but the question is, is the Q1 beginning to wind down in Q2, Q3 or Q4, or will it even have a tail into next year? I think it's very tough to forecast it, except to know none of them are going away right now. But I think none of our people want to turn around and say that we had experienced the same type of billing year on those big assignments this year that we did last year. So if the runway increases on those, then clearly, you could see that influence margin on the upside. Timothy McHugh - William Blair & Company L.L.C.: How do you think about the balance between repurchases and acquisitions as you speak to deploy that capital right now? And do you still hope to deploy or to finish that share repurchase authorization by the end of the year?

Tim, it's Dave Bannister. What our announced intention in the last couple of calls is that we had a $500 million share repurchase authorization in November of 2009. We completed roughly $300 million of that, and it's our intention to compete that in accordance with that authorization. We have said repeatedly we're not going to comment on our trading strategy around that, but that is currently our intention. As Jack mentioned, we have about $430 million in cash today. We'll generate somewhere around $150 million this year, so it gives us plenty of resources to complete that authorization and to pursue acquisitions or other growth initiatives. As our custom always is, is that we evaluate every acquisition on a cost-to-capital basis versus buying our own stock. And that's sort of our core threshold rate. So when we buy something, our belief is that its return on investment will be greater than our return on buying shares in.

And we'll take our next question from David Gold with Sidoti. David Gold - Sidoti & Company, LLC: Just wanted to drill down a little bit more, if we can, on the revenue guidance side. Essentially, from what we know and seeing the M&A litigation environment’s improving and your Technology numbers are coming up, just curious if you can give a little bit more color as to the fairly modest top line expectation. I mean, we realize Restructuring will offset some of the growth, but what else are we thinking there, or are we just taking a conservative stance?

I think we're modest folks with that regard. I mentioned some of the positive signs we're seeing in the restructuring marketplace, and I think we're very happy with our Transaction Support business. And under its new leadership, it has a great opportunity. I think, as we've said for the last couple of quarters, we haven't seen the external factors that are going to trigger when the growth that we all know is going to come is going to come. When we start to see that, we can be much more aggressive, because we know, as through the crisis, we've gotten our fair share or more than our fair share of work. So really, Dennis and I we're talking the other day that it seems like a modest growth, but our delta and growth there will be the size of several of our competitors. So I think we want to be cautious. And as we were when restructuring was going the other way, we hesitated to ring the bell until we were really certain. And I think that we’ll just continue that mode, but we'll be the first to let you know when we see a change.

David, it's Dennis. I think the predicate is no change in the macro operating environment that we've experienced in the last six months. So that includes the continued decline in defaults, and therefore restructuring bottoming out at its sort of a new, normal level, but certainly not picking up any large jobs. And then that's also tempered with the fact that not only in restructuring, where some of the big restructuring assignments are clearly burning off. In Forensic, in Technology and in Strategic Communications, we have some jumbo assignments that, while they're all continuing into this year, it's difficult to forecast. We think there's more than enough wind behind the sails of those groups to replace them. FLC had a spectacular quarter. In the fourth quarter, when you figure that they're replacing very large jobs, number one. It's still showing growth in fourth quarter. It's traditionally, their slow period because, obviously, we see in the States, the courts pretty much shut down around the holidays, so you only have about a two-week billing period in December. But I think it's two factors. One is simply we don't see the macro changes coming right now. We hope they're there. There are signs that they may change, but, as Jack said, you can't turn around and say we're off to the races in capital markets and M&A. I think, we're cautiously optimistic, but then also, we just have to be realistic that we're the beneficiary of these very big accounts. We certainly will replace them, that's why we're not budgeting a down year. But I think that's the play in the numbers. If the macro environment changes towards the upside, or significantly to the downside, we'll be very conservative in our new business assumptions. And if we have more runway from these three or four mega assignments that we have, then we're initially budgeting, again, our numbers will be conservative. David Gold - Sidoti & Company, LLC: And I guess the other side of that is certainly, you guys surprised us, presume the other folks were, with the magnitude of the investment spend just now. So just, if you can -- the other piece is, if the macro signs aren't there yet, what's pushing the timing of the investment just now? Is it just – is it you want to be prepared for it when it comes, or is there something more to it that maybe we're not seeing in the numbers?

No, I think you have to -- well, first of all, I think we're constantly investing. So obviously we've taken our marketing spend up over the last three or four years dramatically. I think what we tried to illustrate is CRM, we've been working on for two or three years, but this is the implementation year, so whenever you're doing implementation year, you're going to spend a lot of money. And then we didn't have $100 million revenue potential in Asia for a while so we could service it differently, but as you well know, you can't do it vicariously through all these time zones. You have to be out there. And then in Europe, it's just getting much bigger. So I think these are step functions. It's not going to happen every year, But again, David, I go back to our plan is to add about $1 billion in revenue over the next three to four years, and you can't do that on an infrastructure that's not there to support it overseas. So you have to have that, and you have to have the management group there to be able to handle it. So I don't think we see it as much of a magnitude. And obviously, when you add up all the math, even though at the margin, it's significant pennies when you look at $1.45 billion to $1.5 billion revenue base and the spend associated with it, it's not a lot of dollars.

David, one thing we are keenly aware of is in growing these businesses, in particularly growing them in multiple geographies around the world, is the need for really good, tight controls. So in Latin America and in Asia, we've added pretty senior-level CFO-type people, and we're adding systems and capabilities so that we don't suffer from loss of control in those areas. We certainly have seen in our industry recently a number of competitors who have lost control of their businesses with very dire consequences. We intend to stay ahead of those issues and be safe hands, if you will, for these businesses to grow exponentially.

David, if I could add just a little bit of a different perspective on looking at it also. It's not the incremental investment we're going to make this year, which is significant, but it's also what we've invested to get to this point. We have tried to be clear that for the last three quarters, that's been a predictable run rate where we are. If nothing that dramatically happens with our market that gives us a little bit of a tailwind, that's an expense level that we have, and I think our guidance is consistent with the results of those three quarters. What our tough decision is, and it really wasn't when you look at the prospects that are in front of us, is do we want to tear down any of that we have. We had, what, 18.8%, 19% margins; that's pretty darn good for a company. It's not traditional FTI stuff, but it's acceptable if you're taking those dollars and invest in for things that can give you exponential returns in the future. We don't believe -- we could go chop a bunch of stuff and produce an FTI margin this year. I would rather do that by having all of the bets we placed in place and do that by when the revenues come, which they surely will. I can't ring the bell for you, and really be in a position to establish our company. We're not a casual company anymore. We're not here -- we're a company that, I think, is built to last and be a major competitor. As Dennis likes to say, a little bit, we're like the dog that caught the fire truck, because our competition has changed from some relatively parochial U.S. domestic competition to the big four and the big companies. And we are geared up now to play on that field, and I think the returns can be spectacular. But our tough decision this year was whether to bite the bullet and make those investments and continue those investments or whether it was to retrench. And I think we did a great job, as Dom mentioned, of rightsizing a lot of the businesses, and I think we're in this for the long term. And I think the bets we've made in the last year and the bets that we're making this year are going to pay off dramatically for our people as we enter this kind of new level of playing field.

We'll take our next question from Tobey Sommer with SunTrust.

This is Frank in for Tobey. I wanted to ask about Technology consulting performed pretty well. What are you seeing, in terms of the competitive environment and pricing in that area?

It's Dennis, Frank. I think that there is continued price pressure in our on-demand storage business. It's just a factor of the market. Storage costs are going to go down every year in the market, and you offset that by significant volumes. We've been able to do that. But it's certainly there. There's a lot of new entrants into the market. They continue to come in. There are a lot of entrants that have been in the market that are really marketing for mindshare, not necessarily profitability, and that's influenced their pricing to get trial. And there's a shakeout in the market. There are a lot of players that are in the market that are not doing very well that I'm not sure will be there in 12 to 24 months. So I think whenever you have that kind of change in the market, there is some pricing pressure. I think we're getting very good pricing on some of our new offerings, and as the offerings now are coming out and getting well received and well rated by the industry analysts, I think we have some margin improvement operation or opportunities in the new offerings. But overall in storage and in some of the mature areas that there's significant price competition.

And in your guidance, you also highlighted slightly higher compensation expense. Any color you can give there? Is that going to be, any other, onetime in nature, or your kind of view on that going forward?

No, there are some key hires at a management level overseas. David illustrated some of them. So you have net body additions, so that causes it to spike. Our actual year-over-year comp increases are very different than what we've experienced in the past. And I think that, again, in some of our markets, it's just a matter of scale. So you're putting in comp in order to service the business, and we need to have the businesses mature enough to where they start to drop on a leverage basis against that fixed cost. So we're very optimistic we're going to get there quick. We're not trying to say we can do it in a matter of two or three quarters.

Finally, on the Strategic Communications segment, you've seen some nice signs of growth here in America. In the U.K., there was some weakness there. Any signs of stability or turn there?

Well, we're gaining shares, I think as Jack illustrated by the league tables, we're number one. I think part of the problem is the economy in the EU. We actually had our board meeting last two days, and we had one of the heads of our European operation fill us in on where she thought all the issues were, and there were a lot of issues there. I think the U.K. markets are very sluggish right now. The U.K. capital market has a lot of pent-up demand, but it's not actualizing on it. And that business over there is probably more capital-markets-driven than the business in the U.S. And I think the continent's confused. I think there's a lot of things going on where it's causing companies to hold back spend and hold back efforts to use us. I think it's really tough to hire consultants in some of these areas when you're laying off an awful lot of governmental people. You need to have that equilibrate and then the governmental businesses try to come back to you. So I think it's really more of a macro factor. I think we're going to have a very good year overall. And I think they expect to have an improving year over there overall. But a lot of it will just be driven by an improving capital market.

To be clear, the revenue was basically flat year-over-year in Europe. It was not a significant decline, so there was not a material change.

And that was for the, again, probably the third and fourth quarter in a row their gain in retainer-based business has exceeded anything that's dropped off, which is a very healthy sign. So they're poised again, when the -- I think they've probably seen more preliminary IPO work than anybody, anywhere else around the world. So I think they're cautiously optimistic that they'll have a very good year. They've made some tremendous people additions to that business over there, so we would hope that our next move there, the real area for growth is to move from what our traditional practices have been with IPOs and all into making us an established case in the FTSE 100.

Frank, this is Dom DiNapoli. In markets that we dominate, we're coming back; we don't believe we're losing share. But not to make this an Asia-focused call, we've had tremendous growth in Asia across the practices, including our Strategic Communication, and we've got very nice margins in Asia. So as we fill out our global footprint, we're seeing a lot more opportunities than we may have thought we had a couple of years ago to really enhance all of our practices with Asian referrals and just core Asian business.

On a constant currency basis, Europe actually grew as well. You have a modest decline in the pound particularly year-over-year, so it's really, it's not -- I guess what we're trying to say is business didn't slow down in London.

We'll take our next question from Paul Ginocchio with Deutsche Bank.

Just on the rising compensation comment, does that comment have anything to do with the SMG agreements expiring in 2011 and 2012? Are the numbers in your 2009 10-K and the percentages, are they going to come up for renewal in '11 to '12? Roughly, look the same today?

Number one, they don't expire there. They roll into a different type of agreement. They're 10-year agreements. I think it's unfortunate to use the language. It's probably legalized. But it’s a 10-year agreement with people. The first six years is a pretty fixed agreement, and then it's an evergreen agreement on an annual basis after that. After six years -- so they don't expire in 2011. There's a six-year commitment. They can leave at the end of 2011 and not compete for a year, and then certain incentives that they have will have fully vested with the remaining being forfeited because they didn't fulfill the whole 10 years of the contract. So we don't view that as a pure waterfall type of exercise. We view the vast majority of people will continue along the contracts. The contracts will be changed into an evergreen after the six-year, and so that's it. So they don't expire. There's no budgeted increase surrounding. We've signed some people to extensions, but that was more for performance and for promotional aspects than retention.

Just to be clear, the contracts you've recently signed on these evergreens, as they go evergreen, there's no bump in compensation at that point in time?

No.

It sounded like from your earlier comments about the large brand-name bankruptcy and the large brand-name Forensic and Litigation clients that you've accounted your guidance for those to trail off a little bit. Is that correct?

That is correct.

Just on the Forensic and Litigation. It was down q-on-q, and I though from all the filings that we saw coming out of that brand-name litigation that maybe it would be up q-on-q on a revenue basis. And looking back from '04 to '07, Forensic was typically up q-on-q. What am I missing in that on a q-on-q basis?

It was down; it's up I think around 14% year-over-year, number one. And Q4 to Q4, I think it was down sequentially Q3 to Q4, but that's really because of the seasonality in that business, the fourth quarter seasonality. The seasonality in that business is the fourth quarter influence of the holidays, so you have pretty much -- they at the margin tend to be driven by what happens in Litigation, so you have a week that comes out of it around Thanksgiving, and then you have two weeks that come out of it at the end of the year. So out of that quarter, you effectively, for this group, have about three billing weeks that aren't debt [ph]. Roger used to run it. What do you...

I think that's correct. Historically, the fourth quarter is challenged because of those two holiday periods, Thanksgiving and Christmas time. So I think staying flat to a little down and growing from quarter-to-quarter would be expected in that business.

Yes. I think the real way to look at that business the way we look at it, that we always want sequential growth, obviously, but in that end, since you really want to see how you do, just the prior quarter.

Paul, the sequential numbers, just for perspective, over the last three years, three years ago, it was down 11% sequentially. Two years ago, it was down 7% sequentially. This year it's down about 3.5% and 4% sequentially.

I also think there's a little bit of a tyranny of trying to really look at what a relatively small number. Remember that in the third quarter, there was a little thing that was the statute of limitations running on the Madoff matter, which gave us a little bit of spike in business there, as we went around and tried to kind of bring that case together. So I think you had that you had that in there as well.

So that was in the third quarter, not the fourth?

It was in both, but I think a lot of the work was done at the end of the third.

Not to belabor the point, but, again, back in '04 to '07, you were actually up q-on-q in the fourth quarter, so that seasonality didn't seem to exist in that period, but again, that was a pretty litigious period.

You've got to blend at a much smaller business there, and you also have to blend in some acquisition period during that timeframe.

And we'll take our next question from Kevin McVeigh with Macquarie.

Can you tell us how much success these were in the fourth quarter and just kind of the absolute percentage of revenue, how that compared to the prior year as well? And then as you think about the Asia business going forward, when you think about your existing segments, how do you think -- will it be a pretty consistent percentage contribution in terms of finance Forensic, or do you see more parts of the business getting a greater representation in Asia?

[ph] Let’s answer the first question first, David.

Success fees were almost identical Q4 versus Q4 last year and it's percentage of revenue down ever so slightly because revenue was up a little bit.

And what number was that as a percentage?

$10.3 million in success fees in Q4.

I think the answer to the second part of the question, I'll start, I think without a doubt, we see, and we're already there, four of the segments having significant growth opportunities, and that would be -- and obviously Restructuring turnaround, it's in Forensics, it would be in Strategic Communications, and it's in Technology. I think there will clearly be Economics work out there as it applies to international arbitration and very large disputes, where you're building damage models and requiring expert testimony. How much competition work out there, which is clearly a big driver, and I think it remains to be seen, because I think it's an immature marketplace as to how these countries will view. That's not necessarily the case in Australia, maybe, where you might have some more, especially with more of the inbound capital trying to buy resources. But I think that might be the one that would be the laggard that to where maybe while at the margin, it'll be nice opportunities. It wouldn't be as exciting for them as they're seeing, say, in Europe and Latin America. So I think four of the five are already there doing well, and Dom, any other comments with that?

No, I think that you just about covered it.

Are you selling primarily to U.S. multinationals there or is your local demand as well, and how does that evolve over time?

Both. The evolution was clearly inbound capital drove an awful lot of our early business. I think the Strategic Communications group's a perfect example. I think they started almost exclusively with inbound capital, then they started working on listings on the Hong Kong exchange, and now they're working with very large government controlled entities, outbound capital, for example, vis-à-vis Australia and things like that.

And we'll take our next question from Arnie Ursaner with CJS Securities.

You spoke a lot about the brand conversion expenses; where are they carried? Are they in the segments or are they in Corporate, these incremental expenditures?

Both.

How should we think about Corporate expense for 2011?

Not significantly up. It will be up because we're carrying the CRM and some of the initial hires that we're making in some of these areas into Corporate, we will eventually distribute it down. But this year, we have budgeted in Corporate some of the new management hires we're making overseas. And it's not fully allocated out until, right, second year.

You obviously highlighted, as I said, the brand conversion, your strength in infrastructure and the expenses you're incurring for systems headcount. Maybe you could just sum up, in your view, what you think the EBITDA margin hit is in 2011. But more importantly, hopefully, you've given a lot of thought to the incremental margin benefits you ought to get on the $1 billion of revenue you expect over the next four years beyond that. Obviously, tell us the penalty you think you're incurring. But more importantly, what the upside margin or incremental margin you expect to generate going forward?

I think it's about $0.17 a share; a way of backing into the EBITDA margin is multiply $0.01 by $800,000 to $850,000, and that would get you to EBITDA. Arnie, I think Jack said it pretty clearly. I think our intention is to manage this company to the traditional margins we have, which has been in the low 20s on a GAAP basis. I think we firmly believe, and all the indications are, that the scale and the operating leverage exist in these areas and that we'll achieve that with growth.

Your contingent payments were $63 million this year. Based on where you stand today, what do you think they will be in 2011?

Contingent meaning earn outs?

Yes.

They're declining pretty rapidly. David is looking it up.

Arnie, I think it's around $28 million going to about $15 million. But let me come back to you on that.

We'll take our next question from Joseph Foresi with Janney Montgomery Scott.

This is Jeff Rossetti for Joe. I just wanted to see, going back to the overseas investments, is there any timeframe for the breakeven point that you mentioned earlier?

I think breakeven was probably reflecting that the incremental and the margin dollars were profitable in all these areas. It's just a matter of, I think, breakeven in the parlance of the first question was how do we get back to our traditional margins. I think you'll see us get back to the traditional margins with revenue growth. The revenue growth in these areas will come from two sources: Organic growth, which we experienced a rapid growth in South America, and in certain segments, a rapid growth even in Europe in the face of the sluggish economy. It will come from acquisitions, and we will be acquisitive in those areas this year. So basically, those two. And then a lot of the acquisitions, you do have -- we don't price the acquisitions to save redundancies. But clearly, if you have the systems in place, it's very easy to put the acquisitions then on top and pick up the redundancy savings as far as their systems, their NOCs, their operating centers. So I think the breakeven, I think, was a shorthand for how do these incremental expenses get to a traditional margin level. And I think it will be sooner rather than later.

It's Dave Bannister. Let me back up to Arnie's question for a second. Arnie, the $63 million you're referring to was our acquisition cost and our earn-out payments. The bulk of that was the acquisition cost for the two Hong Kong businesses we bought. I think the actual earn-out payments underlying that were a little over $20 million. And those would go down this year to somewhere around $15 million.

Is there any other color that you could maybe provide regarding your press release last week, areas of interest with LECG practices?

No. I think the press release speaks for itself, and I think we are obviously engaged in conversations. They are confidential conversations. And I mean, as you are aware, we are very interested in attracting very good people. They have some excellent people, and so we are engaged in the process. We would be hopeful we could report something to you soon.

And we'll take our next question from T.C. Robillard with Signal Hill Capital.

First, the Corporate Finance and Restructuring practice, just given with the utilization rates came in the quarter, the revenue level. Is it a fair comment to say that, that practice has kind of bottomed out, as far as a revenue level?

I think we've been loath to declare that it's bottomed out. I think, as I mentioned, there were some positive signs from the third quarter to the fourth quarter, but you have to temper that with, as we've always told you, that a lot of the bankruptcy work and restructuring work is triggered as either people look at their year-end results, or they get the results from -- or they anticipate them and all that. And you would also expect the first quarter, once people start to get their audited financials or see what they're going to say. So I tempered that a little bit, but I think there is some general positive feeling about the folks in there, and I think it was also very positive that the Transaction Support business was strong. So I think there are good reasons to think that we are hopefully at or near the bottom, yes. Dom, you're the leading Restructuring guy; you're probably better to comment than I am.

And you got to remember, Jack mentioned, there’s more than just the Restructuring and that Corporate Finance segment. We also have our Real Estate segment, which, although we've seen a slight tick up on the Real Estate side, we're not anywhere near the levels that we've been historically, but we're hoping commercial real estate will come back. And as Jack and Dennis mentioned, we're making a big investment in our Transaction Advisory business. Our new leader, Bob Filek, has a great reputation. He's from the big four, the big four dominate that business, and we've really got aspirations of being in that mix over the next few years. So that's the big offset from a lower pure bankruptcy and restructuring volume, which we've seen over the last nine to 12 months.

And I guess Dom, and maybe David, can comment on this, how are you guys thinking about as it relates to guidance for the year with headcount in that practice? Should we expect a fairly stable rate minus any acquisitions down the road, should we just thinking about that as stable, slightly growing, slightly receding?

Well, in the Restructuring business, it will be pretty stable. When you look at the Real Estate business, that will be pretty stable. When you look at the TAS business, that may grow. We hope it grows, because that came down significantly in 2010 versus 2009 and 2008, as the volume was down because of the very few number of middle-market deals that were in. So the growth barrier that you'll probably see there will be in the TAS business, which that could grow 50% in headcount because it's down 50% from 2009.

As we think about the FLC segment, last quarter you'd made a mention about a lot of the financial crisis issues are coming to a head where the likelihood that litigation should start to tick up, and it sounds like you guys are seeing some tick up in the U.S. I was just trying to get a sense as to what type of swing factor should we think about, and I know there's a lot of moving parts, but I'm trying to get a sense as to where you are in your guidance with that practice, and what could potentially get unlocked should we see a lot more litigation work coming out of the financial crisis?

T. C., I think, the balancing factor here is that they, more than anyone, are the beneficiaries of some of these huge jobs. And so they are getting a lot of new business. So their business acquisition has been outstanding. Their growth, we think, they are gaining share, and the problem is that as offsetting declines in mega, mega-assignments that have been running for several years, and it isn't just Madoff; it's a bunch of other ones. So the real factor, in all honesty, as it pertains to this year, isn't will we continue to get the business we're getting it, it will be how much of that simply has to offset a significant decline from mega-cases; if the mega-cases have longer runway, the you'll see that be much more of an incremental growth contribution. If we don't have a lot of runway, then it will be a replacement of these mega-cases to where they'll have a nice year but not a great year.

And we should continue to grow in the geographies that we've made investments in, particularly Asia and South America. Our FCPA volume is up and growing, so we're very happy with that. And the only reason we've got the benefit of those cases is because we've built out our footprint, and we've provided the capabilities around the world that the accounting firms prior were the only ones that had it. So as Corporate investigations increase, FCPA matters increase and just the asset searches needed in the Corporate Finance liquidations and fraud matters, as those cases increase, and we're very well positioned to compete against anybody in the world for those cases.

There's an enormous amount of litigation that's been filed, as an example, in the Gulf for all of the problems that surrounded the accident in the Gulf last year. And as that matures and works its way through the system, we're going to be a big beneficiary of that, but, again, it's a little hard to predict it.

I apologize for the commercial, but I know that our competitors and a lot of people in the industry listen, and we are desperately interested in building out our Transaction Support business and all of the things that collaterally go with that such as the tax practice and things like that. So I hope that's an area that as we go through this year, you'll kind of mark us to market on as to how we put that capability together.

And we'll take our next question from Scott Schneeberger with Oppenheimer & Co. Scott Schneeberger - Oppenheimer & Co. Inc.: One, could you speak to what you're seeing with regard to your acquisition pipeline? Any color you can provide with regard to the geographical way you're looking segment size and maybe hurdles to why you can and can't do the things with regard to multiple right now? And the second question is, any update on separation of the Tax Consulting business?

Geographic pipeline is robust. Looking at the areas you would expect, clearly, not ignoring the U.S. looking for opportunities here, but looking aggressively and engaged in conversations in Europe, South America and Asia. As far as multiples, I think we stay very disciplined. As you know, Scott, I think it really does sort of come -- it's a function of not so much what the market wants but what fits our model well. So I think we continue to pay about the same level that we've had in the past. We're not seeing it go up dramatically, and by the way, for the good properties, it doesn't drop that dramatically. People just hold them off the market then. I think as far as Tech, we're ecstatic with the year that Tech had in the face of an awful lot of competition. They're doing a great job in that group. And we're very excited about these new product offerings that are starting to come out. The initial response from the industry analysts, the Gartners of the world have been very positive to them. I think that I would say we're viewing Tech as more of an opportunity to possibly consolidate the market actively going forward. And we are really looking forward to the benefits of this Technology rollout hitting the market, and, therefore, stimulating growth for us.

We'll take our last question from Paul Ginocchio with Deutsche Bank.

Beyond 2011, is there any other earn-outs? And what should we be thinking about for CapEx in '11?

CapEx will be around $25 million in '11, but we do have summer [ph] as to the extend beyond 2011, not much size. I think it goes down to about -- obviously, projecting an earn-out is projecting earnings, so it's been -- I think in terms of when we think about tax and longevity around it, we're looking at levels 10 or below after 2011.

And obviously, Paul, with the new accounting rules, you'll be able to see those on the balance sheet going forward. Isn't that right, David?

For acquisitions done post the adoption of the new accounting rules. So for example, the FS Asia has an accrual on the balance sheet for the expected earn-outs with transaction. I think it was a total of about $18 million.

And that concludes today's question-and-answer session. At this time, I'll turn the conference back over to management for any additional or closing remarks.

Well, thank you very much, and thank you, again, all, for joining us, and we will look forward to our next scheduled conference call. And as we had committed, we will give you an update as other discussions progress, and we'll do that promptly. With that, again, thank you, and we'll talk to you next time.

That concludes today's conference. Thank you for your participation.