Good day, everyone, and welcome to the FTI Consulting Fourth Quarter and Full-Year 2017 Earnings Conference Call. As a reminder, today's call is being recorded. And now for opening remarks and introductions, I'll turn the call over to Mollie Hawkes, Managing Director of Investor Relations at FTI Consulting. Please go ahead, ma'am.

Good morning. Welcome to the FTI Consulting Conference Call to discuss the company's fourth quarter and full-year 2017 earnings results as reported this morning. Management will begin with formal remarks after which we'll take your questions. Before we begin, I'd 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 risks and uncertainties. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events, future revenues, future results and performance, expectations, plans or intentions relating to financial performance, acquisitions, share repurchases, business trends and other information or other matters that are not historical, including statements regarding estimates for our future financial results and other matters. For a discussion of risks and other factors that may cause actual results or events to differ from those contemplated by forward-looking statements, investors should review the Safe Harbor statement in the earnings press release issued this morning, a copy of which is available on our Web site at www.fticonsulting.com, as well as other disclosures under the heading of Risk Factors and forward-looking information in our Form 10-K for the year ended December 31, 2017, and in our other filings filed with the SEC. Investors are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this earnings call and will not be updated. During the call, we will discuss certain non-GAAP financial measures such as total segment operating income, adjusted EBITDA, total adjusted segment EBITDA, adjusted earnings per diluted share, adjusted net income, adjusted EBITDA margin, and free cash flow. For a discussion of these and other non-GAAP financial measures, as well as our 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 include the reconciliations. Lastly, there are 2 items that have been posted to the Investor Relations section of our Web site this morning 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 2017 results. Of note, during today's prepared remarks, management will not speak directly to the quarterly earnings presentation posted to the Investor Relations Web site. To ensure our disclosures are consistent, these slides provide the same details as they have historically and, as I said, are available on the Investor Relations section of our Web site. With these formalities out of the way, I am joined today by Steve Gunby, our President and Chief Executive Officer; and Ajay Sabherwal, our Chief Financial Officer. At this time, I'll turn our call over to President and Chief Executive Officer, Steve Gunby.

Thank you, Mollie, and good morning to everybody on the call and thank you all for joining this call. As I think you saw this morning, our teams delivered an extraordinarily positive second half of 2017. The third quarter, I think everyone already knew was strong. It's now joined by a fourth quarter that was also powerful. And those two quarters together offset the weak first half of the year leaving us with both with solid results for 2017 overall and strong momentum going into 2018. So a terrific second half of the year. So I’d like to cast -- remind back, I’m sure, most of you on this call likely will remember the slow start to 2017. I’m hoping most of us also remember that we felt that time the slow start was not reflective of the underlying reality of where our teams have taken this business. The strength of the positions, the competitive positions we've been creating around the world, the strength of our people in different businesses around the globe, the importance of the work we're doing in the marketplace, the marketplace receptivity to that work. Rather as we indicated during the first and second earning -- quarter earnings calls, a lot of the issues in the first half of the year held temporary. And based on that perception even though we delivered first 2017 adjusted EPS of only $0.75, after the second quarter, we maintained the then existing full-year adjusted EPS guidance of a $1.90 to $2.20, which of course, if you do the math and I'm sure everybody on the call did the math, inherently meant we believe the second half was going to be substantially stronger. It was and in fact the reality of the second half the second was even stronger than we…

Thank you, Steve. Good morning, everybody. In my prepared remarks, I will take you through both our fourth quarter and full-year results and provide you with our financial guidance for 2018. Beginning with some highlights, as Steve just discussed, our fourth quarter and the second half of the year results were much stronger than both the first half of this year and the second half of last year. We finished with a very solid fourth quarter, which resulted in full-year 2017 performance above our expectations. Revenues for 2017 of $1.808 billion were above our guidance range of between $1.775 billion and $1.8 billion. 2017 net income of $108 million compared to $85.5 million in the prior year and GAAP EPS of $2.75 compared to $2.05 in 2016. Full-year net income and GAAP EPS were impacted by two special items. We recorded a discrete net income tax benefit of $44.9 million resulting from the 2017 U.S Tax Cuts and Jobs Act or the 2017 Tax Act. This benefit consists primarily of a $63.5 million reduction of tax expense relating to remeasuring our deferred tax liabilities at a new -- at the new lower U.S tax rate of 21%. This was partially offset by $18.6 million tax expense resulting from the transition tax on our foreign earnings, which are deemed to be repatriated under the 2017 Tax Act. On a net basis, these items increased GAAP EPS for the fourth quarter by a $1.19 and for the full-year by $1.14. The 2017 Tax Acts benefit was partially offset by the pre-tax special charges of $40.9 million for the year, $10.8 million of which were recorded in the fourth quarter. These special charges reflect targeted headcount and real estate actions taken in 2017 and reduced GAAP EPS by $0.19 for the fourth quarter…

Thank you. [Operator Instructions] We will take our first question from Kevin McVeigh with Deutsche Bank. Please go ahead.

Great. Thanks and tremendous job folks overall. Steve or -- can you give us a sense, I mean, to your point like you’re clearly decoupling from historical fundamentals. Is there any way to maybe frame that? One thing I’ve always thought about is what percentage of the business is kind of distressed versus non-distressed. But if you look at the pace, you’re clearly outpacing that. Is there any way to just maybe bracket that within the context of the overall results which were obviously very, very strong?

Yes. Thanks, Kevin. Thanks for the congratulations and thanks for the question. Look, maybe -- let me try to answer it the way at least I think about it. If it doesn’t answer your question, come back, okay.

Okay.

Obviously, there are market forces that affect all of our businesses as well as sort of random events whether you win three of the four big jobs, or you win one of the four big jobs. To me one of the issues was in our company, we're too focused on that, because dramatically affect any quarter. But over any extended period of time what matters is, are we gaining share, are we anticipating where the markets are moving -- moving aggressively in the places where we can win when the markets are moving. And to me, if you do that, you become much less dependent on the restructuring boom to bail out your earnings. And when our management team has looked at that, we've been -- we've seen that there were opportunities for adjacencies that we missed in the past and we're pretty focused on that. And so we're also focused on saying, just riding our current share and riding the waves of the market isn't adequate. And so in Corp Fin, I think, for example, Carlin might -- but really our broader leadership team there has a lot of ambition and tough discipline. They are not saying we’re going to go become something we can't possibly be, but tough discipline around, look, where are the adjacent spaces we can be in. We are not just a restructuring business. We have the right to work for companies that need cost/ We do merger integration work. We have deep industry expertise that creates opportunities for us to do other work. Where do we have a right to win and how do we expand those services and we’ve done that. And even in businesses that we are terrific in like Corp Fin restructuring in the U.S., Mike and the team have taken a hard look and said we’re great in a lot of it, but where can we be better? And one of the reasons why we did the CDG deal is as strong as we are in company side and we do a whole lot of company side deals, we have envisioned to be better. And so to me the sea change is, we have a management team that is focused on -- its not an excuse to just say the market went up or down. It's -- what are we going to do to have at least a formidable motor that plows through the waves even if they're against us, not to say that you are -- you can ignore it, that the waves don’t affect you, but let's control more of our destiny. And I think that's what starting to show up in the results. Does that address your question or I missed it, Kevin?

No, no it did. And just along those same lines, like -- because I think to your point like it cycles both ways, right? And it sounds like from a staffing perspective, are you kind of where you need to be? And it sounds like you made some progress on the attrition as well. Are those fair statements?

Look, I think -- yes, what we -- we used up -- we've been working on this now, look, for several years. But we’re a people business and you work -- you move carefully and you hope to make sure that you don't want to pull the plug on businesses if you feel like you can really drive them. Now the slow part of the first half of the year allowed us to really accelerate some conversations that we've been having for a while and so we made a fair number of moves in the first half of this year. But it was really continuous -- and then even a little bit at the end of the year as people finalized some thought processes that were started in the early year. So I think -- I don't feel like there are gaping holes, that there are gaping issues of major rationalization activity that we didn't address this year. Now that’s different than saying you don’t have work to do. I mean, you constantly have to reevaluate and you know we’re making bets on groups of people and you don’t make a bet one quarter and pull the plug in another quarter, but nor do you stick with a bet for 10 years if it's not working. And so this is a constant process, but I would say the catch-up element of that process, I would say is largely behind us. Does that answer?

It does and then just if I could one more real quick. How much were the success fees for, I guess, in the quarter and then just for all of '17? And was that mostly in the FLC?

Kevin, I'm trying to move us away from overdependence on that number, but I will be responsive. So, in fourth quarter we were -- there was no great success as we were along the averages. And averages -- we’ve aimed from lows of 3 to highs of 15 million in a quarter. We were around the $7 million to $8 million range in the fourth quarter, which is at the average. For the year, we were north of $35 million, which is as close to the highs that we get through. And third quarter was exceptionally strong in success fees.

We do not expect that, that exceptionally strong performance will continue. We had one big catch-up success fee from long time. So that's an important part of our -- the story for the next year, right.

Did that answer your question, Kevin?

It does. It does. Again, thank you very much.

Thank you.

We will go next to Tim McHugh with William Blair & Company.

Thanks.

Hi, Tim.

Hi. I guess, first is on Econ. You talked about achieving the full potential of that business. I guess, can you talk at all about the confidence that it's a marketplace issue that they’ve been performing weaker lately or are there things happening in the business that, I guess, relate to execution and -- or how they’re competing and so forth, I guess.

Yes. It is hard to have good data, external data, but I’ve had conversations with the folks in the business and we don’t perceive a serious execution issue at all. Look, we have an incredible group of people there and we also have good business leaders in those most businesses. I -- my belief at this point is, this is either market-driven or it's just a one-off sort of thing that timing of the start of big jobs as well as whether we won or lost a specific big job in the quarter. We have not lost competitive position. I mean, we still have -- as people don’t allow me to use words that begin with a D, but a very strong position in most of our businesses and look there can be markets that come and go, I mean, there were delays in mergers in the fourth quarter, particularly, some of the largest ones as there was uncertainty about regulatory policy, and -- but to my sense, it's not -- most of those things have not gone away, they’ve been simply delayed. But delays on very big mergers which is a place where we typically have disproportionate share can affect that businesses results. So that -- that's what we believe is the case here, Tim. We don't see anything fundamental. I don’t have long-term fundamental concerns there.

Okay, great. And -- yes the comment on the stronger first half, given the momentum, is that tied to any particular segment more than the other ones and towards the first half, second half outlook for 2018?

So, Tim, I’m not going to get that specifically. We expect all segments to do better in 2017 than they -- in 2018 than they did in 2017. But mathematically, we've got to do better in the first half of next year than the first half of 2017. And you have good visibility into jobs as you enter into a quarter about 60%, 70% you that visibility and that momentum that we saw in Q4 continues into Q1. So that's as much as I’m going to say.

Okay. And are you willing to talk about headcount turns and hiring expectations as you go across 2018? Just thinking about exiting the year kind of, I guess, it was flat to negative one kind of headcount growth. Do you need to ramp up hiring again to start to drive growth even -- more so than even 2018, but if you’re thinking 2019 and beyond?

Let me just say one thing, Tim, and then I will let Ajay respond on the numbers, which is it is not a mistake last year for us not hiring. If you -- you can get to flatter headcount growth by having zero hires and zero attrition or you can actually have substantial hires and substantial attrition. We did a fair amount of hard looks at businesses where we did not have -- we did not believe we have the right positions or that -- or for geographies that were not critical for our future. We also hired aggressively other places. So I just want to make sure that that -- the flat number isn't misunderstood. Then, Ajay, you want to address the numbers? Go, Ajay.

Tim, this is really important and feeding off of what Steve just said, we’re not going to give and -- and sure, we have budgets and models of a percentage headcount growth etcetera, but the idea is growth with higher utilization. The idea is we will hire, absolutely we will hire, we have the wherewithal to increase. For example, in cybersecurity, we've hired considerably and we will continue to do so., higher than that. Meanwhile we have reduce headcount through action of roughly 250 people in 2017. Where it makes sense, we will hire. Where it doesn't make sense, we will not. And that's how we were going to operate.

Okay. And then, last question, if I could, just the guidance you commented, I think on deploying cash flow. Have you assumed any additional acquisitions or what’s kind of for buybacks is embedded into the guidance?

Again, I will not give that level of specificity. We -- our guidance is based on both growth in all our segments and use of our cash. The exact combination of those remains to be seen, of course, if look at the scenarios and you have a lower end of guidance and higher end of guidance then it assumes a combination of those two elements and that’s as much as I will say. We retain the flexibility, we have a balance sheet that can do all of the above.

I mean, it includes something you just want -- you don’t want to specify or what -- I guess how you're using it? Is that fair?

You can make your own assumptions, yes.

Okay. Thanks.

Thank you, Tim.

[Operator Instructions] We will go next to Tobey Sommer with SunTrust.

Good morning, Tobey.

Thanks. Good morning. I was wondering if you speak to your international infrastructure and how you feel about your current footprint as well as the utilization in leverage of it? Because you do have five segments and you're not present or those segments are present in every geography, so maybe you could talk to how you can leverage those and what your plans are? Thanks.

Yes. Thanks, Tobey. Look, I think the short answer is it's a place where we made actually quite a substantial progress over the last several years. We don’t disclose as much details in the regional thing that may not be so apparent in the numbers, but enormous amount of progress. So the upside and future of that is -- it's got a -- I guess it's not endless because at some point, everything comes to an end, but it's just huge. You’re right. Look, we have -- we can subscale in a lot of markets overseas. In some markets, we’ve only have one segment. Some markets we’ve one segment where we’re scale and well-known. In some markets we’re one segment and not known in those markets. And so what you have to do is to pick your shots and say like how do I get to scale in those markets and how do I grow those at. I'd say the place where we made the most progress over the last several years is in Europe, which was a fairly stagnant business for a few years and has just moved aggressively. And I think we disclose the revenue numbers in Europe, right, and you can see that in the revenue move for Europe. Somebody will probably dig it out for me, for Ajay the exact numbers, but the last several years we've moved the revenue considerably. The most important point is the point you're making. As we move the revenue considerably, if you talk to our people out there, the sense of opportunity has only grown because we just become a much bigger presence in those markets and we start to now have for example in the U.K the phone rings as you know the default condition for dissatisfied fabulous professionals…

Sure. In -- Ajay, can you just repeat again the success fee total for the year?

It's just north of $35 million, Tobey.

Okay. And when you say in this part of guidance success fees maybe a little bit lower in 2018. It that a function of the backlog and the nature of the projects that you’re working on or how do you arrive at that statement and assumption?

Precisely, we know all the cases. We know where we said we have certain assumptions of what we might get or not. Again, you’ve seen certain probabilities and project that.

Okay. And then, I’m curious on the tax rate. Could you comment as to why the '18 tax rate isn't lower?

No, I mean, this is what I try to explain. It is complicated. So we're saying 28% to 31%. We operate overseas, we operate in the U.S. In 2017, we assumed that our effective rate will be between 36% and 37%, but the geographic mix of earnings was much more overseas than in the U.S. So even though the U.S tax rate was significantly higher than the overseas tax rate, the blended tax rate came in much lower. Now in 2018, the U.S tax rate has also fallen and so now when you blend with the federal and the state and all the rest of it, you get around 28% to 31%, which doesn’t look dramatically higher. It looks comparable to the rate we experienced in 2017, but for different reasons. I will put another way, had we not gotten the tax rate reduction, our rate in 2018, under typical circumstances, we'd have expected it will be back again to the 36%, 37%. So, yes, there's a reduction from that level to the 28 to 31. But year-over-year it doesn't appear to be a significant increase for us -- a significant decrease for us.

Okay. Sure. And then, with respect to capital deployment you did incur a little bit of debt as a result of the repurchase and the way you spend your free cash flow in '17. Is that an approach that we could expect over time where you’re returning capital to shareholders to repurchase a little bit more than your free cash flow generation in a given year. Could you frame your thought process on that?

Absolutely. So the answer is not necessarily. It depends on where the shares are at. So we'd like to have a leverage ratio under 2.5x, and that’s where we'd like to be and so that 2 is important to us. But we generate enough cash flow that we can be aggressive in buying as we’ve demonstrated this year. That’s the framework.

Thank you very much.

We will take our next question from Marc Riddick with Sidoti.

Hi, good morning.

Good morning, Marc.

I was wondering if you could -- and forgive me if I missed this, because I missed a couple of minutes here and there. But I did want to check to see if you had addressed sort of the cadence of the quarter during the fourth quarter, particularly, in the main segments. So I just wanted to get a sense of if business sort of was uniform throughout the quarter or what that cadence look like in terms of the pickup in business and utilization? Thanks.

Do you mean cadence as in the months?

Yes.

So we started to be strong in the second half of the year on most of our businesses and that continued. I can't tell you that we didn't have a week that was deviating from it because of holidays or whatever that is, but our businesses in the second half of the year were performing well. There may have been a ramp up sometime during the third for some of them, but there was no like one month off, one month on type of thing that I remember for our businesses in the fourth.

And we don't provide monthly results there.

Did that help, Marc, though.

Yes. That’s fair. It was just in the third quarter the Corp Fin have picked up faster than on the Forensic and Litigation side, and so it seems though Forensic really sort of kicked in, but I want just to get a sense. It seemed as though it was throughout, which is fine. The other thing I was wondering about is around sort of the pace of bill rate growth during the quarter, which was up across all three of the areas that you report. I’m wondering if you can sort of share a little bit of your thoughts on billing rate and sort of where you’re looking for that to go and some of the efforts that you’ve put into either pricing or if you’re really looking at that sort of a current revenue mix component that’s been beneficial? Thank you.

That’s a function of growth with higher utilization. When -- that’s what you get when your folks are performing, they’re getting -- like for example in, Corporate Finance, we not only got an increase in what you call restructuring or distressed businesses, but we -- in our business transformation and transaction advisory, our growth rate was even greater. So tremendous performance all around and that then equates through higher revenue for billable professional.

Yes, okay. Great. Thank you very much.

[Operator Instructions] And we have no further questions at this time. I’d like to turn the call back over to our speakers for any additional or closing remarks.

Well, thank you all for your time and we're excited about where the third and fourth quarter came out as you can tell we are -- I think our teams did a fabulous job. But I think for us the best part of it is the fact that we believe we were creating a foundation, we're creating a foundation for the future of this company going forward. So thanks for your support.

And this concludes today's call. Thank you for your participation. You may now disconnect.