Good day, everyone, and welcome to the FTI Consulting Second Quarter of 2018 Earnings Conference Call. As a reminder, today's call is being recorded. And now for opening remarks and introductions, I will 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 second quarter of 2018 earnings results as reported this morning. Management will begin with formal remarks, after which we'll take your questions. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21 of the Securities Exchange Act of 1934 that involve 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 related to financial performance, acquisitions, share repurchases, business trends, and other information or other matters that are not historical, including statements regarding estimates of our future financial results and other matters. For a discussion of risks and other factors that may cause actual results or events to differ from those contemplated by forward-looking statements, investors should review the Safe Harbor statement in the earnings press release issued this morning, a copy of which is available on our 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 tables that we issued this morning, which include these reconciliations. Lastly, there are two 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 second quarter of 2018 results. Of note, during today's prepared remarks, management will not speak directly to the quarterly earnings presentation posted to our 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 our Investor Relations section of our Web-site. With these formalities out of the way, I am joined today by Steven Gunby, our President and Chief Executive Officer; and Ajay Sabherwal, our Chief Financial Officer. At this time, I will turn the call over to our President and Chief Executive Officer, Steve Gunby.

Thank you, Mollie, and thank you all for joining us this morning. As I'm sure many of you saw in the press release this morning, this quarter once again we had results that I have a hard time calling anything other than spectacular. We delivered record revenues. Revenues increased 15% year-over-year, with almost all of that growth being organic. That revenue growth translated, not surprisingly, into record earnings per share. GAAP and adjusted earnings per share, each totaled $1.14 per share in the second quarter alone. This quarter, combined with the outstanding first quarter, delivered a record first half for the Company. Revenues for the first half of 2018 increased 13% compared to the first half of 2017. Those revenues in turn resulted in adjusted EPS of $2.18 for the first half of 2018. So, the numbers are terrific, and Ajay is here leaning forward, I think he is very eager to take you through them in a lot of detail, and that's what we will spend a fair amount of time here on this morning. But before we go through the numbers, Ajay and I both thought that I could take a couple of minutes to go a bit deeper on a couple of points that you've heard us talk about before, points that go beyond the numbers to discuss some topics that we believe are critically important. And so, let me take a couple of minutes there, and then Ajay, you will take us through the numbers. The first is the pride that not just the management has but this entire Company has in the progress this Company is making. This group of professionals is delivering on the underlying potential as a firm for our clients, for our professionals, and for you, the shareholder. I am proud of…

Thank you, Steve. Good morning, everybody. I will start by summarizing our quarterly results. Then I will review quarter-over-quarter and certain sequential quarter results at the segment level and key cash flow and balance sheet items. After that, I will discuss guidance for the year. In summary, as Steve said, the second quarter was another record quarter. Revenues grew in each of our segments, led by solid growth in our Corporate Finance & Restructuring, Forensic and Litigation Consulting or FLC, Strategic Communications, and Economic Consulting segments. Our revenue growth and higher utilization, particularly in our Corporate Finance and FLC segments, resulted in improved margins. And consequently, our adjusted EBITDA surged, increasing 77.4% year-over-year. We are delighted with these results. Moving on to the details for the quarter, second quarter 2018 revenues of $512.1 million were up $67.4 million or 15.2% compared to revenues of $444.7 million in the prior year quarter. Fully diluted earnings per share, or EPS, were $1.14 in 2Q 2018 compared to fully diluted loss per share of $0.13 in 2Q of 2017. As a reminder, EPS in the second quarter of last year was impacted by headcount and real estate actions we took during that quarter, which resulted in a special charge that reduced EPS by $0.52. Adjusted EPS in 2Q 2018 were also $1.14, which compared to $0.40 in the prior year quarter. Adjusted EPS, as a reminder, excludes special charges, which we did not have during this quarter. Second quarter 2018 net income of $43.6 million compared to a net loss of $5.2 million in the prior year quarter, which included the 2Q 2017 pre-tax special charge I just mentioned of $30.1 million. The increase in net income was largely due to higher operating profits, particularly compared to the prior year quarter, which included…

[Operator Instructions] Our first question will come from Marc Riddick, Sidoti.

I wanted to just go over just a couple of quick things. You did mention sort of the traditional summer hires that you are looking to do and some other senior headcount. I was wondering if you could sort of – is there a general magnitude that you're thinking about for headcount additions for the remainder of the year.

Let me let Ajay answer whether we release that. Obviously we think a lot about that, Marc. It's one of the most important things we do is – I mean, our assets are people. I will say this that between the leaders we have in place and the success we're having in the marketplace, certainly in my time the phone has never been ringing off the hook as much as it is now with people wanting to join us, and we have very tight screens but we are excited when people have the ability to join us. So, that is going on in a very rich way. It's actually been going on for a while, although some other moves we made last year obscured it because you grow a lot one place and you exit a market, and that's out. But there are a lot of people looking to join us and we are taking advantage of that. And then on the junior staff, we always have growth in hiring. In fact, we've grown so many senior hires and we've been so busy, I'd say we were behind on our recruiting of junior hires with a fair amount of catch-up agenda. So, I can give you that qualitative answer. I think Ajay is kicking me under the table saying, 'we don't do more than that'. Is that right, Ajay?

I think, sir, you've answered the question adequately. Thank you.

Very well, very well. Also I wanted to touch a bit on if you wanted to maybe give some thoughts on the opportunity set in front of you, particularly being a big assignment firm, I wanted to get a sense of some of the driving forces of the assignments that you're competing for and maybe how that is different maybe now than it was at the beginning of the year?

So, I'm not sure that it's different than it was at the beginning of the year. I mean, I think there are two phenomena that go on, there are three phenomena that go on. One is the ebbs and flows of big jobs, which happen in every sub-part of our business. In M&A, it's most obvious, right, the big M&A deals come or sometimes they are not there. But it's true in other things. Big fraud is again a recurring phenomenon of human nature since biblical times, but the amount of big fraud that happens this quarter versus last quarter or the status of cases can be pretty variable. We can't control that and we don't try to. I mean the truth is, the underlying – there's demand out there, but it can ebb and flow a bit. The thing that we focus most on is our competitive position. What can we do to strengthen our competitive position? And importantly, look, we have great professionals. We're not necessarily great chest-thumpers. So, some of what we're trying to do is also make sure that where we have great professionals, people don't just execute the work, but occasionally we'll talk about it. And sometimes that's hard because some of our clients are confidential, and you can't. But sometimes, Boards of Directors will issue major reports profiling our work. And it's okay if that's the case for us to mention, not to other people. So, what we've been doing is mostly working on reinforcing the strength and capabilities of our business, looking aggressively at adjacencies that our clients want us to move into, because investigations today encompass cyber investigations, which they didn't 15 years ago. The skill set of our Corporate Finance guys allows us to do performance improvements. We need to recognize the adjacencies, invest behind it, and occasionally, for professionals, we are more focused on delivering for clients than we are on chest-thumping, occasionally let people know a little bit more about the stuff we are winning. And that allows us through the noise of the ups and downs of the markets and whether you've won a particular job or not, to grow. That's what we're focused on. That's why we always discourage quarterly looks but do hold ourselves accountable for the long-term trends. Marc, does that help a little bit?

Certainly, absolutely. And then just one last one for me, with the debt reduction during the quarter, I was wondering if you could sort of give an update as to where you are comfort level-wise on debt, and certainly you've been into buying back shares as well, but I wanted to just sort of get a quick update on that given the debt paydown during the quarter. Thank you.

Marc, obviously we are very comfortable where we stand. But to be frank with you, we were comfortable where we were even before, that it wasn't as if the debt load is high in this Company. I'd like to see on a gross basis no more than 2.5, on a net basis no more than 1.5, that sort of debt levels. But clearly, the Company can accommodate even higher leverage. But those are the comfort zone parameters. Where we are heading with this sort of debt reduction and the free cash flow is in even lower place.

Okay, excellent. Thank you very much.

Our next question will come from Tobey Sommer, SunTrust.

Wanted to ask another question about headcount additions and see if we can, maybe not target numerical targets for this year, but longer term because without an understanding of how you plan to grow headcount over time, it's difficult to get an understanding for what the growth profile looks like over time, because we do have the larger projects, the events that you described kind of really coming to fruition in the first half, so could you speak to that please?

I'll speak to it as much as my friend here, Ajay, allows me to and then – look, Tobey, of course, we need to add heads to meet our growth aspirations. I think what's not so clear is we have been. I mean, the last few years, we've been doing a fundamental relook across every business and every geography, both to find places to bet on growth and also to figure out places where we didn't have a right to win, where we had to exit. And I think I told you, at one point we exited 100 people over a business we didn't believe in, in Brazil, and we've told you about different offices we've closed, and so forth. That sort of stuff obscures the steady-state commitment to growing businesses we've had. And as we finish – I mean, you always have stuff to fix in, in professional services, but as we finish that first fundamental look across our businesses, the fact that we are continuing to look to add headcount every place where we have a right to win is going to be much more apparent in the external and visible numbers. I think you can look at that maybe – you probably can go look at a couple of segments where we didn't do as much restructuring, and you can see that force over the last couple of years. I think Corp Fin is up probably 20% over the last two years in headcount, and that was even with some different restructurings of different parts around the world. We are committed to headcount growth because the market is out there. We're attracting and developing the people to seize that market. There's huge amounts of upside in market share and there's only so high you can go in utilization. So, I think this is going to show up in a much more visible way as we now work through some of the actions we've taken in the past, Tobey, than it probably appears in the data.

I completely echo what you're saying, Steve. I mean, first, the increased profitability comes from increase your utilization, but beyond a certain point, you have to increase your capacity. So that's just the math. Beyond that math, it's not one size fits all for every sub-practice and every area and every geography. We have been growing headcount handsomely in cyber security, in public affairs, in information governance. In many areas we have been. It's obscured, as Steve said, by the cuts we did in various areas. And Q2 in particular is the seasonal high in attrition as well because it's just how it is every year. So, there's no question we're committed to growth, but also increased utilization. These are not mutually exclusive.

That helps a little bit, Tobey?

Yes, we threw some extra mud in the water there. But let me ask you about the sustainability of utilization, which is higher, and like you said, underneath the covers of the kind of gross numbers, you do have pockets for you growing headcount significantly and then over the last several years had some restructurings which kind of masked that, but Ajay, in your prepared remarks, you also talked about some parts as being unsustainable. Could you delineate those for me, so we kind of get a handle for where utilization and EBITDA margins should be able to sustain themselves?

Yes. So that's again a great question, Tobey. Again the math, so in our denominator of utilization, we don't subtract vacations, for example. Other people do. So, that by itself means, some people do have to take vacations every once in a while, you can't get to 100%.

But we're not planning to take a vacation.

So that's number one. Number two, above 80% consistently you're going to burn people out, and we have sub-practices that are now in those areas. Now that doesn't mean every practice is there because we have given you our total utilization, which is approaching 70 in some of the, say in Corporate Finance and FLC, et cetera. So, in some areas at those sets of levels and also opportunistically you will grow headcount. We are focused on growth and increased utilization. That's it.

And the other thing on that is, the problem is, when you are in a big job business, not everybody is fungible. I mean, our best testifiers for disputes are not the same people who are going to do 'devise a communication' strategy, or even within a segment not everybody is fungible. So, if you're committed to growth and you believe you have a right to win, you support a particular group, they grow, they lose a big job, they're going to have 40% utilization for a while till the next job comes in. And so, the average of 70 hides the fact that that group was running at 85% until now and is now running at 40% for three months while they are waiting for the new job, whereas some other group that was running at 40% is now running at 85%. We're in a lot of sub-businesses, and if you're in a lot of sub-businesses with a lot of big jobs, there is a limit, and you have those sort of lumpy revenues, so there's a limit to where that can go. Clearly we were not at the level we should have been at a year ago. That's a different issue. And there's still some sub-businesses where we're not quite at the level. But we clearly have a lot businesses right now where we're burning our staff in ways that we have to change now. It's not right for our clients and it's not right for our staff. That helpful?

That is helpful. Yes, it is. Just two questions for me and I'll just get back in the queue. Could you tell us what the underlying realized bill rate increases are like for the Company as a whole? Because I'd imagine that the bill rate increases are in part in the reported quarter due to mix with more senior staff kind of at a higher rate, and they carry an intrinsically higher bill rate, but I kind of want to get the underlying rate of year-over-year bill rate changes. And then could you comment on your appetite for acquisitions and what the pipeline looks like? Thanks.

So, the last question is easy. We don't comment on M&A. So, I'm not going to comment on pipeline of acquisitions. But in terms of the other one, what you see, we do provide bill rate, and what you see is, unless I'm misunderstanding your question, what you see is the underlying rate. There is a correlation between higher utilization and bill rate. When our folks are busy, not only are we using senior folks, but when our folks are busy and much desired, they don't particularly feel compelled to provide discounts and that realization is higher. So, these are consistent themes and are underlying themes.

I want to just add on the acquisitions, just reiterate something on that. I mean, we remain committed to exploring acquisitions, and probably we are evaluating more acquisitions now than we ever had in the past. What we are committed to as a company is to grow organically regardless of what acquisitions, because great acquisitions don't just come along because you want them to. When your great acquisitions come along, you need to jump on, and even if – by the way, that industry is slow, and that's what we did with CDG. We didn't buy CDG last year because we thought there's a boom in Corp Fin or Restructuring, we bought it because of the great group of professionals who we thought together with us will create even more value, and it's something that I think is happening, and that's great, and we will do that. But we are committed to grow with zero acquisitions. We are committed as a company, and I think this is a deviation from some of that original history of the Company. Great professional services firms grow by developing their people, by promoting people, by great people being dislocated at other companies and saying, wow, FTI is going places, let me call them up and join them. That is the cornerstone of our growth. And then as great acquisitions come along, we will jump on them. But that's not programmatic. That's responsive to the opportunities that are out there. Does that help?

It does. Thank you.

Our last question will come from Tim McHugh, William Blair.

So, just a few questions I guess. To start with, I guess following up a little bit on the bill rate topic, the utilization was good but it actually wasn't quite as strong as first quarter. Your headcount was lower even than first quarter and yet revenue went up. So, success fees, can you talk about those, were they a significant contributor, and if not, I guess what's the bridge, because it seems like, I know you used the phrase realization a fair amount, but whether it's pricing or I guess what the delta is there that helps explain that?

So, success fee is consistent, Tim. It's actually slightly below average. So, no, this is not a – I mean I'm hoping for a lot more success fees, but hope is not a strategy. And the success fees were below average, slightly below average, this quarter. We are seeing strong consistent utilization and strong – some improvements in our bill rate as well. So, those are the drivers. I don't know which particular data point you're looking at that is prompting the question, but barring small changes from one quarter to the other, the first two quarters have been largely consistent.

Okay. You made a comment about the second quarter being seasonally higher, just level of turnover, given the timing of bonuses and so forth. But I guess, given that comment, can you talk about kind of the overall turnover metrics and how they compare to last year or to your targets at this point?

Yes. The overall turnover is lower than last year because last year, if you remember, we took some action in some places where we didn't think we had a right to win. Remember, we closed some offices and so forth. So, I'm not sure that's the relevant comparison. But in general, our turnover is very much in line with our historical norms, and as I've mentioned before, lower than ones that I've seen at other professional services firms. I do worry a little bit that some places were burning our staff out. I mean, turnover is – look, this is a challenging job, you have a lot of work, it's travel, it's not the right job for everybody. You don't want to lose great people. And sometimes if you burn people out, you lose them. It doesn't show up so much in the numbers, but anecdotally, you can tell when people are overworked, and we're trying to solve that. But actually, the turnover rate so far is in line. We're more trying to address that proactively so that we don't lose great people. Does that help, Tim?

Yes, that does. And then the comment about [indiscernible] thing about the second half and the impact of big projects I guess, I recognize this can change tomorrow if you win a bunch of big projects tomorrow, but I guess, if we just take the last three, four, five months, I guess I recognize the revenue could have been driven by projects you won last year even, right, but if we look at the ingestion of new big projects, I guess how is that compared to what you're seeing second half versus 2017, to what you've seen kind of in the last three to six months?

So, let me try and be helpful without being specific. We talked about this. We have a bedrock of investigation disputes and restructuring, but the adjacencies we have built in cyber security, information governance, public affairs, business transformation, the nature of what triggers the dispute or an investigation is changing and we have really hit the cover off the ball in those adjacencies and therefore made our core competencies more applicable for our clients, and leveraging those relationships we have built over the years. That is what is enabling us to succeed so much. Now, six months from now or six years from now, those things could change again. But for now, we are doing really, really well. And the guidance for the second half of the year is not precipitated on anything I particularly know that will make a cliff occur or whatnot or a job end or whatnot. It's just simply based on historical precedents of some moderation. So, there's no specific thing that I am pointing to. It's more observation of empirical evidence over time. So, I hope that helps.

Yes, okay. And then last question, obviously the Navigant's announcement selling their Dispute business, I guess you have a new competitor there, or a bigger competitor, kind of two of them coming together, I guess. Maybe just talk about opportunities for recruiting talent as well as I guess if it changes anything about your perception of the competitor environment at all, or any other strategic thoughts on the marketplace following from that.

We wish them luck. We are strong competitors. We wish them luck and competition brings out the best in all of us.

Okay, all right. Thank you.

Thank you very much. Speakers, at this time we have no further questions in the queue.

Thank you everybody for your time and attention, and we are pleased with what a terrific quarter this is but I will underscore one more time, we're even more pleased by what we're building at this firm and it's a great time in this Company. So, thank you very much for your support and your attention.

Thank you very much. Ladies and gentlemen, at this time this conference has now concluded. You may disconnect your phone lines and have a great rest of the week. Thank you.