Welcome to the FTI Consulting First Quarter of 2019 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] After today's presentation, there will be an opportunity to ask questions. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to Mollie Hawkes, Vice President of Investor Relations. Please go ahead.

Good morning and welcome to the FTI Consulting conference call to discuss the company's first quarter of 2019 earnings results as reported this morning. Management will begin with formal remarks after which they will take your questions. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21 of the Securities Exchange Act of 1934 that involve risks and uncertainties. Forward-looking statements includes 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 of our future financial results and other matters. For 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 website at www.fticonsulting.com as well as other disclosures under the heading of Risk Factors and Forward-Looking Information in our annual report on Form 10-K for the year ended December 31, 2018 and in our other filings with the SEC. Investors are cautioned not to place undue reliance on any forward-looking statements, which speaks 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 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 two items that have been posted to 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 first quarter of 2019 results. Of note, during today’s prepared remarks, management will not speak directly to the quarterly earnings presentation posted to the Investor Relations section of our Web site. To ensure 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 website. 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. Good morning and thank you all for joining us today. I'm sure many of you in our saw press release this morning, this quarter was another record quarter. In fact, I think I have to call it a spectacular quarter. Revenues increased 10.7% year-over-year with all of that growth being organic. And that revenue growth translated into an unprecedented level of earnings for the company with GAAP earnings per share of a $1.64 and adjusted earnings per share of a $1.63. Those are numbers. Maybe let me try to put those numbers in perspective. Our adjusted EPS of a $1.63 for this quarter is essentially the same as the adjusted EPS we had for the full-year of 2014, which of course is only less than five years ago. So there are a lot of adjectives, that one could say about this quarter and Mollie drafted a bunch of them and I will spare you those. I will let Ajay take you through the quarterly details shortly. Let me instead try to share a few perspectives on the quarter. And let me start by doing something I always do, which is underscore that in any quarter results can benefit from or be negatively impacted by short-term factors. And in this quarter that was true as well. We benefited from higher success fees, particularly large surge in cross-border investigations and second request jobs and a lower-than-expected tax rate. As I think most of you know, there are always short-term factors in this business. Short-term factors that can cut one way or the other and in this quarter we’ve some benefits. So let me stress as always, but let me stress especially this quarter that one can never take one of our quarters and multiply it by 4. Having said…

Thank you, Steve. Good morning, everybody. I will begin by summarizing our quarterly results. Then I will review quarter-over-quarter results at the segment level and key cash flow and balance sheet items. The strong momentum we saw in 2018 continued into the first quarter. I am delighted to report double-digit revenue growth year-over-year. That resulted in another record quarter for earnings. Our first quarter performance reflects broad-based rent with every one of our business segments delivering year-over-year revenue and adjusted segment EBITDA growth. We are delighted with these results, which exceeded our expectations. First quarter of 2019 revenues of $551.3 million, or up $53.5 million or 10.7% compared to revenues of $497.8 million in the prior year quarter. GAAP EPS of a $1.64 compared to a $1.4 in the prior year quarter. GAAP EPS included $2.1 million of non-cash interest expense related to our convertible notes, which decreased EPS by $0.04 and a $2.1 million gain related to the September 2018 sale of our ringtail software and related businesses, which increased EPS by $0.05. First quarter adjusted EPS of $1. 63 which include -- which excludes the non-cash interest expense and tax gain. Was up compared to $1.04 in the prior year quarter. Net income of $62.6 million compared to $38.9 million in the prior year quarter. The year-over-year increase was due to higher operating profits across all business segments, lower interest expense and a lower effective tax rate. SG NAF of $113.2 million was 20.5% of revenues. This compares to SG&A of $112.1 million or 22.5% of revenues in the first quarter of 2018. Double-digit revenue growth, gross margin expansion and relatively flat SG&A resulted in first quarter 2019 adjusted EBITDA of $96.1 million, an increase of 32.9% compared to $72.3 million in the prior year quarter. Adjusted EBITDA…

Before I close, I want to reiterate a few key things that underscore the earnings potential of our business. We are seen by our clients as a stable, robust platform to do large international work and our practitioners are winning new work globally. We are constantly creating new capacity in the right places by attracting quality talent. Our leadership team is focused on growth with strong staff utilization. And success with both has resulted in sharply higher revenues and adjusted EBITDA. Our business, January 8, excellent free cash flow and we have demonstrated our ability to boost shareholder value through share buybacks, debt production, organic growth and acquisitions. With that, lets open the call up for questions.

Thank you. [Operator Instructions] And our first question will come from Timothy McHugh of William Blair.

Thanks. Just want to start with -- you are talking about within the Corporate Finance & Restructuring business, the strength isn't just restructuring. I guess -- I think periodically, you’ve given us some numbers. Can you help us think or keep into how much of the growth there is coming from kind of the operational transformation or operational improvement part of the business versus traditional restructuring at this point?

So let me just say qualitatively, and then I will let Ajay share whatever numbers we can. Look, we’re excited about what our teams are driving in both sides of that business and not just in the United States, around the world. And we’ve terrific things going on, lots of places in that business. So it's not just one thing that has us excited, it's a breath of initiatives. I don't know if we share numbers.

I will. So we’re now roughly, Tim, half and half. And it's really exciting to see in some quarters, one is ahead and some other quarters, the other is, the restructuring, but it's great to see. We've achieved half and half.

Okay. And you also mentioned, I think, success fees abnormally were higher than normal this quarter. Was it -- I guess, any sense of the magnitude how far outside of the norm?

Absolutely, I will give you. Typically, we go -- I’ve seen as low as two a quarter. I’ve seen as high as 15 a quarter. The average is somewhere between around the $7 million range. This quarter we were $9 million. So it's little bit higher, but not egregiously so.

All right. Okay. And then you touched on EMEA. I know you talked about economics were strong in EMEA, but just broadly if I am running my numbers right, it looks like EMEA was up like 25% for you and probably even higher on a constant currency basis. So can you elaborate or talk a little more about the strength you are seeing there? I know it's also been a big source of hiring. Just what businesses besides maybe economic antitrust were -- are you seeing the biggest success within EMEA?

Yes. Look, Tim, I think this is a multiyear change effort that is now persisting and -- but we have now. I mean, at one point, I think our EMEA business maybe a decade ago was essentially a Stratcom business. At this point, we’ve multiple strong businesses all of which that are succeeding and growing. Whether it's CF, which we probably a decade ago, Number four, in London, and I think we now consider ourselves leading practitioners in London and our FLC business, which at one point wasn't very strong has strengthened dramatically. Our Econ business is strong and is -- and our Stratcom business. And the strength particularly grew in the U.K. but we've now managed to extend a fair amount of strength to the continent. We have a terrific Brussels Office with our Stratcom business. Our Econ business is not just a U.K. business. So what we have are -- I think we now have just our leadership team across those businesses that are -- and I'm sorry, I missed the Tech business, which is tech and data analytics business, which is also growing. So I think we have our leadership teams across those businesses and then coordinated by Kevin Hewitt, who leads our European business, who -- but you just have a set of leaders in each of those businesses who are leaning forward and finding opportunity. I think you're right. One thing has changed over the last three, four, five years is with this success. At one point, we didn't have a brand in Europe. But at this point, we have a brand in Europe, and we are becoming I think the default place for really talented people at other companies who are finding dislocations in their companies or are unhappy. And so we've able to not only grow terrific talent, but we are attracting talent laterally at an unprecedented pace. So I think it's a -- there is a broad swathe of set of things that are going and I have been going on now for several years, but continued for sure in this quarter. Does that help?

Yes, that’s helpful. I guess one follow-up. Just a somewhat different question. It seems like obviously you've increased your hiring activity here. It's probably a tight labor market. Can -- not just in EMEA, but more broadly. How -- what are you seeing in terms of cost to acquire talent in terms of wage inflation and signing bonuses and I guess the overall kind of picture for -- of this -- your workforce here?

Look, let me -- I don't know if we comment on specific levels of timing of bonuses. I will let Ajay decide what we do there, but let me confirm look, it's always in professional services once you have some strategy elements in place. The biggest thing you think about is supporting great talent and acquiring great talent and developing great talent. And so that is the thing we've focused a huge amount of time on. We have been benefited by some dislocations in competitors in different places around the world. And where that happens, you get fabulous senior people, which is often hard to do. And we've been actually having real success in that, which I don't think is a denial of your point about tight labor markets. I think it's just circumstances in certain markets like South Africa and other places that have created the ability to attract fabulous talent. I will say we are behind in recruiting at the junior levels below that talent. If you look at the headcount, our SMD count is up, even higher than our junior staff. And that's not a sustainable thing. You got to keep your leverage ratios up. Whether that’s because of the phenomenon that you are describing or whether it simply have when people are so busy on large jobs, they don't -- they delay recruiting and stuff like that, I'm not sure. But we are really focused on that and closing that gap. Does that help, Tim?

Yes. That’s helpful. Thank you.

[Operator instructions] Our next question will come from Marc Riddick of Sidoti.

Good morning, Marc.

Hi. Good morning. I wanted to touch a little bit on the SG&A because I think one of the things that was sort of interesting to me is that the leverage that you were able to achieve during the quarter. And I just wanted to see if you could delve into a little bit on that given the fact that pretty much matched last year's level and maybe some of the efforts that went into just keeping the SG&A level down at a time where you are increasing headcount and you have so much going on. I was just wondering if you could just maybe delve into a little bit as far as cost control efforts or some of the things that are benefiting you there?

We will do, Marc. So first, there is a specific item. We sold our Ringtail R&D business in September of last year. So you are comparing Q1 of '18 to Q1 of '19. In Q1 of '18, you had the staff that were involved in R&D, which -- a lot of that went into SG&A. So there is not a like-for-like comparison. So that is -- SG&A is relatively flat. We have increased non-billable headcount, but net non-billable headcount is down because of the R&D staff. But that is a specific item. That being said, there is no [technical difficulty] business should lend itself to scale economies. There is, I don't want to overdo the cost control bit, but revenue growth should outpace SG&A growth. I mean that is one of those homilies that we will try and follow.

Right. And then it certainly seems as though it's -- from a global regional standpoint, things are performing well. But just wanted to see if there was any commentary that you might have from what you are seeing over in the U.K. and if there is -- if not a business disruption concern from Brexit, wondering if that also could be creating some opportunities for you, either in gaining new business or maybe future acquisition opportunities there?

Marc, look, in terms of the impact on our business, I got to tell you, there has been more time wasted on that question within my firm without a definitive result than perhaps anything other than the amount of time that commentators are wasting trying to predict how Brexit will end. I mean, it's like -- nobody seems to know. Nobody seems to know what's going to actually happen in Brexit. And when you try to figure out is it specifically helping us or hurting us on this business, you have long conversations and you ultimately say you don't know. So and on that, I think we will all agree that we are focused on life after Brexit no matter how it's going to happen. We have great business in the U.K.. We have strong -- increasingly strong business on the continent. Post-Brexit, the U.K will exist, the continent will still exist. The need for our services will still exist. And we are focused on growing that. And whether Brexit has a positive or a negative boom in any given quarter or two weeks before, they finally decide, I don't know. And I think we are just not focused on it anymore. In terms of other effects, the only other effects, I would say is, there is some disruption in certain competitors in different markets. And that's a big deal for us because particularly with the strength of our brand we now become in many people minds the Number 1 place to go if -- I mean, great people generally don't jump from place to place. I mean if you have great people, you got your team in place, it's hard to have great people at the senior level moved. And usually when that happens, it's either for the personal issues, or it's because there is a disruption in a firm. So when there are disruptions in firm, it creates movement of great people and we've been benefiting from that. Does that help, Mark?

Yes, it does. And then the last one for me, I was just wondering If you give a bit of a update on -- given the headcount growth, I'm wondering where you stand on maybe some real estate needs, office space, things like that that we might be looking at in the coming quarters? Thanks.

Thanks. So that lends itself well to your prior question on SG&A. You -- there could be discrete investments that you make and it could be in real estate, it could be in infrastructure, IT infrastructure, etcetera. And we must constantly look to upgrade and take advantage without just worrying about one quarter. So -- and we have been doing that. We have been doing that consistent with the revenue growth and the building of the company.

But I will say that as our SG&A has gone down, I don't know the exact -- I haven't done the math for this quarter, but when you look at the SG&A have gone down over the last few weeks. Marc to your very perceptive question, one of the reasons has been we filled in our real estate many places, and that helps drive down your cost. And eventually you don't have people sitting on each others' laps. And so then you have to make investment. So I think if that’s what you are driving at, I think that's a fair point.

Thank you.

And the next question comes from Tobey Sommer of SunTrust.

Thank you. I wanted to start by asking about the new lines of business that you've developed and nurtured over the last several years. I'm trying to get a sense for the size of those. I kind of have in mind public affairs, cyber, the non-bankruptcy Corp Fin areas, etcetera. Could you size them either in revenue, headcount, profit, kind of whatever metrics you are willing to give us, so that we can understand sort of the value you've created by building those businesses over the last several years?

Let me take a qualitative answer. I think I don't know the numbers, and I'm not sure, and I think Ajay is nodding this is a -- not the sort of numbers that we released. But I will say, Tobey, you are driving up the right point, which is they are material, they are material in every business. I mean essentially, how we started to get this business to grow organically? It's a, behind -- investing behind historical growth business and not being stupid and continuing the investment. So some of that is that, which is like construction solutions and data analytics. But a lot of this has been around finding extensions, whether it's geographical extensions. So we were actually quite strong in public affairs in the United States. We've invested significantly behind that. But we were -- although, we were stronger in Stratcom, some parts of Stratcom in Europe, we weren't as strong in public affairs. We made a conscious decision to invest in our Brussels office. I think we’ve tripled the Brussels office over this period or two and a half times. And that's material. And we've also extended into public affairs in U.K. and other places around the world. So any given year, it doesn't seem like that. You go over three or four years that becomes a material driver of the growth. The Corp Fin business, some parts of our Corp Fin non-restructuring businesses in some places around the world were losing us money a few years ago, they're not. They're not. And more importantly, they're also growing rapidly, and we're attracting talent and so forth. So it's a material part of our Corp Fin business. And it's not just one business. I mean we call it the business transmission services and transaction services, but we've…

Thank you.

It does. Do these areas that you invested in and grown organically, do they have different leverage profiles or optimal utilizations then the legacy businesses?

They do. Look, a lot of our businesses have different leverage profiles. We have businesses within Corp Fin that -- Corp Fin itself that probably have an optimal leverage ratio. Some of them have optimal leverage ratios of three to one, and some of them have optimal leverage ratio is the 24 to one. That's pretty big difference. And we don't have any businesses that our optimal leverage ratio is up 250 to one, which I know some defense contractor businesses look like that. But from my background, the difference between three and 24 is a pretty big number. And so yes, we have to manage our businesses differently. And then yes, billing rates, realization rates, they all have the ability to drive profit, but the actual mechanisms by which you drive profit -- if you have a three to one leverage ratio, typically the senior most people are more highly utilized, the revenue for professionals is higher. But the profit per SMD isn't necessarily higher than the 24 to one leverage ratio. So the specific economics are slightly different. Utilization rates can vary, but not as much as the difference between a 24 to one leverage ratio and a three to one leverage ratio. Does that help?

It does. But are they -- so do they have higher leverage profiles and [indiscernible] leverage were filed in the legacy business? Or are they similar. I understand they're going to be different business to be ….

No, no, no, I don't know whether -- I don't know that the new ones systematically cut one way or another. Some of them …

Okay.

… it's like our current -- some of them are higher, some of them are lower. So for example, if you see in our headcount over the last year, we've grown SMDs faster than junior staff. That's not because of the mix or a conscious thing. It's because we are behind on hiring our junior staff, Okay? So we haven't made a fundamental decision, but I can tell you that they're exactly the same. Does that help a little bit?

Thanks. It does. If I could ask one last question, Ajay. I'll get back in the queue. With respect to your guidance, what do you assume for success fees having -- I heard you make the comment about one quarter performance fees being a little bit higher. And when you look at the current book of business, which you're working on today, are they the sort of projects that lend themselves to perhaps higher success fees than historic norms? Thanks.

Around $30 million a year. And I wouldn’t say the current projects are far more or far less.

Thanks for your help.

Thanks, Tobey.

And this concludes our question-and-answer session. I would like to turn the conference back over to management for any closing remarks.

Thank you again for your time and attention. We are obviously excited about the quarter. I think more fundamentally, we're just excited about what our teams are building here. So thank you for being part of this journey.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.