Good day, everyone, and welcome to the FTI Consulting Second Quarter 2016 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, maa’am.

Good morning. Welcome to the FTI Consulting conference call to discuss the company’s second quarter of 2016 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, 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 we 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 most recent form 10-K and in 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 adjusted EBITDA, total adjusted EBITDA, adjusted segment EBITDA, adjusted earnings per share and adjusted net income. For discussion of these and other non-GAAP financial measures, as well as our reconciliation of non-GAAP financial measures to the most recently comparable GAAP measures, investors should review the press release and accompanying financial tables that we issued this morning. Lastly, there are two items that have posted to our Investor Relations website this morning for your reference. These include a quarterly earnings call presentation that we will refer to during this morning’s call and an Excel and PDF of our historical financial and operating data, which has been updated to include our second quarter of 2016 results. With these formalities out of the way, I’m joined today by Steve Gunby, our President and Chief Executive Officer and Cathy Freeman, our Interim Chief Financial Officer, Senior Vice President, Controller and Chief Accounting Officer. At this time, I will turn the call over to our President and Chief Executive Officer, Steve Gunby.

Thank you, Molly, and thank you all for joining us this morning. As usual what I would like to do is say a few words upfront, and then turn it over to Cathy to take you through the details of the second quarter and how we’re thinking about the rest of the year and then the two of us will come back and answer any questions you may have. But before I get into either of those, I wanted to first welcome Ajay to the team and thank you Cathy. I think some of you know Ajay, but for those of you that don’t, I mean, he is an experienced public company CFO. He certainly knows public company CFO role deeply. But just as important to me and the leaders of FTI who interviewed him, he is an executive, he is a practical executive. He is an action-oriented executive. And someone who knows how to work with professionals, which we thought was critical as we’re moving this company ahead, including upgrading our corporate functions to be as responsive as we can possibly be to our professionals. So, Ajay, I’m delighted to have on board. He is not on the call today, as he has some obligations to fulfill in his current role, but he will be joining us officially on August 15. With respect to you, Cathy, let me just offer my tremendous thanks. Cathy has been juggling three jobs serving in the role she’s had for a while as the Controller and Chief Accounting Officer while also serving as Interim CFO, spectacularly, I would say. And my sense is, Cathy, you actually, secretly you like juggling three jobs, otherwise you would not have agreed to do that, not only now, but sometimes in the past. But obviously, doing so…

Thanks, Steve, and good morning, everyone. To summarize upfront, the second quarter reflects what we said we were expecting a strong second quarter, although not as strong as our exceptional first quarter of 2016 performance with EPS of $0.64 on a GAAP basis compared to $0.52 in the prior year quarter and $0.73 in the first quarter of 2016. GAAP EPS in 2016 included a special charge of $0.02 for severance related to headcount reductions in our Forensic and Litigation Consulting segments health solutions practice, which I will talk more about when I speak to segment level results. While GAAP EPS in the second quarter of 2015 included a $0.02 favorable impact related to the reduction of an acquisition earn-out liability. Excluding both of these items, the special charge in earn-out gain, EPS on an adjusted basis were $0.66 compared to $0.50 in the prior-year quarter and $0.83 in the first quarter of this year. Before we talk about segment results, I want to discuss the benefit that foreign currency or FX had on our results. As you know, the British pound has declined by more than 7% in relation to the US dollar from the end of March to the end of June. This is the lowest the pound has been since 1985. In fact, this both hurt and helped us. There are two ways that our results are impacted by the movement of currencies. The first, an FX-translation impact, whereby we translate local currency results into US dollars using the quarter average exchange rate. This negatively impacted EPS by about a penny during the quarter compared to rates in effect in June, 2015. The second, an FX-transaction impact arises when we re-measure into U.S. dollars what we owe others or others owe us based on the currency to…

Hey, Cathy, before we open up the call for questions, I just want to Mollie step me a note, I may have misspoken on my – I just want to clarify something. I don’t think people will be miss led. But I use numbers of 25% year-over-year and 40% over the past two years. Those referred to adjusted EPS, that’s what has grown. Over the last year, our adjusted EPS, if we hit the middle of our range this year, our adjusted EPS will be up 25% year-over-year and our – it will be up 40% over the two years. We weren’t sure, if I used the word adjusted EPS or EPS or EBITDA or something, but those refer to adjusted EPS, okay? So with that, let me open the floor for questions.

[Operator Instructions] And we’ll take our first question from Tobey Sommer from SunTrust. Your line is open.

Good morning, Tobey. How are you?

Good morning, doing well – awesome. I was wondering if you could help me square, absent the bankruptcy work and what I would consider market related trend, could you square for me the lower revenue outlook in the back half, which would imply kind of a muted full-year outlook with your comments in the press release about seeing each business viewed as an engine for growth by year-end, outside of strategic communications, it isn’t all that visible to me at least? Thanks.

Yes, so look, I think there is two different parts to that question. I’ll take one and maybe let Cathy, she can help with it. I mean some of the issue in the second-half of the year has to do with things like FX and a whole set of issues, which I’ll let Cathy deal with. In terms of the businesses, I think the businesses I’m referring to – basically I’m saying I think by the end of this year, they will be engines for growth. So for technology, I don’t think we’re expecting huge growth in the second-half of this year, but I think we have stuff underway that will allow us to position ourselves for growth in 2017. I think in health solutions, our current belief is some of that growth will start to show up in 2016. My end of year comment was not to imply that all of those businesses would be growing in the second-half of the year, year-over-year. But more where it would be at the end of the year and where we could expect them going forward on a multi-year basis, so that might help. And the other – the rest of the adjusted – adjustment to the range, I think was more because of FX issues, but let me ask Cathy to – yes, where we’re being conservative on the forecast for businesses that had a robust first-half of the year. We’re not just assuming that all that continues into – particularly into the fourth quarter, where we have always had weaker fourth quarters. And on top of that, we have some FX issues and stuff like that. But anything else you want to add to that?

Yes, we didn’t change the top-end of the range, but primarily the lower-end of the range as a result of the rates we saw at the end of June. So that’s kind of just a cautionary measure from our standpoint, because we really don’t know what’s going to happen between now and the end of the year. But we’ve maintained the same top-end of the range.

Does that help, Tobey?

It does, so the change in the lower-end of the range is primarily related to FX?

And uncertainty, I mean we obviously don’t know where…

Sure.

We’re going to end up by the end of the year, but I think it’s certainly as a result of what happened at the end of June, which doesn’t actually get reflected in our results yet because we use average numbers for the quarter. That’s certainly going to impact us going forward.

Okay. And next question I had, it relates to billable headcount of about 2% year-over-year, and I realize there’s probably some mix of new additions and subtractions underneath that are positioning the businesses as you see the market opportunity. Where do you think that should be kind of either at the end of the year or kind of on a longer-term basis? How do you see billable headcount growth?

Yes, I think what we believe is that – and then what we talk about at the ExCo is that everyone of our businesses at this point has a right to grow billable headcount overall 5% minimum year-over-year. And that is a net of – parts of the businesses where you may have to not be growing very much and parts of the businesses we’re growing higher. And I think that’s the aspiration on a long-term basis for all of our businesses. And actually I think that’s where we plan to be as a company for – by the end of this year. I think our internal plans would have us somewhere north of 5% net. Now that is quite different segment-by-segment. We had some restructuring earlier in the year in tech and we did a little bit of repositioning in health solutions. Just like last year, we exited a business in Brazil with an FLC. But – and then other parts of those businesses we’re investing in and then other businesses have seen double-digit growth. So I think for example in each – Q2 numbers, I think Corp Fin’s numbers are probably up 10% year-over-year of Q2 to Q2, and over two years, they’re up 20% or close to it, 19.5% or so forth. So – but overall, I think we are moving this company – we have moved this company to an expectation that we can deliver at least 5% headcount growth year-on-year cumulatively. And I think, as we finish up some of the more difficult actions that we’ve had to take, I think we’re hoping that we will longer-term move that number up. And certainly, some of the businesses we’re investing in are growing much faster than that Tobey. Does that help?

It does, thank you. Last question for me is, in the technology unit, which did see challenged results, was there any distraction created by mentioning some strategic opportunities to reposition the business earlier in the year. Do you think that impacted things at all or mostly market related?

I don’t think it – I don’t think that distracted. We have a – it’s a great team there. It’s a very close knit team. We’re pretty transparent about all the things we’re trying to look at and it’s a pretty collaborative process. I mean you never know whether it distracted a little bit. But I think we’re working through the issues we thought we’re going to have to work through this year. And they’re a tough set of issues when you have a business that is – I mean I don’t know if you’re a baseball fan, Tobey, but if you have a business that depends on grand slam home runs all the time and then it starts having to manufacture singles and bunts, and here in DC, we like Trey Turner. Mick runs the way Trey Turner does. It’s a different – if it’s a different type of game and we’re learning to play that game as well as dealing with some other stuff. But I think we’re working through it and I think the team there is confident that we – this is going to be difficult in 2016, but we will return this unit, we believe to growth in 2017.

Thanks, I hope to catch a Nats game before the end of the season. Thanks for answering my questions.

Thanks.

Thank you. We’ll go next to Randy Reece from Avondale Partners. Your line is open.

Good morning, Randy

Good morning. I was specifically intrigued by sequential consulting headcount declines in almost all your practices this quarter. But it sounds like that underneath the covers you’re still investing in growth. I just want to know a little bit more about how this nets out to improvements in productivity over the next year or so?

Yes, look I don’t think actually – we’re not down. I mean what happens in all professional services firms is you tend to drift down in headcount from the end of the year to the middle of the year. That’s – that and I don’t even think that’s true across all of our segments, but it tends to be a little true just because of the cycles of hires. Almost all of your Junior hires come in around September, somewhere in the August through November timeframe. So you tend to be peaked in December and then you payout bonuses. And then not that anybody ever waits for a bonus before they decide to go off to school, but occasionally somebody does. And so for most professional services firms, you drift down in the first half of the year, but we’ve actually – we’re totally on plan in most places across the businesses. And I think the plan has been four north of 5% organic headcount growth and we’re on plan for that. How does that translate to productivity? My sense is that, so far we’ve proven out the fact that if you put the headcount in the right place, after a lag, if anything productivity is at least as good as it was before on a revenue per professional basis. And sometimes it actually goes up because what you’re doing is you’re not growing weaker parts of the business and putting headcounts in the stronger parts of the business. And that is my expectation is that, if we’re growing headcount at 6% then revenues should grow faster than headcount on a sustained basis. And then that has trickle-down effects on – overhead doesn’t go up as fast. It has a nice, leveraging effect on our business and that is the strategy we are on. There is a lag on that, particularly if you bring in the more senior people. With the more senior people in my experience, it can take two or three years before your senior most people are fully productive, 18 months anyway. On the Junior level, it takes more like six to 12 months. But once you factor in that lag, there is no dilution here if you put the people in the right places. And so far, as we’ve measured this, that’s proven out. Does that help, Randy?

Yes. In the energy vertical in bankruptcy and restructuring, how much have you improved your market positioning there? I know you had some catch-up to do a while back and do you need to do more, and how much do you bet on this business for the long-term?

Let me be clear, I think we are incredibly well positioned in our energy business. We’ve always been strong there particularly on the creditor side. But I think even now, if you talk with our guys, they would say, we’ve never been stronger than this. This is an amazing and part of it has to do with better collaboration. I think we’ve got incredible collaboration globally, I mean even in the U.S. between superb professionals in New York with contacts with people who are worried about stuff and our incredible team in Texas. We’ve invested behind that team in Texas. We actually now have more engineering talent. We bought a firm called Platt Sparks a few years ago. That’s a petroleum engineering specialist, which is now integrated with our team. So it is a superb thing, I mean I keep waiting for it to runoff because I always worry that oil prices are going to go back to $400 a quart, so. And – but it could, but I think our share position is incredible there. And last quarter, I’m supposed to not mention numbers anymore because last time I said, I think we had 33 engagements and Cathy said, but then you’re going to stick us with saying the number of engagements every time. So I won’t say that, but the number of engagements we have there is up from the last quarter I said. So look I don’t know. If you and I know how to predict oil prices, then we should make a lot of money off of that. You never know, but I feel very good about our competitive position in that group. Does that help, Randy?

Yes, thank you very much.

Thank you. We’ll take our next question from Tim McHugh with William Blair. Your line is open.

Good morning, Tim.

Hello, good morning. First I maybe stick with restructuring. Cathy, you made the comment that you’ve been running in the U.S. at 90% plus utilization and you expect to return to a more normal environment in the second-half. What is a more normal type of run rate for that? I’m trying to get a sense of the magnitude of the change.

Yes, I mean it’s certainly not 90% plus. I think we saw that the last time there was a spike early in 2015 and then prior to that, it was back in 2011. So again we’re still working on some of these large retail and energy engagements as Steve talked about, and there is a continued growth in the energy pipeline. So it’s hard to say. I think it’s just going to diminish over time, but not at that level. So what is normal? It’s hard to say when you’re also growing headcount, because remember, we’re going to be adding people and continue to add people with most of our – of those additions coming in the third quarter and some in the fourth quarter. So looking at the utilization number, it will be hard to predict. High 80s is high for us as well, but again a gradual decline and then perhaps it will look even lower as we add headcount.

Okay. And your comment that the energy pipeline is increasing, but I believe you made a comment that the overall pipeline for the restructuring business was lower at this point. So is that retail, I guess I wouldn’t be surprised if energy given the price of oil, looked a little slower going forward, but the issues in retail still seemed structural, so why a lower outlook there I guess?

Again, you have to look at what we did in the first quarter. That was very strong for us in retail. We had some of the biggest engagements out there. They’re not completed. They’re not done, but they are certainly declining. And what we’re seeing in the backlog, which is really more the predictor than the pipeline. So what do we have out there today is really in-line with the number of retail filings, which are down at this point. So energy up, but they’re a little bit smaller in size and scale, although we have more of them. But in general, some of those large engagements are not repeating. But we’re still strong on both the debt and creditor side and we’re strong in both of those areas through the second quarter.

Okay and the comment on FLC more – was I guess you and everything quite clear what you’re saying, but in terms of the outlook, your remark in that given the presidential elections, you are just not sure if there will be as much regulatory activity. Was that the kind of uncertainty that you were alluding to?

No, I think in terms of expectations around where FLC will go in the second-half, we talked a little bit about the health solutions part of the business ramping up slightly if we get additional operational assignments and a good strong pace on the investigative and regulatory side in FLC, but that does not mean an increase basically. If anything and if we talk to the folks in the business, they’re not seeing any downturn in terms of the work that they’re doing with the DOJ and other government agencies. But when we get to the fourth quarter, who knows what’s going to happen if people perceive that things are going to change. So it’s not – again something that’s hard to predict, but we wouldn’t be projecting an upturn in the fourth quarter. So kind of business as usual going forward, but we continue to do work as we have and do see strength in that area of the business.

Okay, that’s helpful. Thank you.

Thanks, Jim.

Thank you. We’ll go now to Marc Riddick with Sidoti and Company. Your line is open.

Mark, welcome to the call.

Thank you very much. Good morning. I wanted to touch on and I guess this was a little bit touched on as far as the headcount addition, the timing that we should look for. I guess, Cathy just kind of touched on that a little bit, but I just wanted to confirm that we were looking at maybe a little bit more of a concentration on the third quarter, maybe more so than in the fourth, is that reasonable to expect?

Mark, I’ll let Cathy look at the numbers, but that’s typically the case, because you have all of your college folks and all that starting in the third quarter. Is that what we are seeing?

Yes, I mean, that’s part of it, that certainly we have people actively involved in looking for people at all levels. But that September time period is when we are bringing folks on board as interns, et cetera.

Okay. And I was wondering as far as the, especially I guess in Econ, you were mentioning the pullback, the Brexit-driven pullback, if you will, in M&A activity in the second quarter. I think you mentioned it being around 85% or so. I was wondering if there were any other trends or undertakings that have sort of come to your attention, post-Brexit that may have led to besides currency, I suppose, that may have led to concern for the remainder of the year there?

I don’t know about that 85% number. We should double-check that. I think that would – it’s a…

That was just in the UK M&A activity…

That was just UK, yes, yes.

For the quarter, yes.

I mean, I think, I mean, Cathy gave a little bit of numbers. But my sense is that M&A globally is down in the first-half of the year and predicted to be down from versus last year. And that’s not the only part of our Econ business by any shot. But we are, I think it’s fair to say the leading people for second request type of work around the globe. And so, to the extent that that drops off, you’d have to budget that we get affected. Now, I always find that the leader gains share when markets drop. And so, you never know whether you are budgeting exactly right. But I think we are assuming that the pace of M&A activity that was in last year is not going to continue into this year. Is that, do you want to add on to that?

Yes, and I don’t think you said it was Brexit-driven, I mean, just in general in the first six months of 2016, worldwide M&A activity declined 19%. That’s what we said down to 85% related to announced British M&A deals down in the second quarter. So I think this is a general trend that we are seeing continue and again the comments were also in relation to the second-half of the year. Now what we saw in the first quarter of Econ in the surge up and ramp up of work was certainly extraordinary. And so, in relation to that, you were talking about not having that level of activity continue.

Okay. And then finally, within the EMEA region and maybe as well in Asia-Pacific, I was wondering if there were any particular specific geographies that may be targeted or that you might be looking for far as areas of growth going forward?

We have a lot of opportunities for growth in Asia. It’s really more limited by our bandwidth. I mean, we’ve got to deliver on our current clients and integrate the people we’ve hired and all that sort of stuff. We made a big investment in Australia a few years ago at a bad time in terms of the – I know you are new to our company, but some acquisitions we made in Australia in Corp Fin were not – didn’t work out so well than it worked out. We’ve had a team that’s been working extraordinarily hard and they have made a huge amount of progress and now we have a platform for growth over there. We’ve – this year, we’ve won some of the biggest jobs in Australia and the prominence of the FTI brand has grown substantially and we have a good Strat Comm business there. We are now investing in our FLC business. So we see a lot of opportunity for Australia. We’re teeming across the country for the first time ever across segments. So we are focused on that. But we have very good positions in Hong Kong, in Singapore. We have the beginning of a position in Korea. We have a small position in India. And there is just obviously, it’s a big geography and lots of upside. It’s – we have to – we’re just picking our shots on how fast we can grow where and support it, because you always have to find not only the talent. You have to find the talent is the most important issue and then some of these places, they don’t know us, you have to establish your brand. So, we’ve got a lot of upside over the next decades, I suspect out there and we are working through it. And Rod Sutton, who runs the region, and I talk regularly about are we going fast enough, how fast can we go? Does that help, Mark?

It certainly does. I do appreciate it. Thank you very much.

Thank you. And we have no further questions today. I’d like to turn the call back to our presenters for any closing remarks.

Yes. Look, I just want to close with something that I said before. By the way, just on the second-half of this year, obviously, it’s weaker than the first-half of this year, I just want to be clear. I mean, if you look, it’s not a terrible second-half of the year. It’s just terrible compared to an outrageously good first-half of the year. I think on adjusted EPS, we’re up in the second-half of the year. We’re just not up as much as we were in the first-half of the year. And part of that is also, I think it’s important for us to not budget hopes. I mean, we should budget what we know, and I think that’s a discipline we have. It doesn’t mean, we can’t do better, but there’s lots of uncertainty in the world and we need to face that squarely, and we need to invest in the face of it, and we are. And I think that leads me to the final remark that I would leave it on, which is I think the thing that’s exciting to me in this company is not whether we get a couple of great quarters, or even this year being up 25% in adjusted EPS or whatever. It’s – we’re investing behind great professionals in places where we have a right to win and that actually is the long-term basis for success of a professional services firm. And we have terrific people around the world. And if we invest behind them in the right places, with the right level of support, you turn this into a sustainable growth engine. And that is great for the shareholders, but it’s also great for the professionals. And I think that’s what we’re trying to do and it feels to me like we are making real progress and that’s exciting, and that’s to me the most exciting news. So thank you very much for the time and your support.

This does conclude today’s program. Thank you for your participation. You may disconnect at any time.