Good day, everyone, and welcome to the FTI Consulting Third Quarter 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.

Thank you, and good morning. Welcome to the FTI Consulting Conference Call to discuss the company's third quarter of 2017 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 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 website at www.fticonsulting.com, as well as other disclosures under the heading of Risk Factors and forward-looking information in our Form 10-Q for the third quarter ended September 30, 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, adjusted segment 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 website 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 third quarter of 2017 results. Of note, during today's prepared remarks, management will not speak directly to the quarterly earnings presentation posted to the Investor Relations website. 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 website. 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 the call over to our President and Chief Executive Officer, Steve Gunby.

Thank you, Mollie, and thank you all for joining us this morning. Let me say a few words upfront about the quarter and turn it over to Ajay, who will take you through the details of the quarter and the outlook for the remainder of the year. And then, as usual, the 2 of us look forward to answering your questions. As I'm sure many of you saw in this morning's press release, this was a terrific quarter. We reported GAAP and adjusted earnings per share of $0.85 and $0.83, respectively, for this quarter, which, in turn, we expect that we were up 64% and 60% year-over-year. Compared to the second quarter, adjusted earnings per share more than doubled. Another way to say that is that this quarter ties for the best quarter we have ever had in adjusted EPS. As most of you know, this quarter follows two very weak quarters. In fact, this quarter's earnings exceeded the prior 2 quarter's adjusted EPS combined. So given the situation of a very strong quarter following a couple of poor quarters, we thought rather than me review the quarter, we'll let Ajay do that. It might be useful for me to share a perspective, a perspective on how we look at quarters like this. In particular, what parts of these quarters feel to us like noise or anomalies versus what parts feel like salient indicators of underlying strength of the company. It's a topic that I think a lot about, and the thought here was that some of you might find engaging those topics worthwhile. One way to get into the topic is to reflect on how we are thinking about the results today versus how we were thinking about the results 6 quarters ago, which was the quarter that was…

Thank you, Steve. Good morning, everybody. I will begin 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. Before my concluding remarks, I will provide financial guidance for the remainder of the year. At a high level, we had a very strong quarter. Results in our Corporate Finance & Restructuring segment were especially strong. Collectively, we benefited from our second quarter actions to reduce costs. Our adjusted EBITDA increased both year-over-year and sequentially by $10.2 million and $16.6 million, respectively, and our reduction in share count from buybacks further boosted EPS. And our strong free cash flow enabled us to buy back $52.7 million of stock and complete the tuck-in acquisition of the CDG Group, while reducing debt by $20 million and increasing cash on hand by $19.5 million on a sequential basis. I am very pleased with these results. Starting with earnings per share, or EPS, for the third quarter of 2017, GAAP EPS of $0.85 and adjusted EPS of $0.83 compared to GAAP EPS and adjusted EPS of $0.52 in the prior year quarter. Revenues of $449 million were up $10.9 million or 2.5% compared to revenues of $438 million in the prior year quarter. Of note, FX was not a significant factor this quarter. Gross profit increased $9.8 million, as gross margin improved to 34.3% due to higher revenues and improved utilization. You will notice that our year-over-year billable headcount is relatively unchanged because during the third quarter, we on boarded 152 entry-level professionals from university campuses. These hires were almost entirely offset by the reductions in billable headcount announced in the second quarter and normal course attrition. SG&A decreased $2.3 million versus the third quarter of 2016, primarily…

Hold on for a second.

Hello operator. Are we back in the conference. We just heard music for a moment.

Yeah, I heard that music as well. I apologize for that. You are back in the conference now.

And was the conference interrupted just for the music or was the conference interrupted in any other way. Did they miss any of Ajay's remarks?

No, they shouldn’t have missed any of Ajay's remarks. It looks like that was just a momentary interruption. I apologize for that but your lines are normalized now.

Okay, thank you very much. Operator You are welcome sir.

So I was on the sequential improvement in corporate finance. You weren't going to sing along with the music.

No.

Okay, thank you, Ajay.

Sequentially, this business delivered meaningful top and bottom line improvements compared to the second quarter of 2017, as we saw continued strength for our restructuring services globally and recognized higher success fees. As we said on our second quarter earnings call, we won significant and broad-based engagements in our Corporate Finance & Restructuring business in the second quarter of 2017. These assignments included company side work for Sears Canada and Adeptus Health, among others in our restructuring practice. We also had large transactions and business transformation engagements that included carve-out and merger integration work for Entercom, CBS Radio and performance improvement and interim managements, both for Aritzia [ph]. In the third quarter, that momentum continued with some wins that had been publicly disclosed, such as being engaged by the unsecured creditors committee for Rolf [ph], Toys “R” Us and Seadrill, among others. Turning to FLC, revenues increased $3.6 million or 3.1% to $118.6 million in the quarter compared to $115 million in the prior year quarter. The increase in revenues was primarily due to higher demand for our forensic accounting and advisory services and our construction solutions offerings. These results were partially offset by a $4.5 million decline in success fees in our health solutions practice compared to the prior year quarter. Adjusted segment EBITDA was $22.5 million or 19% of revenues compared to $16.6 million or 14.4% of revenues in the prior year quarter. The increase in adjusted segment EBITDA was primarily due to higher revenues with improved utilization. On a sequential basis, our revenues increased $7.2 million and our adjusted segment EBITDA improved $9.5 million, reflecting the cost actions taken earlier this year. Looking forward, we -- by having more of the right people in the right places, we believe we are positioning ourselves for sustainable long-term growth.…

Thank you. [Operator Instructions] And we'll take our first question from Tobey Sommer with SunTrust. Please go ahead.

Thank you. Steve, you expressed kind of, I think, a distinct optimistic viewpoint on the trajectory of, frankly, all the businesses. And I wanted to get a sense for at the top line, what that translates to in terms of revenue growth rate? Because the revenue increased about 2.5% in the quarter, yet the optimism kind of seemed like it might describe something that's better than that. So could you frame that for me? Thanks.

Yes. So a good question. Thanks, Tobey. Nice to hear your voice. Look, we'll probably give you more details segment-by-segment at the Investor Day on how we're viewing each of those segments going forward. Let me maybe, say, frame something differently. I mean, organic growth at this point within our company is still the combination of focusing on places where we see great opportunities to grow and invest, and then opportunities where we are pruning because they aren't performing to what we think or because we don't see the future of those. And so therefore, if you do that right, you have substantial top line growth in the places where you bet right, but you can have flat or declining revenue in some of the other places that you've been cutting back. And clearly, we've been doing that over the past couple of years. And so you see, this quarter, a lot bigger growth in EBITDA than you do in top line growth. That's not long-term sustainable, but there's some of that, that is still going on in the company as we examine sub-position by sub-position around the globe, and make decisions to triple the bets some one place or another and prune others. The other thing is, some places where you're tripling the bets, you don't actually get an immediate kick in revenue. You're hiring a bunch of people, and they have non-competes or they have to get integrated into the team. So the revenue defers. Long-term, obviously, you'd expect a pretty close correlation, and I think we would expect those things to get closer over time, but I think this year, we've been still working through some of that rotation process. Does that make sense, Tobey?

Yes, it does. I wanted to ask a question on the Technology segment, kind of business evolution or transition. How do you feel that, that is going and when might financial performance of the revenue growth or margins begin to kind of reflect those changes in the implementation of the strategy? Thanks.

Yes. Thanks. Look, I think the teams there have done a fabulous job. If you look at this, we were probably slow to do a fundamental relook at that business. The profits, you know better than I, Tobey, they typically were in the $65 million range for a number of years, right? And then over relatively brief period of time, they went from $65 million to $25 million thereabouts. Ajay, you can correct me if it's a little bit off. But that's roughly where it was last year. We put new management in there. We have a new strategy, set of strategies. This year is essentially the same EBITDA year-to-date, pretty plus or minus a teeny bit, I would guess, as last year. To me, that's a huge step forward in terms of stabilizing the business, particularly because they've been able to do that while spending serious money on things that are avenues for growth, whether that's salespeople in Information Governance or other adjacencies, whether that's licensing, relativity or others. Would I like it to turn to growth yesterday? Absolutely. I think we only actually announced the license of Relativity, when was that, a month or 2 months ago?

August.

August? August. I'm inpatient, probably not as impatient as you, Tobey, but actually probably pretty close. I just think they're doing a great job. They've done a fabulous job of stabilizing it. And obviously, we look forward over time for that to go back up.

Thanks. Last question from me. Ajay, does the guidance for EPS assume the remainder of the share repurchase gets executed in the fourth quarter? Thanks.

We are not giving specific timing of when we would repurchase shares as, Tobey, you can do the math. Because additional -- even if we complete the additional $25-odd million that is left, it doesn't make that much of a difference to EPS in one quarter.

We can take our next question over the lines from Tim McHugh with William Blair. Please go ahead, sir.

Hello.

Good morning, good morning Tim. At some point I need to talk to you about the Cubs beating Nationals, but we can differ that to another time. Alright.

Yeah, it didn’t work-out so well for them anyways. So, just a question, first, maybe on the Corporate Finance & Restructuring business, and I apologies if you said this, because I joined late. But can you talk about the, I guess, one, kind of the breadth of improvement there? I know you called out a few large cases in success fees, I guess, but how much is it driven, I guess, how broad was it on the restructuring side? And secondly, I guess, how was the non-distressed kind of performance relative to what you've been seeing?

Tobey [ph], they did really, really -- we did really, really well on the Corporate Finance & Restructuring side. Virtually, every area did better sequentially and year-over-year. Certainly, the success fees helped, but it is broad-based, it is global, really delighted by that uptick. And what's key for me is that it's happening when there is no boom in restructuring. I mean, this is at low interest rates. So imagine what this platform will achieve when interest rates go up.

Okay, fair enough. The success piece, can you -- I think you had talked in the past about a range. Is it still within that range? Or I don't know what to say for it.

Yes. There is -- in the aggregate for the company, there was a big increase in success fee in Corporate Finance. But conversely, there was a very large decrease in health solutions within FLC, because they had a great success fee in Q3 last year. Overall though, if the range -- if the average is around $7 million to $8 million and lows are around $3 million and highs are around $14 million, right now, this quarter was at the highs, and Q1 was at the lows. So I'm not begrudging ourselves the success theme, delighted to take it, but you can normalize it over the three quarters.

Okay. And the E Con business, I imagine your response is you've retained kind of the top end professionals. But just kind of how do you get comfort, I guess, that the recent weakness is market-driven and not anything kind of about market share, if you will, or company-specific kind of performance?

So let me answer that. We have retained our -- there's no loss of people. So that's not the base. We haven't lost any key people in that organization. I think Ajay, you told them. I think the belief from the organization is that we haven't lost market share. We don't have any hard data on that. And sometimes, this stuff can be 1 or 2 big cases and timing of big cases that can affect things. So at this point, we have no basis to believe it was loss of market share. I think we're generally recognized as the leaders in this industry. Now leaders in the industry could have missed something, and we could have missed a case or two that we don't know about. But our current belief is that this is not a -- certainly, there's no belief that there's anything systematic or systemic here going on. And so we would expect over time this to come back to the more historical range.

Okay. And then one last one, I guess, maybe little higher level, I guess. But you talked about you’re seeing these kind of ups and downs in the business, maybe a strong first half and weaker other half of the year. And obviously, this one is a little better. Do you have any -- I guess, can you talk about what type of visibility or what factors, I guess, give you more confidence in predicting that this is now sustainable versus is this just an up versus now where we see another down kind of in the future?

Yes, Tim. No, that's a great question. I'm just trying to understand when you intersected this call. Did you intersect it during Ajay's remarks?

Yes. No, I heard your comments earlier. I guess, so I mean, I understand you recognize the volatility in your answers, and kind of is the way I interpreted it. But...

No, I think it's more than that. I think there's more than that. The volatility, look, let me be clear. I don't think this business is that volatile over an extended period of time. And if you look out 2 years, I look at the history of the company every 2 years where the company was up, it was due to real fundamentals. Any 2 years the company was down, it was due to real fundamentals that were negative. When you get down to a month, there's a huge amount of volatility. You get to a quarter, there's a huge -- there's a lot of volatility. Now where I spend a lot of time is when we get to quarters that are down, looking through the volatility and trying to see what is underlying that we need to fix or celebrate and grow further because you’re having a good quarter versus what is just the random noise. And I'm really insistent that we not react to the random noise, either get over exuberant about it on the positive ones or take bad actions that hurt the business in the negative ones, and that's what we spend a lot of time doing. I think -- I don't know if you heard this part of the call. I think there's a huge distinction, for example, between where we are now and where we were in the early part of '16. Early part of '16, we had positive noise. Here we have positive noise. And normalized for the noise, in the early part of '16, we were guiding down for the rest of the year. Why we were guiding down for the rest of the year? Because we said the two businesses had little mini booms supporting them, which is not something we believe today, and we believe that couple of our businesses were in the midst of trying to confront fundamental more long-term declines, whether that was FLC or Tech at that point in early '16. We don't believe that now. And to Tobey's question, we don't yet have Tech on a growth trajectory, but we're not in the midst of plummeting from $65 million to $25 million. I view there's a pretty fundamental distinction of that. Now does that mean that the quarter can't be bad? This company always is going to have quarterly volatility. But I believe, actually, we've been -- the management team has been working hard. We have the collective businesses in a quality position that I haven't seen during my tenure here. And I'm pretty optimistic about the underlying businesses going forward. Does that help?

Yes, no, that's fair. I appreciate the comment.

And it appears there are no further questions at this time. I'd like to turn the conference back over to our speakers for any additional or closing remarks.

Well, maybe just to echo what I just said here, unless you want to say anything. So look, this is a great quarter. It was after a couple of tough quarters, but I think we're not that -- we don't get that excited just by the quarterly numbers because of the variability stuff we say. What we are most excited about is the actions our people have taken to put our businesses into stronger positions going forward, positions that can create value for our shareholders and real opportunity for our people. And we are excited about where all of our businesses have been put over the last quarters and couple of years. We hope that came across today, and we look forward to sharing more of that with you in Investor Day in a couple of weeks. Thanks very much for the call.

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