Welcome to the FTI Consulting Second 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. Welcome to the FTI Consulting conference call to discuss the company's second 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 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 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 these reconciliations. Lastly, there are two items that have been posted to 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 second 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 website. 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 to everyone and thank you all for joining us. As I’m sure many of you saw in our press release this morning, this quarter’s financial results were extraordinary. Once again, combined with exceptional first quarter we have had a remarkable start to 2019, a record-breaking start to 2019. The second quarter revenue has increased 18% year-over-year and that's 18% compared to what was already a strong second quarter performance last year with all of that 18% growth organic. That revenue growth translated not surprisingly into an unprecedented level of earnings for the company with GAAP EPS of $1.69 and adjusted EPS of $1.73. Pause a second to let those numbers sink in because I still find them remarkable. But let me also underscore as I do almost every time, I'm on the call, that quarterly results in our industry and for our company are imperfect measures. In any quarter results can be substantially affected either negatively or positively by short-term factors. And in this quarter, we benefited substantially from some short-term factors, such as a near record level of success fees, a lower level of tax rate, and among some other items that Ajay will go through in more detail shortly. So let me stress here. As always, one can never take one of our quarters and multiply it by four. But it is possible to get a true sense of the strength of this company by looking beyond quarters. First one can look at the longer term financial trends and second more important, one can dive below the financial trends to see what's actually happening at the company. The assignments, we're winning, the investments we're making, the number of promotions of great people that were able to do, the level of lateral hires made,…

Thank you, Steve. Good morning, everybody. I will start by summarizing our quarterly results. Then I will review results at the segment level as well as 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 once again another record quarter. This quarter's year-over-year revenue growth was the highest organic revenue growth we have ever reported. Furthermore, it was broad based with growth in every segment and every region. We also grew billable headcount by 10.6% year-over-year, and have promoted a record number of professionals so far in 2019. Even with this level of headcount growth, utilization remains strong remained strong and our adjusted EBITDA surged increasing 34.3% year-over-year. As Steve mentioned, we did benefit from some significant items such as our outsized success fees in the quarter. At the end of my prepared remarks, I will discuss guidance for the balance of the year, which those strong points to lower second half performance versus our exceptional first half of the year performance. We are extremely pleased with these results, which are a testimonial of our strong client relationships and capabilities globally. Moving on to the details for the quarter, second quarter 2019 revenues of $606.1 million, were up $94 million, or 18.4% compared to revenues of $512.1 million in the prior year quarter. Excluding the estimated negative impact from FX, revenues increased $102.4 million, or 20% compared to the prior year quarter. GAAP EPS were $1.69 in 2Q,’19, compared to earnings per share of $1.14 in 2Q, ’18. Adjusted EPS for the quarter were $1.73 which compared to $1.14 in the prior year quarter. The difference between our GAAP and adjusted EPS reflects $2.1 million of non-cash interest expense related to the company's 2%…

[Operator instructions] Our first question comes from Tobey Sommer with SunTrust. Please go ahead.

Thank you. Wanted to ask a question about your hiring trends, I think it is about 10% up year-over-year and up a couple points sequentially. What is the pace of inbound inquiries, particularly among senior people and how does that compare to your experience in 10 years over the last handful of years? Thanks.

Thanks, Tobey. And good morning. Let me take that, it's Ajay. Look, I guess the colloquial way to say this Tobey is the phone is ringing off the hook in a way that I think is probably unprecedented in the company's history. I think we're benefiting from a couple of things. I think part of it is what we're doing right. I think as we have been starting to clearly win in the marketplace, that's, that's, that's a very attractive phenomenon. And you end up with a lot of people wanting to join the winning team. I think the other thing that's happening is some dislocation in different parts around the world and some of our leading competitors. And the combination of those two are formidable. I think over the last 12 months, roughly, I think it might be 53 lateral higher SMDs, on a base of something like 500. I mean, it's over 10% hires in SMDs laterally. I mean, that's never happened in the history of this company before. And it's not just because we turned on the spigot. You can't just turn on the spigot. You got to turn on the spigot when great people are available. And the combination of some issues with some competitors and just the strength that of what's going on in our company has meant the deluge of phone calls. And it's pretty exciting. Did I did I talk to your question, Tobey?

Yeah, absolutely. Thanks. I did have a question about the profit impact of success fees, I guess it's $16 million, $17 million above your average quarterly rate as you described, Ajay. What sort of flow through impact on EBITDA, does that kind of surplus of success fees trigger in the quarter? Thanks.

So Tobey, I'm not going to tell you. We don't disclose margins on success fees. But even if you apply the average gross margin, you would get a sense for it.

Okay. And when you think of the business geographically, do you have some data in your slide deck, describing growth rates. Could you describe or give a little color about the European growth in market there, which is -- seems very rapid on a decent base. And then, conversely, describe if there are any market-related headwinds in Asia. Thank you.

Thanks, Tobey. Look, I think what most powerful things that are going on today is the fact that we have no businesses that are really drags on our company. One of the things I mean, we've had now businesses growing for the last few years as we made investments that started to come to fruition, but sometimes that can get masked by businesses that are still needing fixes. And you know, we had fixes in different parts of the world. And we had different fixes in different parts of different businesses that were clouding the success. The truth is, today I'm excited about what's going on in every region of this company, and every segment. And you know, as I say, internally, if you could advise your grandmother, and there were stock availability for each segment, then each region you could you could look at your grandmother and suggest that she invest in each part of that. I truly believe that so we have real strength, different places. I think one of the biggest things you didn't mention was that for a while our North American business wasn't growing and our North American businesses is growing a lot right now. But to the two points, Asia is growing. I think it's it I think it probably grew high single digits year-over-year. And we got a lot of growth opportunities in Asia. The issue there is like it is every place has the ability to continue to grow and find talent, and we just have to do that. We had some pretty serious fixes in a couple parts of Asia Pacific in a few years back. I think you remember us talking about Australia. I think that's behind us. But now you have to grow people in order to find additional…

You did. And my final question is with respect to M&A and antitrust being a driver. Do you have any visibility into sort of a pipeline of future deals? I can recall historically, periodically, it being referenced that the company's economist gets brought in a head of deals to evaluate them and kind of assess what tradeoffs might need to be given to regulators to push them through. So I'm wondering what sort of forward sense you have for that business?

Look, I think we do have a bit of a forward sense. That happens sometimes. That doesn't actually --- I mean it's a complicated translation of that into whether a deal actually gets consummated. And then whether there's a second request and the government challenges it. So there's no natural -- I've never seen a formula that that you could rely on that says initial conversations translate as in the following mathematical way to revenue. I think it's hard to predict. And that world is different in different parts around the world. I mean the second quarter, the U.S. M&A business continued to boom. It was extraordinary, whereas some places overseas it was much slower. So I think you're right that we have more of an early warning system than many people, but I'm not sure it's a perfect to work early warning system, Tobey. Ajay, did you have something to add that?

Yes. Let me just give you a little bit more color. Our guidance is all encompassing, so I'm not going to get more specific, but I will give you more color. Look, antitrust includes M&A and non-M&A. And in fact are both have grown and non-M&A a little bit faster than M&A. So it's not only related to deals. And clearly yes, of course, it's related prior to the deal being consummated or announced. And of course, this is why we don't talk about the deals per se. But we're doing incredibly well in both North America and EMEA in M&A in non-M&A with growth in both areas.

Thank you very much.

Our next question comes from Marc Riddick with Sidoti and Company. Please go ahead.

Good morning, Marc.

Good morning. I wanted to touch a little bit on economic consulting if we could, because this is another quarter where utilization is continued to from a strong level continued to grow sequentially. I was wonder if you could touch a little bit about that and sort of maybe how you see that playing out, because of all the segments. That's the one area where maybe the year-over-year hiring growth isn't as much as the other segments. And yet, you constantly are doing very well, particularly with very strong utilization. I was wondering if you could touch a little bit on that what you're seeing there and maybe we should -- how we should be thinking about that?

Marc, a little bit, I'm going to be repeating what I just said to Tobey. It's a great outcome. Last year we had a very major deal that we were working on and we were worried about the year-over-year comparisons. This year, we have a multitude of deals, plus it's the non-M&A portion of it and in multiple geographies. And our growth ambitions are great there, hiring ambitions are great there. Utilization is a derivation with excellent business, creating such utilization. So I'm very, very excited about what we're doing.

Okay, great. And then wonder if you touch a little bit on moving over corporate finance for a moment, if you could touch a little bit about the billing rate growth seen just given the strength in the business, but also the pickup in headcount. Usually you think that maybe billing rate would stabilize a bit when you are bringing on new heads. But I just want to get some thoughts around that maybe what you're seeing whether that's a business mix issue or there something else that we should be thinking about. Thanks.

You're actually asking question based on how I was doing my forecast and my guidance as well. When you hire lots and lots of people you initially expect utilization to fall and we haven't been seeing that. Now clearly high utilization goes well for billing rates, there is more to it though, there is also the mix of people. Hiring -- our growth rate is 10.6% year-over-year but SMB growth rate is 15% year-over-year and they are busy to and their rates are higher, as you can imagine. So it's a mix of who's doing the work, who is busy that kind of jobs that you do, it’s a combination of all of those things that results in this bill rate which exceeds our expectations as well.

Okay great and then one last thing, forgive if I missed this in your prepared remarks, Ajay, but I was wondering if you could touch a little bit about what you're expecting from a CapEx perspective, what we should be thinking about whether or not the recent acquisition adds to that or not and if there any change in that?

No, CapEx won't be affected by the acquisition and we have given CapEx guidance I think specific in the 10Q but it's roughly $30 million to $40 million a year.

Okay, great. Thank you very much.

Thank you, Marc.

The next question comes from Tim McHugh with William Blair. Please go ahead.

Good morning, Tim.

Good morning. It's actually Trevor Romeo on for Tim. Thank you for taking my call and great results obviously. Just want to ask overall cost to company, or maybe down to the second level, if you have any examples. So how would you describe the size of projects right now? Are you seeing project size increase across the border or is it sort of a greater number of smaller projects? Maybe it’s a bit of both but just wondering if that's a factor in the growth at all.

Look Trevor, I have to give you a qualitative sense of that. I do think that one business, that [ph] we probably have more of all sorts of projects but I think what does drive our business is a lot of number of large projects. And I think what's going on is that we're winning more of the largest assignments across multiple segments. It's not one job/ Let me be clear, one job and one segment is doing this. It's multiple jobs, but it's not a lot of $1,500 refinement that are adding up here. These are winning the stuff that is on the front page of the Wall Street Journal even if our name isn't identified in it. And these are major assignments where there's a lot at stake for the company. And they are interested in leading professionals and they are willing to pay for it. And so I think we are just -- this business is driven by the number of large jobs we win in. We're winning, I mean we're not only wining in a couple of segments or in one region now, we're winning in multiple places around the world. But I think that’s my view qualitatively probably primarily the number of large jobs across all the segments and world. You disagree, Ajay, or you agree.

Entirely agree, sir.

Good, does that help Trevor?

Yeah, no, that makes sense, definably helpful. Thank you. I guess the second question on the restructuring of the corporate finance and restructuring segment I guess, just with the growth being so strong there can despite as you pointed out, not really seeing a boom in the overall restructuring market. I guess is there just any sort of common thread across your conversations you are having with clients at all. Is there anything that they're looking for, is a kind just a wide variety of needs that you are able to serve for them.

Look I think there is a common thread but actually more internal common thread. Let me give you a sense of that. Look I think in great professional services firm there's a chance to become a little complacent. know I found this when I was BCG, the hardest place to reinvigorate for growth was the Boston office of the Boston consulting group. You know this business had very little effects right, I mean with the leading firm creditor rights. We had a decent company side position, we have other businesses which change over the last few years is we've got now our people with ambition to build those businesses, who are willing to say, yes, we're great but boy we could be better here. Or you are great but this capability can be extended elsewhere. And so we are creating rights but Mike and Carlin attracted couple of people from healthcare credit rights where we want to strong and they fit to ground running, we're great in company side, but we want winning as many of the biggest jobs as we should've because we didn’t have a relationship with a couple law firms and they named that issue and they went after that and change those relationships. We were good in non-restructuring businesses, but we didn’t have an aggressive growth plan. I think at one point we weren't willing to take the risk of hiring laterals and hiring people ahead of demand. And Carlin has said, we can put a plan together. You just have to back me, Steve. And she put a point in together and we backed there and she's having an enormous amount of success and then there are leaders below that level. We now have a whole generation of 40 something who are eager to build…

Definitely. That’s all I have for now. Thank you, guys. Appreciate it.

Thanks for joining us Trevor and say regards to Tim.

Our next question is a follow-up from Tobey Sommer with SunTrust. Please go ahead.

Thanks. Just a numbers question, Ajay could you give us a sense for what the long-term tax rate outlook should be just for modeling purposes. Thanks.

I think this 26% to 28% is a good one. I can't predict what the tax rates around the world are going to do with the various government et cetera but assuming all that remaining constant then that’s a good number.

Perfect, thank you very much.

This concludes our question-and-answer session, as well as today's conference. Thank you for attending today's presentation. You may now disconnect.

Thank you all for joining us.