Welcome to the FTI Consulting Third 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 that 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 third quarter of 2019 earnings results as reported this morning. Management will begin with formal remarks after which we 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 third quarter 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 everyone and thank you all for joining us. Those are the formalities. Let me start with some particular informalities, and say I hope you all got a chance to see the Washington Nationals last night. As Mollie says, I’m not allowed to spend much time on this, I will point out to those of you who are not a baseball fan that the last time the Washington had a team in the World Series was 1933. So, those of us who are baseball fans in Washington are somewhat excited, and since that’s the last I’m allowed to say I will point out there is a Q&A session, so anybody who is a Nationals fan and wants to comment during that Q&A session, feel free. Houston fans are not allowed. What Mollie does want me to talk about today instead of the Nationals is instead of their incredible run is our incredible run, our incredible run over the last few quarters, but importantly our incredible run over the last few years and what it could mean for the future. So, let me spend a little bit of time on both of those topics. In terms of our run, I assume most of us have seen this quarter’s financial results, which were once again extraordinary. The third quarter revenues increased 16% year-over-year, and that’s compared to what was already a strong third quarter performance a year ago, and that revenue growth translated into terrific earnings growth for the company as well with GAAP EPS of $1.59 and adjusted EPS of $1.63. So, it was an extraordinary quarter and importantly it was the ninth extraordinary quarter in a row. Now most of you know, in every term going forward, I always take every opportunity I can to underscore…

Thank you, Steve. Good morning, everybody. I will start by summarizing our quarterly results. Then I will review results at the segment level and key cash flow and balance sheet items. After that, I will discuss guidance. In summary, as Steve said, the third quarter was another outstanding quarter. Year-over-year, we grew revenues 15.6% and billable headcount by 619 professionals, or 16.7%. In Q3 alone, we welcomed 205 recruits to FTI from universities, our largest class ever. We also completed the acquisition of Andersch in Germany, adding 95 billable professionals in Frankfurt, Hamburg and Dusseldorf. Even with this level of headcount growth, utilization remains solid year over year, especially in corporate finance, and our adjusted EBITDA surged increasing 37% year over year. We are extremely pleased with these results, which are a testimonial to our strong client relationships and capabilities globally. Moving on to the details for the quarter. Third-quarter 2019 revenues of $593.1 million were up $80.1 million or 15.6% compared to revenues of $513 million in the prior-year quarter. GAAP EPS of $1.59 in 3Q 2019 compared to a $1.14 in 3Q 2018. Adjusted EPS of $1.63 compared to $1 in the prior-year quarter. The difference between our GAAP and adjusted EPS reflects $2.2 million of noncash interest expense related to the company’s 2% convertible notes, which decreased GAAP EPS by $0.04. Our convertible notes also caused nominal dilution of approximately 21,000 shares and weighted average shares outstanding as our share price on average this past quarter was above the $101.38 conversion threshold. Third-quarter 2019 net income was $60.4 million, compared to net income of $44.3 million in the prior-year quarter. The year-over-year increase was primarily due to higher operating profits in our corporate finance and restructuring and forensic and litigation consulting segments. SG&A for three quarter 2019…

We will now begin the question-and-answer session. [Operator Instructions] Our first question comes from Marc Riddick with Sidoti. Please go ahead.

Hi good morning everyone. I was wondering if you could --

How are you?

Very good, very good. I was wondering if you could spend a little time talking about -- with the increase in headcount and taking advantage of some of the opportunities that you’re seeing out there. I was wondering if you could expand a little bit on the commentary around real estate needs and IT investment that we might be looking at. I can imagine that there might be some, particularly real estate capacities kind of was top of mind given the added headcount and some of the options you have in front of you, and then I have a couple of follow-ups there.

You want to take that or you want me to. So look, on real estate, look there’s nothing traumatic. It’s just -- as you add headcount, at some point you run out of real estate, and then we also have ongoing renewal of leases. Beginning four or five years ago, we started as we had leased renewals to try to change the design of our space to make it much more collaborative and allow our people to collaborate better and have a better life experience, and so we’ve been doing that now around the world. But sometimes, you have large leases with big expenses coming up and sometimes it’s just smaller. So that’s an ongoing activity, and in general it has not dramatically increased our costs, because we’ve been able to be more clever with the real estate, but it always has a chance of increasing costs, particularly as we have in the next couple of years some big leases coming up. And then, do you want to talk a little bit about the IT side?

Sure, Marc. We want to make it a pleasure to work at FTI. There is already one, but we want to enhance that, and so that requires better ERP systems. It requires better time entry systems. It certainly requires -- more people means more laptops and more phones and what-have-you, but the overall objective is to make it a pleasure to work here, and on top of that, there’s absolute complete focus on cybersecurity, so those are the areas where we are investing.

That makes sense Marc?

Yes, absolutely. And then, I was wondering if you could, with following up on that, and I appreciate that you sort of had quantified the seasonal adds on headcount from university hires and what-have-you. I was wondering if you could delve a little bit deeper into some of the opportunities. You’ve talked about this before as far as bringing on professionals around the world from other folks that may not be doing as well lately. I was wondering if you could sort of bring us up to speed a little bit on what you’re looking at in some of the target areas, and I know you have talked about cyber a bit, but I was wondering if you could sort of follow up on maybe those mid and higher level professionals that you’re adding around the world?

Yes. Thanks for asking that Marc. Look I think the situation there is much the same. I think what’s happened here is, as our firm has started to come into its own, I think it’s just -- we’re an attractive firm to come to anyway, and then some of that has coincided at the time when there’s been dislocations in some of our competitors around the world, and the combination of those two have meant, the amount of talent that is looking -- calling us to join us, I don’t think is, I think from what I understand is unprecedented in the company’s history. Obviously, I haven’t been here for the full company’s history, but that’s my understanding and it’s exciting. It started I would say first in EMEA, in London actually in EMEA, and it wasn’t so much on the continent. It’s now spread from there. We’re having incredible success in the Americas and overseas and in the Middle East as well. So it’s a pretty exciting time of that, and so far that’s not stopping and I mean it’s one of the reasons I keep talking about our willingness to invest in headcount even if we have a couple of slow quarters, because the level of, I mean, you can always hire people. People will always come to you if you pay them enough money. The question is great talent only comes on the market. Great senior talent only comes on the market periodically, and that’s usually a combination of you are at a place that is seen as moving, and there’s dislocations at their places, and that’s still happening. I don’t have a particularly narrow focus for that to your second question. Right now, one of the things that’s happened over the last five years is, we’ve started to realize the potential of every business and every region. So, if we get the right talent knocking on the door in any business, in any region, we will say yes. So it’s a wide open field, Marc.

And then, the last one for me, I was wondering if you could sort of give us an update on what you are seeing from an acquisition pipeline opportunity globally. Certainly, you had a nice attractive acquisition during the close, during the quarter and it certainly seems as though there are opportunities around the world, of course. So, I was wondering if you could sort of give a brief update either just what’s available talent wise from an acquisition standpoint as well as what you’re seeing from a valuation perspective? Thank you.

Yes. Let me talk about that in three ways. First, our intent is we constantly look around the world for acquisitions, and sometimes people think when we do one, Oh!, we changed our mind. No, we’ve been looking now since I got here. I think the reality is, it’s hard, and it’s hard for a couple different reasons. One is valuations. Valuations are not cheap out there, and I think our own history and the history of other professional services firms counsels against just getting in a fever and paying whatever amounts are out there, and so we won’t do that. I think more, the tougher screen isn’t that. The tougher screen is people businesses are, you’re not buying a nuclear power plant that has got 60 years of life. You’re buying, you are hopefully acquiring the hearts and minds of people. So you have to assess whether or not you’ve got a group of people that you’re looking to buy whom you think will fit with your team, will thrive, will enjoy it, will stay, will build a business, and I think there’s a lot -- even more mistakes than valuation. Those are the mistakes that really are tough if you make those in professional services, and so we have -- we look all the time, but if you screen for valuation okay. If you screen for people who you’re really excited about joining, you think will be excited about being here in three or five years, you do a lot of screening with only occasionally stuff coming out of the pipeline. So, would I do lots and lots more acquisitions? Absolutely. It’s always a question of how many come through the pipeline, and we’re not changing those criteria, Marc. So does that help?

Absolutely. I do appreciate all the detail. Thank you very much.

Next question comes from Tobey Sommer with SunTrust. Please go ahead.

Thanks. Hi. Good morning. I wanted a follow-up on one of the questions about headcount additions and disruption at some competitors. Could you speak to thematically without addressing any specific competitors, what regulatory scrutiny in Europe is doing of the potential conflicts between auditing and accounting? And adjacent consulting? And then in the context to that, could you maybe provide us with your headcount growth by region because I didn’t see that at the end of your slide deck with the call.

With respect to the headcount growth by region, do we -- do you disclose that? But we are growing, I mean, we didn’t give a qualitative statement on that.

Absolutely. So, Tobey, as you can imagine, the headcount growth in outside of the United -- in the United States, it’s a very nice percentage. But with the loss numbers, the percentages are significantly higher in order -- multiple orders of magnitude outside than they are in the U.S.

But yes, I wouldn’t want these, but I think actually one of things I do want to underscore, we’re growing in every region at this point. And I want to be clear on that. And one of the issues for a long time, and the company with North America was not growing, except through acquisition, that’s not the case. And we are committed to growing North America. But I think we started on a growth trajectory a little earlier in EMEA, so that’s clearly growing faster. What was the first part of the question? Oh, the disruption. So let me -- look, I think, let me be clear. Our competitive set is quite different by business. So the disruption of -- in EMEA for the Big 4, for example, won’t necessarily affect our Econ business or benefit our Strat Comm business. So we have -- and by the way, the Big 4 is in our businesses in a significant way and some markets overseas and they’re not in, for example, CF in a significant way in the U.S. So when you think about the competitive set, it’s a complicated tapestry of different segments, different competitive set by segment, and even by segment, by geography. But to your point, specifically in EMEA, absolutely. One of the things we’ve benefited from is the disruption of the Big 4 where -- if you remember Sarbanes-Oxley caused the Big 4 to deemphasize significantly, some of our core businesses in the U.S. In Europe, some place in Europe, no equivalent of Sarbanes-Oxley happened. But some of the recent tightening of legislation is moving in that direction. And it disrupts, and no great professional wants to have an relationship where they’ve got a trusted relationship where they’re invested in a deep relationship, and the person trusts them. And that -- so they don’t want to be conflicted out of the job by assistor business. And when that happens, people get upset and they pick up the phone. And right now, I think we’re getting disproportionate numbers of those calls. So that is a beneficial effect, Tobey, as you were probably hinting, more than wondering. Did I answer your question?

You did. And then you already commented about acquisitions, and said that you need to be careful and have a lot of screens. Could you tell us what encouraged you with the Andersch acquisition that this is a good one, understanding that professional services acquisitions can be challenging.

Yes. So I’d say Andersch and CDG, which both in CF, I would say the same -- a couple of same things, some differences. With both of them, they’re A+ professionals. And that matters a lot. And, particularly, matters if you’re going into a new market like Germany where we don’t have a presence in CF, we have presence in the Strat Comm and a smaller presence in couple of other businesses. You need -- it’s not good to enter new markets with other than A+. But also if you’re an A+ team in New York, and you acquire a tuck-in acquisitions, that’s B- players, the cultural issues are going to be a problem. So CDG is a set of A+ players who fit in terms of their aspirations, the size of jobs they’re going after, the professional standards, and so is Andersch. Secondly, I would say Andersch is -- was -- I think CDG helped us extend our business, not just capacity, but we have a fabulous credit side business. We have a stronger company side business in the U.S. and people really don’t realize, but sometimes we’ve under the radar screen. And one of the thrust over the last while has been to increase our profile on the company side, and CDG was a help to that in the U.S. Similarly, in Germany, I mean, we -- I think we have the right to be the No. 1 global corp fin business in every major market around the world. It’s hard to do that organically from scratch in the market where you don’t have enough presence because you don’t track the people. And Andersch is a fabulous group of people whose values are terrific, both in professional values and personal values. And we think can be the cornerstone of building on that in -- on the continent, particularly, in Germany, but thereafter. But we are - we’re very excited about both of those. You can find me 10 more of those, Tobey, I’m happy to jump on them.

OK. Well, that’s someone else’s purview, but I’ll look for the news, if you’re lucky. OK. I wanted to talk to you about -- get your perspective on the increased scale globally. Kind of outside the U.S. such as in Germany now. Other than the kind of specific benefit of getting a high quality set of individuals, who practice and our leaders and -- at what they do. Does it also have an ancillary benefit of positioning the company to get more at-bats for large global projects? Because you’re kind of a more credible local presence and people might -- potential clients might know about your capabilities in other areas, in other geographies?

Absolutely. Tobey, I was just muting here to see whether I can mention, a particular client name, I can’t. But let me give an example of that. I mean, not long ago, I guess, 18 months ago, one of our -- the largest job we had was a very International assignment. On the phone for -- in that case, it was CF where people from South Africa, the experience for senior people, South Africa, Germany, the U.K., Australia and the U.S, all of whom had worked together in high intense bankruptcy situations. How many people in the world can put that together? And I think we put that call together in 24 hours, maybe a little longer than that. I mean, and so we won that job. Of course, we won that job. And that might have been the biggest or the second biggest corp fin job -- I think that’s two years ago, maybe now 18 months ago or whatever it is. So that’s absolutely right. The largest cross-border jobs are -- you just have a compelling advantage if you actually have a global team that actually can team together and has team together and we have that. And it’s not just in CF. Some of the antitrust wins that we’ve had in Econ are now translating to the fact that we have a fabulous antitrust practice in Europe as well. And many of the U.S. companies that we’ve worked with in the past are getting attacked for antitrust reasons in Europe. So this is not just about getting a fabulous German practice, which is a good thing in itself. It’s about being the leader around the world, which has ancillary benefits of all sorts. Of client retention, of client development, of winning the biggest jobs, but also then being the most attractive location in other geographies for people to join. So did I talk to your question, Tobey?

You did. And my last one is, if you could expand a little bit on the lower utilization in FLC in the quarter? Any color you can provide on that would be helpful.

Let me be clear. I’ll just say and Ajay can add. We don’t have bad utilization in FLC. I just -- you cannot run a business at the peak of this utilization across all the sub-businesses that make up FLC every given moment. I mean, we’re happy with the performance of FLC. And as I sort of hinted that if we have great talent, even if you have capacity, we will be adding talent in every business. So -- but I think what Ajay was pointing out is that actually off of, incredible run rates earlier in the year, that had come off and some other sub-businesses that come off.

That’s right.

Does that answer your question, Tobey?

All right. Thank you.

Are you a Nat’s Fan, Tobey? You didn’t comment on that.

Oh, I am for this. I listened to the Tony Kornheiser podcast, and he’s all wild about it.

Yes, good stuff. Thank you, Toby.

The next question is from Andrew Nicholas with William Blair & Company. Please go ahead.

Hi. Good morning. This is actually Trevor Romeo in for Andrew. I guess I would echo my sentiments on the Nationals. Hopefully, they can win a couple of more games here.

Thank you, Trevor. We like you. You can always come on the call for your colleagues.

Thank you. Thank you. First of all, I guess, just generally what kind of visibility do you have right now? And how does your pipeline look? You touched on the cost side of the guidance a little bit, but the implied revenue guidance for Q4, it doesn’t look particularly aggressive compared with at least the last couple of quarters. So I’m just wondering what kind of assumptions are based in the revenue outlook. Are you building in any room for some of the large projects to wind down here?

So the answer is yes. Clearly, we’ve added a lot of capacity and you’ve done the math on the revenue. So it is assuming moderation. We’ve also talked specifically about Thanksgiving and Christmas. There’s vacation time and people -- when people are on vacation, they are not working. So that also points to revenue erosion. So that was explicitly in that guidance. In terms of visibility, look, our engagements don’t last forever. There are some engagements that we don’t have a subscription business per se. It’s not as if the same client is there every year for 10 years as it were. So an average, it’ll probably be about six months, some are much shorter and some span longer. So we in any -- in the beginning of the year, we likely have visibility of about a quarter of the revenue for that year. So that’s the extent of it.

OK. That’s helpful. And also -- so you mentioned lower demand for M&A second requests in the tech segment and lower demand for the M&A related antitrust services in Econ. So I just wanted to ask for your overall thoughts on the M&A, I guess, M&A service environment right now. I know you guys have a focus on larger deals, particularly in Econ. So if you could break that down by size that would be great.

So it’s a mixed bag. You are hitting the nail on the head. Overall, M&A is down, but large deals are up, and that’s the space we play in. So and the credit markets are still benign. But there is a lot of dislocation, for example, in Brexit and what have you. So this -- so I don’t want to read into this quarter a trend because we play in the large M&A space and that space remains robust. But the factors for this quarter were explicit. M&A related activity in both tech and Econ was down. And last year at this time, that third quarter was exceptional on the M&A basis. I also pointed out the non-M&A piece, those capabilities, the non-M&A antitrust piece, those -- that’s an adjacency that’s coming into its own. Does that help, Trevor?

Yes. That helps. If I could just sneak in one more. I guess, if you just look across your client base generally, all else equal, do you think that clients would generally view, I guess, global macro or geopolitical uncertainty as a stronger incentive to bring in outside experts like FTI? Or more of an incentive to kind of pull back on spending, or maybe a bit of both?

Look, so I think, look I’ve dealt with this at this company and also when I was at BCG. It just depends on the services you’re talking about. If there’s big uncertainty in the world, people are not spending money on discretionary services. But they are upping money on critical services. And because you’ve got to do the things that you do need to do. So whether that is massive cost out sometimes for performance improvement business. But in most of our businesses, there’s not that much discretionary activity. We’re not doing strategy studies for the year 2100. We are involved when there’s a crisis, when there’s somebody finds out there’s some untoward behavior somewhere in the company, and they got investigated fast and get ahead of it and to turn it over to the regulators and so forth, that’s not a discretionary activity. That’s a life activity. And even on a positive stuff, these are -- maybe M&A is discretionary, but it’s big lifetime events that tend to sometimes go up during trouble times, not down during troubled times. So I don’t spend a lot of time on my and worried about the macro. I don’t spend a lot of time trying to forecast, the Fed’s actions, because I think it’s going to have an enormous thing. I think over -- certainly, over any medium-term, I think this is about us acquiring the talent, making sure the market knows the number of places where we’ve worked on things so that more clients who don’t know us, now us. And those sorts of things and I think those things Trump macro factors, but I also don’t think most of our business is sort of discretionary spend. So does that help a little bit?

Yes. All that was very helpful color. Thank you.

This concludes our question-and-answer session and the conference is also now concluded. Thank you for attending today’s presentation. You may now disconnect.