Good day, everyone, and welcome to the FTI Consulting fourth quarter and full year 2016 earnings conference call. As a reminder, today's call is being recorded. Now for opening remarks and introductions, I will turn the call over to Mollie Hawkes, Managing Director of Investor Relations at FTI Consulting. Please go ahead.
Good morning. Welcome to the FTI Consulting conference call to discuss the company's 2016 fourth quarter and full-year 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 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 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 & Forward-Looking Information in our most recent Form 10-K 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 Adjusted EBITDA, total adjusted segment EBITDA, adjusted earnings per share, and adjusted net income.
For a 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 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 has been updated to include our 2016 fourth quarter and full-year results. Of note, during today's prepared remarks, management will not speak directly to the quarterly and full-year 2016 earnings presentation. To ensure our disclosures are consistent, these slides provide the same details as they have historically, and as I have 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 will turn the call over to our President and Chief Executive Officer, Steve Gunby.
Thank you, Mollie, and welcome to everybody, and thanks for joining us. I'd like to talk about 2017, but before we get there, let me spend a few minutes on 2016. 2016 was a superb year for our company. It was the second year in a row of double-digit EPS gains, which is the first time the company has achieved double-digit EPS gains two years in a row since 2007-2009. At that level, this was a superb year, but in fact, something we expected. We actually expected double-digit EPS gains two years in a row. What we didn't expect as the year started was just how strong double-digit growth we would ultimately achieve. GAAP EPS was not up 10% or 12%, but rather was up 30% year-over-year, with Adjusted EPS up 22% year-over-year.
Over the last two years, GAAP EPS is up 42%, and Adjusted EPS is up 36%. Said another way, over the last two years, we've delivered three years of double-digit growth, and that was something we did not anticipate. Some of these powerful forces results were driven by positive market forces, particularly in Corporate Finance, and some of the results were driven by items that you just can't count on recurring every year. For example, our tax rate benefited GAAP and Adjusted EPS by $0.13 and $0.15 respectively this year compared to 2015. If you adjust for those discrete items and some of the market tailwinds, you end up closer to the original Adjusted EPS guidance we provided at this time last year.
Said another way, even stripping out these discrete items, we are left with a picture of a year of strong double-digit EPS growth, even while making substantial investments. And to me, that is the most important element of these results, the confidence-reinforcing element. Our teams here are making and executing on investments and strategies that are building our businesses, making serious progress in turning each of them and the company as a whole into sustained growth engines. Ajay will give you details on 2016, but let me highlight a few points. In two of our businesses, Corporate Finance and Economic Consulting, our results were driven by the fact that we have powerful leading professionals with commanding competitive positions that allowed us to take advantage of partial market surges, not true booms in the market as a whole, but partial surges. Let me start with Corporate Finance.
I think most of you have a sense of the strength of our position in CorpFin, but let me illustrate it a bit. In 2016, we were ranked by "The Deal" as the number one U.S. crisis management firm by total number of engagements. Being number one is nice. To me, what's more impressive is that's the same position we've held for the last nine years. In the most recent tables, we had more than double the number of newly opened cases compared to our nearest competitor. Similarly, if you look at The Deal's most recent list of top restructuring professionals, FTI has the most advisors listed by far with 52 of the top 100. I'm pleased to say our global co-leader of CorpFin, Mike Eisenband, leads the list again. I could go on.
It is the strength of that restructuring practice in the U.S. and increasingly abroad, as well as the actions the team has taken that have allowed us to move this business ahead over the past couple of years, even in the face of continued loose money by the federal authorities. We win powerfully whenever work occurs, for example, in the mini boom in energy and retail and mining. As a result, in 2016, we were able to follow a very strong 2015, growing revenues another 10% year-over-year and Adjusted EBITDA for the segment 8% year-over-year following a 62% increase in 2015. Similarly, our Econ consulting business, as many of you know, is seen by many people as the leading economic consulting practice globally. For example, in 2016, Who's Who Legal named Compass Lexecon both the Competition Economist Firm of the Year and the world's top expert consulting firm.
FTI has the most experts of any firm named to Who's Who Legal's inaugural consulting expert guide, with 98 experts from 24 cities across the globe listed. 10 of those professionals from FTI and Compass Lexecon were recognized as the most highly regarded experts in their fields worldwide, with the next closest firm having three individuals named. In 2016, the strength of that team in Econ consulting allowed us, in the midst of a market which was not a boom for M&A as a whole, especially compared to 2015, to win the biggest jobs, the biggest antitrust cases, and at the same time grow other parts of our Econ consulting business substantially. Those two businesses, CF and Econ, were substantial contributors to our success in 2016, but by no means the only contributors.
Some of our success in 2016 came from places where we were able to move our businesses ahead this year despite little or no market support, where the improvement came almost entirely from the actions we took, investments we made, and the efforts of our team. Two such examples are StratComs and our European or EMEA business as a whole. Let me start with EMEA. I think we've discussed on a number of these calls the focus we've had in EMEA over the last several years. Our focus on making key bets to build that business, to invest behind people in positions where we see ourselves having the right to win in the marketplace. I am extraordinarily pleased to say those bets are performing.
Our European teams have thought incredibly hard about where to make the bets and how to make them work, as we've made the bets are incredibly committed to making them work. The result is that in 2016, our EMEA region delivered record revenues and Adjusted EBITDA, along with growing headcount by 11% this year and 30% over the last two years. Along the way, winning many leading assignments across all of our businesses. I think it's fair to say our European business is moving. Importantly, that movement is being seen not just by us, but by our clients and leading professionals.
It is one of the most gratifying advances of the last several years and one that has us focused on saying, "How do we build on this to sustain that momentum going forward?" Another strong story in 2016, in fact, over the past three years, is Strategic Communications. The Strategic Communications team has now moved a business that had over five years of sustained declines in Adjusted EBITDA to three years of sustained Adjusted EBITDA growth. Doing so while investing in the talent to create the foundation to extend that success going forward. This year, we also continued the progress and the process of ongoing, systematic, deep strategic looks at our business, we took a hard look at our Technology and Health Solutions businesses.
In both of these, where we'd had substantial declines over the last few years, we put in place new leadership teams, we put in place new strategies. Strategies that we believe will fundamentally improve the trajectories of these businesses, moving them from the steep declines that we've had recently, declines that have masked some of the progress we've had in other businesses, back to contributors to growth. We believe that progress will begin already in 2017. In Technology, the new leadership team took out major cost, including headcount reduction of 18%. The team restructured our R&D organization to enhance effectiveness and nimbleness and brought in a new chief product officer. The team agreed to a fundamental reconceptualization of the business going forward, thinking of it as two businesses with somewhat overlapping but actually quite separate needs.
A consulting and services business in which we will continue to invest in e-discovery, as well as rapidly expand adjacent offerings such as Information Governance and a software business, one that consists of great software that we will use but also aggressively license to others. We expect these actions to bear fruit with a return to Adjusted EBITDA growth already in 2017. Similarly, in our Health Solutions practice within FLC, our new leadership team there also undertook a strategic relook.
That relook resulted in staff reductions, substantial staff reductions focused on a portion of the business where we didn't think we had a right to win, but also outlined an expansion plan for our advisory businesses and an expansion plan for the operational parts of the business where we have a right to win, including focusing on historical places where we have one and places we have preexisting relationships, but also extending the business to work collaboratively with places where FTI as a whole has a right to win. For example, working closely with Corporate Finance around healthcare bankruptcies and healthcare transactions, and Economic Consulting around hospital mergers and post-merger integration. These moves began to show fruit as early as December, that's progress we expect to continue into this year. Let me turn to our outlook.
The guidance for 2017 is not up substantially from what our results were this year. Although there's always uncertainty, we are not forecasting double-digit EPS gains again this year. I'd like to work to make sure no one misinterprets this guidance. I am not, and we are not in any way retreating from our aspirations that this company be a sustained double-digit growth company over a multi-year period. To the contrary, the success over the past several years reinforces that belief. The truth is, because of the market forces and some discrete items in 2016, we delivered 3 years of EPS growth over the last two.
We continue to see ourselves putting the business on a powerful upward trajectory, but primarily due to the outperformance in 2016, we expect 2017 to be the flat part of a staircase versus the steep upward part we've seen in the last two years. For example, we are excited about the underlying investments we have made and continue to make in Corporate Finance. We believe that those investments, which we're going to continue to make this year, even with some market headwinds, are going to create even stronger positions going forward and generate substantial earnings growth for the company over time. For 2017, we are forecasting a down year for Corporate Finance. We don't believe the market forces that supported Corporate Finance in 2016 are going to continue into 2017.
Ajay will provide more color, generally, we expect a substantial decline in bankruptcy filings in 2017 compared to 2016. That's Corporate Finance. We also expect moderated Economic Consulting growth compared to double-digit top and bottom-line growth in 2015 and 2016 for the econ group. On the other side of the ledger, we do believe that in the businesses that dragged this year, the teams have taken the actions to make sure they are turning back to be contributors to growth in profit in 2017. Our forecast in 2017, which Ajay will speak to in more detail, is a combination of believing we have our businesses generally headed in the right direction, offset by headwinds in Corporate Finance, particularly in the first half of the year, and the omission of some discrete benefits we had in 2016.
It is in no way a retreat from confidence that FTI is and can continue to be a sustained double-digit EPS growth company over time. Let me close these opening remarks by reiterating what I said in a slightly different way. Yes, we see 2017 as a possible flat part of a stair, but I still see us on a substantial multi-year upward trajectory. We continue to believe firmly that betting behind the strongest professionals and our strongest positions in the places where we have a right to win will continue to deliver organic growth. That growth, plus the prudent use of cash, will allow us to deliver both sustained double-digit EPS growth over time and deliver to our professionals a richer set of opportunities for growth.
With that as an introduction, let me turn it over to Ajay to take you through the quarter and full year in more detail, he and I will both be back to answer your questions. Ajay?
Thanks, Steve. In my prepared remarks, I will take you through our financial results for both the quarter and the full year 2016 and end with providing you with our guidance for 2017. I'll be discussing quarter over prior year quarter and year over prior year results. First, I will speak to highlights of our results and lay out the special charges and other items that affected our fourth quarter and full year. Second, like last quarter, instead of walking through every aspect of each segment's results individually, I will speak to those aspects at the segment level which have a significant impact on our consolidated financial results. I'm going to discuss our capital allocation and net cash position. Before finishing, I will speak to our 2017 guidance. Starting with some of the highlights of the year. Our full year 2016 GAAP EPS was $2.05.
Our Adjusted EPS of $2.24 were in line with our most recent guidance of $2.15-$2.45. As Steve said earlier, 2016 was the second year in a row of double-digit EPS gains with GAAP EPS up 29.7% and Adjusted EPS up 21.7% compared to 2015. As for operating results, our Economic Consulting, Corporate Finance & Restructuring, and Strategic Communications segments reported both revenue and very strong Adjusted EBITDA growth. Our Technology and Forensic and Litigation Consulting, or FLC segments, declined in both revenues and Adjusted EBITDA. As I will speak to when I get to our guidance, we expect these segments to grow in 2017, in part because of the headcount actions we took in 2016, but just as significant because of the refreshed strategies and new leadership we put in place.
Our balance sheet is strong with low leverage, and we benefited in 2016 from the lower interest charges from deploying our cash to reduce debt, which resulted in a $0.27 benefit to GAAP and Adjusted EPS in 2016. I will turn to our GAAP and Adjusted EPS highlights for the quarter and for the full year. There were several discrete items that impacted EPS in 2016, especially in the fourth quarter. Let me lay out these items and their impacts in the fourth quarter. These items relate to four areas. First, we took a special charge related to headcount reductions, which reduced GAAP EPS by $0.06 but did not impact Adjusted EPS. These reductions included 52 professionals, primarily in R&D in the U.S. and in Australia in our Technology segment.
As the majority of these professionals are non-billable, you will not see as large of a reduction in our billable headcount table included in our earnings release. The headcount reductions also included 17 professionals in our Health Solutions practice within our FLC segment. Of note, this headcount reduction is not reflected in our fourth quarter billable headcount table included in our earnings release, as those who were impacted left the company subsequent to year-end. This reduction will be reflected in our first quarter 2017 headcount table. Lastly, the headcount reductions included 18 non-billable employees in corporate as we consolidated parts of our finance infrastructure. Second, we took a charge related to a write-down of certain components of capitalized software in our Technology business, which reduced both GAAP and Adjusted EPS by $0.06.
Third, there was a benefit related to a reversal of an uncertain tax reserve during the quarter, which increased GAAP and Adjusted EPS by $0.09 in the quarter. In addition, during the fourth quarter, the estimated negative impact to GAAP and Adjusted EPS resulting from the net impact of FX translation and transaction losses was $0.04. For the full year, the special charge related to headcount actions reduced GAAP EPS by $0.17. This includes the $0.06 impact in the fourth quarter, as well as headcount actions in the first and second quarter in our Technology segment and Health Solutions practice within FLC. For the full year, the estimated positive impact to GAAP and Adjusted EPS resulting from the net impact of FX translation losses and transaction gains was $0.02. Now let's turn to the income statement details.
Here, I will be discussing fourth quarter and full-year results versus the comparable prior year periods. In each of our segments, our revenue results for the quarter and for the full year were negatively impacted by foreign exchange translation, or FX, largely due to the decline of the British pound relative to the U.S. dollar. As Mollie mentioned, you can see a detailed financial breakout of segment revenues and Adjusted EBITDA for the quarter in the supplemental slides available on our investor relations website. Starting with the fourth quarter, revenues of $441.9 million compared to revenues of $442.2 million in the prior year quarter. Excluding the $11.9 million estimated negative impact of FX, revenue increased 2.6% compared to the prior year quarter. Revenue strength in Economic Consulting, and to a much lesser extent in Corporate Finance & Restructuring and Strategic Communications, largely offset underperformance in our FLC and Technology segments.
In Economic Consulting, revenue increased 9% compared to the prior year quarter, primarily driven by higher demand for our M&A related antitrust services, including some big-name antitrust cases like the Aetna-Humana and Anthem-Cigna contemplated mergers. FLC revenues declined 9.6% compared to the prior year quarter. This business was particularly weak in the fourth quarter, as some cases settled early. We had delays in the start of new engagements, we experienced increased vacation time. In Technology, revenues decreased 6.6% compared to the prior year quarter. The decrease in revenues was primarily due to lower demand and lower realized pricing for M&A-related second request and litigation services, as we had strong second request demand in the prior year quarter. Adjusted EBITDA of $30.3 million or 6.9% of revenue declined 13.8% from $35.2 million or 8% of revenues in the prior year quarter.
Fourth quarter net income for the company of $7.1 million decreased 31.4% compared to $10.3 million in the prior year quarter. Turning to our full year 2016 results. Revenues of $1.81 billion were up 1.8% compared to 2015 and were slightly ahead of our most recent guidance of approximately $1.8 billion. Excluding the $32.8 million estimated negative impact of FX, revenues increased 3.6% compared to the prior year. For the year, we reported record revenues in Economic Consulting, up 11.7%, primarily due to higher demand for our M&A and non-M&A related antitrust services and financial economic services. In Corporate Finance & Restructuring, we also reported record revenues up 9.7%, supported by a tremendous first half of 2016 in our restructuring practice. These increases more than offset revenue declines in Technology and FLC of 18.7% and 5.1%, respectively.
Adjusted EBITDA was $203 million or 11.2% of revenues, compared to $205.8 million or 11.6% of revenues in the prior year. Adjusted EBITDA growth in the Economic Consulting, Corporate Finance & Restructuring and Strategic Communications segment was more than offset by Adjusted EBITDA declines in our Technology and FLC segments and higher corporate costs. The decline in Adjusted EBITDA and Adjusted EBITDA margin was also impacted by higher costs, primarily from higher compensation related to an increase in aggregate headcount, which was not sufficiently offset by higher revenues. While we did not meet our total billable headcount growth target of 5% for the year, we added significant headcount in the businesses that were performing well in 2016. In Economic Consulting, our billable headcount was up 9.5%. It's worth noting that our SMD headcount grew 8.6% as we added senior professionals. In Corporate Finance & Restructuring, billable headcount was up 6.8%.
In Strategic Communications, billable headcount was up 8% and SMD headcount grew 17.9% as we added senior professionals from the government and corporates in our higher margin public affairs and crisis offerings. In EMEA, the majority of our headcount growth for the year came from our billable hires, which grew by 11.1%. SMD headcount grew 8.4% in the region as we continued to attract leading professionals from competitors, corporates and the government to further accelerate our momentum in the region. Even with the drag from Technology and FLC, net income for the company increased 29.5% to $85.5 million compared to $66.1 million in the prior year. Steve talked about the actions taken and the new leadership teams in place in our Technology segment and Health Solutions practice within FLC.
With respect to FLC, more generally, our FLC results this year did not meet the high expectations of our FLC leadership or the core FLC team. Some of that shortfall was related to the Health Solutions practice, but there was also underperformance in some of our overseas operations and in some of our strongest positions in the U.S. We have a great team in FLC and this team is actively engaged in efforts to turn the best parts of our business back to the growth that we historically enjoyed. Interest charges in 2016 were $24.8 million, down $18 million compared to $42.8 million in 2015, which resulted in a $0.27 benefit to GAAP and Adjusted EPS in 2016. Our tax rate in 2016 was 33.1% compared to 37.3% in 2015. In 2016, we benefited from the tax reserve reversal I mentioned earlier that we had in the fourth quarter.
Also worth calling out, in 2015, we had tax items that increased our tax rate. On a year-over-year basis, as Steve mentioned, our tax rate benefited GAAP and Adjusted EPS by $0.13 and $0.15, respectively. I will now discuss our balance sheet. FTI has always been a strong cash generator and our efforts over the last couple of years have only enhanced our ability to generate cash. Cash and cash equivalents were $216.2 million at December 31, 2016, up $66.4 million compared to $149.8 million at the end of 2015. This increase in cash was achieved while reducing the balance drawn on our revolver by $130 million during 2016 and spending $21.5 million on share repurchases during 2016. $18.6 million of those repurchases were in the fourth quarter. Total debt, net of cash, was $153.8 million at year-end 2016, down $196.4 million from year-end 2015.
I think it is fair to say that measured in many different ways, the balance sheet of this company has never been stronger than it is today. Cash collections were strong in 2016 because of both higher revenue and lower DSO. Our DSO of 91 days was down from 97 days at the end of 2015. Turning to our guidance, we are providing revenue, GAAP EPS, and Adjusted EPS guidance for 2017. Starting with revenues, we estimate that revenues for 2017 will be between $1.8 billion-$1.9 billion. We expect our GAAP EPS to be between $1.95-$2.30, and that Adjusted EPS will be between $2.10-$2.40.
The variance between GAAP EPS and Adjusted EPS guidance for 2017 is related to estimated lease cancellation charges for a Washington, D.C. office move, which will result in an estimated charge of between $0.10-$0.15 in the second quarter of 2017. We expect this office move to save over a million dollars annually in rent and related charges. Looking at our Adjusted EPS range for 2017, you will notice it is within our range for 2016. This flat guidance is because, as Steve mentioned, we delivered three years of double-digit growth over the last two years. What does this mean for 2017? Let me talk through our guidance at the segment level.
Our 2017 guidance assumes Corporate Finance & Restructuring will have a weaker first half compared to the first half of 2016, where we benefited from a mini boom in restructuring activity in three sectors, energy, mining, and retail. There were only eight retail bankruptcy filings in the second half of 2016, and none of them were sizable. Thus far in 2017, the pace has not turned up, and more importantly, none of the filings in 2017 have been sizable. In the energy space, oil prices have remained above $50 so far in 2017, far from the lows we saw in early 2016 when oil prices dropped below $30. While the energy story is not over, the pace of new bankruptcy filings has slowed. In mining, metal prices have risen sharply since early 2016.
The second half of 2017 for Corporate Finance should be stronger than our weaker second half of 2016, given the easier comparisons and our expectation that restructuring activity will pick up in the second half of 2017. Overall, we expect defaults and restructurings to be down in 2017, but that downward comparison will be more evident relative to the very strong first half of 2016. Notwithstanding market headwinds, as Steve said, we have a very strong team of practitioners in Corporate Finance, although there may be ups and downs in the markets, our leading position and the underlying investments we are making in EMEA and across the globe continue to give us confidence that this business, already a very competitive business, continues to strengthen its strong position around the world, which we expect will bear significant fruit for us over the coming years.
We expect Economic Consulting to have continued strength in 2017. However, we're up against tough comparisons after a record year in 2016. In particular, in the first and fourth quarters of 2016, where we had record levels of M&A-related antitrust activity. As a result, we expect more moderate growth compared to double-digit growth in 2016. Technology and FLC should represent the majority of the improvement over 2016 as our refreshed strategies and cost actions should result in year-over-year growth in both segments, especially in the second half of the year as we gain traction. Finally, Strategic Communications should continue to be a solid contributor in 2017. Our 2017 GAAP and Adjusted EPS guidance assumes we will complete the remaining $81.4 million of our $100 million share repurchase authorization in 2017.
Which will be dependent on fluctuations in the price per share of the company's common stock, the timing of stock repurchases, market conditions, and other future events that may be beyond the company's control. We expect the completion of this program will add approximately $0.05 to $0.09 to GAAP and Adjusted EPS in 2017. Worth noting, in February, we hosted an all SMD meeting. The cost of the meeting should result in approximately $0.04 impact in the first quarter. This was our third all SMD meeting as a company, and my first. This cost, in addition to the record comparisons and weakened restructuring market, will create a meaningful shortfall compared to our record first quarter in 2016.
Candidly, as a CFO, I am always worried about cost. From my experience at this meeting, it is clear that this investment to bring our partners together is one we should be making. The collaboration and connections made by our business leaders at this meeting will continue to generate new business leads and ideas for new and enhanced ways to serve our clients through leveraging our global and diverse platform. Before I open the call for your questions, I'd like to reiterate five key themes. The restructuring outperformance we saw in the first half of 2016 is not expected to recur in 2017. Conversely, we expect our Technology and FLC segments to have improved performance in 2017. Our balance sheet is strong with low leverage, and we are buying back shares and plan to complete the remaining $81.4 million of our $100 million share repurchase authorization in 2017.
We have a growing global platform with, I believe, the best practitioners in their fields. Because of this global platform and our high caliber of professionals, we are well-positioned to take advantage of market dislocation and regulation, especially on large cross-border engagements involving, for example, M&A antitrust issues and in industries where there is disruption, such as energy and healthcare. Finally, most importantly, we have confidence that over time we will continue to see earnings growth with volatility around a rising mean. With that, we will open the call up for your questions.
Thank you. If you would like to ask a question, please signal by pressing *1 on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, that is *1 to ask a question. We will take our first question from Kevin McVeigh with Deutsche Bank.
Great. Thank you.
Morning.
Hey, good morning.
Morning, Kevin.
Good morning, Ajay. Good morning, Mollie, Abby.
Good morning.
Hey, I wonder if you could give us a sense of, and very helpful on the guidance, how we would get to the low end versus the high end of the range, kind of what's implied in that.
It's the volatility, Kevin, around the rising mean. If we have certain assumptions, for example, on where our Corporate Finance segment would go, we have certain assumptions on the extent of the turnaround, for example, in FLC, in Health Solutions, in the Tech area. If you assume pessimism, you get to the lower end.
Got it. Then, Ajay, in the retail space in particular, obviously there's been a fair amount of dislocation, and you can continue to see it on some of the larger retails. Prior to bankruptcy, have you seen any business increasing on maybe some initial restructuring to try to take that business to more optimal expense levels? Just given the kind of structural issues in that business, any thoughts on the outlook there in the near term? Retail-specific.
Yeah. You're asking us, are we planning to restructure and reduce our professionals, or are you saying the restructuring-
No. The business in general. Obviously even Target coming out this morning at disappointing guidance. Clearly there's a lot of structural issues on the big box side.
Yeah. Kevin, look, let me just say that maybe there's a narrow question, answer your question in a broader one. This is a volatile business, but you can't look out in the market and not believe over the next several years this is going to be a growing business. Yes, there were almost no bankruptcies filed in the last few months, and certainly no significant ones. You can say, "Oh my god, retail bankruptcies are gone." You look out in the market and just like you did, and you know there are going to be major restructurings in retail over the next couple of years. I think that's a general point on this business. We're thinking we're facing major headwinds in this business this year because the energy stuff has rolled off, and we still have loose money in the economy.
What you could do is say, "Oh, we should cut back our hiring in this thing." We're not going to do that because we think it is only a matter of time before there is a movement of this business as a whole back to levels that we've seen historically, and we are extraordinarily well-positioned against it. We believe this is a great business over the next few years, just not a great business in the first half of this year and probably for the year as a whole, and generally and then also specifically with respect to retail. Did I answer your question?
It did. Just one more, and I'll jump back in the queue if I could. From an M&A perspective, any thoughts on this administration versus the prior one in terms of how it sits across the enterprise, and then just are you seeing more second looks, or do you think there'll be more activity that offsets maybe a more stringent government approach to it?
Yeah. Look, that's a conversation that we're having a lot inside. At this point, I think our current view is you don't know. I mean, that's the real bottom line. I think at a higher level, I think it's this, that you look back over time, as administrations come in, and frankly, as the world evolves, certain businesses slow down, but other businesses grow. I think that is our history. You look back, at one point, we were doing backdating options stuff in FLC, and then that's gone away, but then the mortgage-backed securities work came. When the SEC stopped prosecuting because it was distracted by the financial crisis, there were huge amounts of work to grow in bank monitorships and other sorts of things. I think the nature of our business is that government policy and changes in government policy, on average, creates more work.
It doesn't always create it in the places where we've done it historically. Sometimes it creates in adjacent areas. I think we're pretty optimistic about the general demand environment over the next few years. The real talk internally is for us to be on top of what's going on so we can pivot into adjacencies as is necessary, and that's our high-level view at this point. Kevin, do you have a different view?
No, I agree. I think it's, again, I think overall, even if you get less second reviews and things like that, to the extent there's more activity, that's just going to help you folks, and I fully expect that. I think depending upon the sector and even retail being another one, you'll probably start to see some consolidation. That's obviously a large portion of the economy that's going to go through a major restructuring, and I think that bodes well.
Thanks, Kevin.
Yep. Thank you.
We will now hear from Timothy McHugh with William Blair & Company.
Yes, thanks. I just wonder, can you, given the moving parts below the EBITDA line, I guess, can you talk about the EBITDA margin or the EBITDA growth rate that's embedded in the guidance? Secondly, I think just the, I guess, the confidence in it seemed like you're pointing to the second half for Technology and FLC to improve. I guess, is that cost related or is that revenue related that you're expecting in the second half? Thanks.
Let me answer it simply. The answer to the EBITDA and the margin, the quick answer is flat. It's in line with the earnings guidance that we're giving you. When we make the earnings guidance, we're not expecting, for example, tax rate changes, those are very difficult to predict. We're assuming the standard 36%, 37% on the tax rate. The interest savings, we've already reduced the debt, we continue to get the interest savings, not the year-over-year impact. As you see flat EPS, you're assuming flat EBITDA. Certainly, changes in mix between the segments can affect it, largely that's where we're at. In terms of the FLC and the Technology Health Solutions, it's both revenue and cost. Cost actions are usually more than one's control, as you've seen in fourth quarter, we've taken the actions.
In terms of revenue, they gain traction over time.
Maybe I can add a little bit to that. I think the other reason we're saying the second half of the year, if you look back at tech and at FLC as a whole, but also Health Solutions, which we don't break out, the revenue side was much weaker in the second half of the year. The first half of the year, the revenue side was not. We believe we're going to make progress on the revenue side and all those businesses in the first half of the year relative to the run rate we were running in the second half of last year, but it won't show up on year-on-year comparisons until the second half of the year, Tim. Was that clear?
Yeah. That helps. I guess just, Ajay, one quick follow-up. The tax rate, given the movements last year, what's assumed there?
For 2017, 36%, 37%, in that order of magnitude.
Okay. Thank you very much.
Which is quite a bit higher than what we actually experienced in 2016, right?
Yes, sir.
That's a headwind for us, Tim, versus 2016, because 2016, we had these one-time stuff that benefited. Thanks, Tim. You sending us good weather from Chicago again?
Copy that. Thanks.
Okay.
Our next question comes from Randle Reece with Avondale Partners.
Morning, Randy.
Good morning. Hi. I noticed in here you had a major EBITDA beat buried in an EBITDA miss because of one segment, FLC. I was wondering if there was some amount of severance expense or something that would explain the levels of expenses and low level of segment profit contribution from FLC in the fourth quarter.
Yeah. No, I don't think there's anything extraordinary. Ajay, you can correct me if you will. I think there's three things with respect to FLC, two of which we were addressing, and then one of which I was surprised by in the fourth quarter, and I think Ajay was, too. I think FLC, you can think about three parts of the business. Our Health Solutions business, which we have a potential for a great business, but we really needed to rethink its strategy. That effort, after we changed management, took force during last year, and I think we have now got that business headed in the right direction. That was a drag in 2016. The second part of FLC you want to think about is the overseas positions. Over the last while, we have really looked hard at the overseas positions and retooled them.
Some places we've shrunk considerably, like we exited a business in Brazil. Some other places we shrunk because we just didn't think we had a right to win. In other places, we have made big bets because we think we have a right to win and create stronger positions. I feel like we made a lot of progress over the last year in that in FLC as well, and that helps going into 2017. The third issue with FLC, which was a surprise, is that some of our strongest businesses for FLC, like our U.S. businesses, underperformed in the second half of last year. That was a surprise to our leaders in that practice. It was a surprise to Ajay and me, so we've had some serious conversations about that. The truth is, the answer to that is not restructuring. It's a great business with great professionals.
It's a series of things that we got to get in the marketplace and solve, and there's a lot of activity underway on that. I would say the big surprise for me in the second half of the year on FLC was that one. The other stuff I knew about. That one surprised me, and it was disappointing. Does that answer your question, Randy?
Yes. Thank you very much.
Our next participant is Marc Riddick with Sidoti & Company.
Hi, good morning.
Good morning, Marc. How are you?
Good. Yourself?
Doing fine, thanks.
I wanted to, I guess, maybe start on the headcount adjustments that you've talked about. I wanted to get a sense of, and it was nicely laid out sort of where they were and the ones that were non-billable. I wanted to get a sense of now that as we've come past the end of the year, should we expect that to continue? Sort of where are you in that process? I don't know if you want to put it as what inning you're in as to where you are with your headcount adjustments, but I was wondering if you could start with that.
Yeah, I'll give a take on that. Look, I think we've gone through a series of major relooks at our businesses. Unfortunately, actually, it's required looking at almost every one of our businesses. As we've done that, it's led to substantial increases in headcount some places, but also some rationalizations of positions. I think that's the process you go through all the time in professional services. I would say the first time you've gone through it in a lot of years, you tend to have bigger changes. We've just gone through that. We started that first with Strategic Communications when I got here. Then we walked through each of the other businesses. I think we are through the bulk of that first round of look.
We've done that across the businesses. I don't expect us to be having major headcount announcements on a routine basis across all of our businesses over the next while. That doesn't mean you don't have to continue to fine-tune things. You will always in professional services. It doesn't mean that if Ebola breaks out worldwide, we don't have to adjust to new environmental conditions. I think the systematic walkthrough of the businesses that has led to that, I think is largely behind us. Does that answer your question, Marc?
Yes, it does. It actually sort of leads me into the next thing that I was kind of getting to. You touched on this a little bit, but maybe you could expand a bit. As you look at the business with that strategic view, I was wondering if there are any differences or takeaways that you would be willing to share as to how you view the EMEA region, international overall, but the EMEA region in particular, and whether or not there's any whether you want to view it as a post-Brexit changes into priorities or things of that nature that you might want to share.
Look, I think the opportunities we have internationally are enormous. I just want to say, I also think they are enormous in the U.S. I think for a while we were neglecting the U.S. in terms of a growth engine. I think we are committed to turning the U.S. back to a growth engine. I think our opportunities overseas are substantial. I don't think it requires the market. I think the truth is, as the guy we now have heading Europe says, "This is our time in Europe." Kevin Hewitt is now the leader of that. I think he believes that we now have a critical mass of professionals, that our brand is at a higher level such that just we're getting many more referrals than we used to in the past.
Many more professionals are looking at us and saying, "Wow, this is the place to be." I think that can happen independent of what Brexit does to various forces, because it's just about us getting stronger in that market. I think that's an important, powerful force over the next couple of years, particularly in Europe. I think in Asia Pac, our positions, we're continuing to strengthen those positions. It's not as big a region. It will not have as material a benefit to our P&L over the next few years as we expect Europe will. We think of that as an important position to strengthen for the long-term future of our company, and the same thing for Latin America. Does that help, Marc?
It does. Thank you. Just the last thing is sort of a little bit of a housekeeping type item. I was wondering if the guidance for 2017, if you have a FX impact assessment embedded in that. The second part of that being the mention of the SMD meeting in the first quarter that will have an impact. I was wondering if you had a dollar value impact into the first quarter expenses on that. Thank you.
Certainly we incorporate FX when we think about our guidance, and we base our guidance on our internal plans with certain variability. Our internal plans are based on year-end FX. We don't take a sort of a forward curve or a futures curve. We take where FX was at the end of the year, and we take it from there. I want to emphasize that FX has a significant impact on revenue, as we have mentioned. On profitability, the impact is muted because our costs are also in the same currency. There is an impact, but it's not as large as it is on revenue. That was the first comment. Then the SMD meeting, I think we said it's a $0.04 earnings impact in the first quarter.
Okay. Thank you very much.
Thank you.
We will now hear from Tobey Sommer with SunTrust.
Morning, Tobey.
Good morning. I was wondering, you already commented a little bit about this, but to give you an opportunity to expand perhaps, what are the changes under Trump administration that you think may be impactful on your business, both from a tailwind and headwind perspective?
Look, I think truth, I sit here in Washington. I don't think actually anyone knows exactly what the changes are going to actually come out of the Trump administration, let alone the impact on the business, right? You just read the paper. There are lots of thrusts, there are lots of stated intentions. What actually happens is still quite unclear to the world as a whole, at least the ones that I listen to. Then therefore, the second-order consequence of how will that affect our business is even more unclear. We have a lot of conversation about that. At this all SMD meeting, we talked a lot about actually more about the potential opportunities coming out of different speculated changes and how do we make sure we're front and center of it.
I think people are more bullish about the opportunities for us than they are pessimistic. I think candidly, I think the big takeaway was that we need to be nimble. Any sort of changes in the economy shuts down certain businesses or affects certain businesses in negative ways, but also almost always creates other opportunities in adjacent areas that we are well equipped to serve. Frankly, there was a little bit of reflection that said, at some points in the past, we haven't been as nimble as we need to be, and some statement of determination that we are going to be on top of this and make sure that we figure out, regardless of how this flows, how that we are best positioned to serve that. That's really as good as I can do, Tobey.
If you know exactly what's going to come out of this administration, you should at least take a major role in one of the newspapers, perhaps. That's hopefully helpful.
Okay. In the Technology business, just wondering if you could kind of provide a little color on how the new strategy is working, and if 2016 represented a bottom in terms of profitability and growth.
Yeah. Look, I think I'm actually pretty excited about this. There's a lot of elements, some of which will not only start to kick in in the second half of 2017, and some which we have expectations for 2018 and beyond. Let me be clear on that. We think the cumulative effort that we've taken will make 2016 the bottom for that business. Some of this is long-term, but some of it is actually very near-term. Look, I think the truth is for that business, the first half of 2016 was the strongest part in terms of sales, because I think if you remember, part of what we've been doing in this business is running off some very big jobs and then having to sell a lot of singles and doubles to make up for some very big jobs.
We still had one of the very big jobs running the first half of 2016. When you look on the first two quarters of this year, you're going to see us up on the revenue side against that, and you might be saying, "Well, where's all this stuff that Steve is saying is already starting to make progress?" If you normalize a bit for that, you'll be able to see that we are out there hustling and having some success even on the revenue side, and the cost side is there. I have a lot of confidence. This business historically was a great business, and if you talk to the leaders of the business, they'll be quite frank about the fact that they were slow to reexamine their strategy.
We've retained really strong talent, and people in that group are incredibly enthusiastic about the direction we're heading going forward and feel that we're really making progress. I have a lot of confidence that 2016 was the bottom for that business. Does that help?
It does. Last question from me. EBITDA has seen a decline, adjusted EBITDA has seen declines for a couple of years, I think, Ajay, you mentioned kind of flattish adjusted EBITDA as the outlook for this year. What do you think we can get to EBITDA growth? Because in our interactions, we kind of feel that investors focus more on that than the EPS. Thank you.
Yeah. Let me be clear. I think the way to think about the last couple of years is basically been flat EBITDA, not a decline. Frankly, we're within the noise range of flat, particularly if you do anything adjustment for FX and so forth. Let me give a broader answer in that, Tobey, and maybe actually some thoughts. Look, the business, as you know, right? From 2009 to 2014 dropped EBITDA $20 million a year. It was an average of $20 million a year for that multi-year period. That is actually at a time when we were doing a lot of acquisitions. I think we spent roughly $50 million a year in acquisitions. You're buying $10 million a year of EBITDA. You adjust for that, we were dropping at $30 million a year.
You can say we're adjusting at $20 million while dumping a lot of cash back into the business. What we have managed to do while investing in organic growth, while fixing some of the businesses, is turn that to flat. Flat without the help of acquisitions. What you see on that regard is an enormous surge in our cash generation capability. I think it's important for people to look at that because I think if you're in an acquisition mode, you don't really look at cash so much, you don't look at a balance sheet strength because you think you're using all your cash for acquisitions. Here we have not been using our cash for acquisitions.
The stuff we did for refinancing debt, the cash we have, the repurchase of shares, all of this is sustainable, and it is also usable when a great acquisition comes along. The strength of our balance sheet and the improvement in our underlying cash flow, I think should become a focal point where it may not have been one in the past. Having said that, my aspiration is, and I think frankly, you can create a lot of economic value for shareholders with flat EBITDA if you use the cash wisely. Having said that is not my aspiration. My aspiration is to make this a U. It is coming down for a long time. We are now in the flat part of the U, and the goal is to actually come up on the U.
I think the truth is, we have had a lot of success as we have walked through business after business. You know, the first business we looked at was Strategic Communications, which was plummeting, and we have been up the last three years on the up part of the U. Econ was down and is up the last few years. Corp Fin was down, has been up. EMEA, we do not talk about EBITDA, but you can see it on the revenue where we focused a lot of energy. Frankly, as we have walked through each of the businesses, I think we have got them positioned to be contributors to growth. The unfortunate thing over the last two years is this moving late on tech actually cost us. I think the EBITDA for tech over the last two years probably dropped, I do not know, $35 or $40 million. That is $0.50 a share.
That is a lot of headwind. This year, unfortunately, I think we are thinking there is market headwinds on Corp Fin. I think our goal is we cannot do anything about market headwinds. What we can do is to strengthen each of those businesses. I believe as we come out of the market headwinds here, and we have the businesses positioned right, this company has the ability to be a substantial EBITDA growth with and generate cash. I think that is the home run for this business, and that is my aspiration. Does that answer your question, Tobey?
Thank you.
All right. Thank you very much for your attention and your time. We look forward to ongoing engagement. Thanks very much. Bye.
That concludes our conference for today. Thank you for your participation. You may now disconnect.