Good day, everyone, and welcome to the FTI Consulting Third Quarter 2016 Earnings Conference Call. As a reminder, today's call is being recorded. And now for opening remarks and introductions, I'll turn the call over to Molly Hawkes, Managing Director of Investor Relations at FTI Consulting. Please go ahead, ma'am.
Good morning. Welcome to the FTI Consulting conference call to discuss the company's third quarter of 2016 earnings results as reported this morning. Management will begin with formal remarks, after which we'll take your questions. Before we begin, I would like to remind everyone that this conference call may include forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21 of the Securities Exchange Act of 1934 that involve risks and uncertainties. Forward looking statements include statements concerning plans, objectives, goals, strategies, future events, future revenues, future results and performance expectations plans or intentions relating to financial performance, acquisitions, business trends and other information or other matters that are not historical.
Including statements regarding estimates of our future financial results and other matters. For a discussion of risks and other factors that may cause actual results or events to differ from those contemplated by forward looking statements, investors should review the Safe Harbor statement in the earnings press release issued this morning. A copy of which is available on our website at www.fticonsulting.com, as well as other disclosures under the heading of risk factors and forward looking information in our most recent Form 10K 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.
As well as our reconciliation of non GAAP financial measures to the most recently comparable GAAP measures, investors should review the press release and the 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 third quarter of 2016 results. Of note, during today's prepared remarks, management will not speak directly to the quarterly 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 our Investor Relations website. With these formalities out of the way, I'm joined today by Steve Gumby, our President and Chief Executive Officer and Ajay Sabrawal, our recently appointed Chief Financial Officer. At this time, I will turn the call over to our President and Chief Executive Officer, Steve Gunby.
Thank you, Molly, and thanks to all of you for joining the call this morning. Let me start actually by welcoming you, Ajay, to your first FTI earnings call. I think a few of you on the phone have had a chance to meet Ajay. For those of you who haven't, I hope you get a chance to do so soon. He's not only a capable public company CFO, he's an action oriented and practical and committed executive.
I'm very delighted to have you on board, Ajay. Before Ajay takes all of us through the details on the quarter, let me highlight three points. First, The quarter ended up very much in line with what we expected. It actually started with a very slow July. We had a lot of projects wind down We expected some, some other ones as happens in this business, then wound down unexpectedly.
And then because we were so busy in the first half of the year, a lot of folks took vacation. Some of the summer vacation effects. And then we had a very strong September. Overall, however, from an EPS perspective, ultimately, the quarter came in about what we expected. And we are reaffirming our guidance for the 2nd, let me use this opportunity to talk about our path forward observations about this business.
1st and probably, most importantly, that this has been a great business for us historically. Not only one of the most important contributors to our P and L over the years but also a driver of the brand building complex work that we strive to stand for every place at FTI. We also talked about our ringtail software, which we believe by many measures is the best software in this market generally and certainly for the most difficult complicated, high profile assignments. And we talked about the fact that we have a terrific consulting and services business, populated with professionals who are viewed by many as the most outstanding consultants in this field. There were a lot of good things we discussed.
But we also discussed that like many businesses, like all businesses and all technology businesses, the world changes. And we had some thoughts that we needed to change as well. We talked about how there were fewer large jobs in the market and that as large jobs rolled off, they're being replaced the market is growing, but they're being replaced by many smaller and medium sized jobs, which requires an agility in our sales efforts. That we may not have needed in the past. We talked about how we had historically gone to market with a very integrated strategy, keeping our software essentially for ourselves.
That was an extraordinarily successful strategy in the past, but we wondered whether the changing market dynamics meant that that might not be the right strategy going forward. So in February, although we expressed support both parts of our businesses moving forward. So over the last 6 months, we've looked hard at all of those questions. While at the same time managing a business, investing heavily in a ringtail software to keep it at its leading position and also make it more user friendly. And we focused on improving the underlying financial performance.
And we've been thinking through leadership structure issues. So let me tell you about the results of those efforts. First, in terms of structure, we have decided to depart from our prior integrated strategy and de link the consulting and software businesses. They will continue to be operated as part of In our consulting business, we remain committed to our current e discovery business supported by Ringtail, But we also have a series of extensions to that business that we will think we think will be powerful, powerful and additive and importantly can leverage the terrific people we have. These extensions include further investment and acceleration in our information governance practice, as well as developing several new consulting and service offerings that we think represent substantial new revenue streams going forward.
On the software side, we've created a focused management team dedicated to growing the ecosystem substantially. Which means expanding the number of ringtail users beyond us and our current partners. I am excited about that break from our historical approach. A side point, I think some of you know, One Avenue Explored was whether a potential partner could help us accelerate the broadening of the ecosystem moving to ringtail materially. We ended up talking to a great number of potential partners, and there was actually a lot of interest.
Ultimately, we did not come up with a partner we thought could work with us in a way that would actually accelerate the broadening of the ecosystem. So we have stopped that process. What that means going forward is that we will, of course, be ourselves a heavy user and heavy licenser of ringtail, but the team that is running a software business will no longer focused solely on us. We will be aggressively expanding our ecosystem and we'll deal with the market in a neutral way in a way that takes advantage of the very present active the team has also been focused on improving the basic economics of the business. We focused on making our cost structure more efficient.
As you know, we took some cost structure out cost activity cost actions in the first quarter, and we've been tightly managing the business since. At the same time, focused on aggressively winning those small and medium sized jobs. And I'm pleased to say over the last 3 months, they have been the strongest in the last year in terms of revenue from new engagements. Lastly, I'm pleased to announce in case you didn't see it early in the month that we appointed Sophie Ross as the new leader for technology business. I will say we had a lot of strong candidates, external candidates, but also internal candidates.
But I am actually thrilled that Sophie is taking on this role. To recap, in the tech business, we are driving a fair a great number of changes, a leaner cost structure agility in our sales force, winning more small and medium sized jobs, expanding the consulting offering, committing to grow the ecosystem on our software side, And behind that, we put strong leadership with discipline and accountability for all those initiatives. All of those steps to me collectively lead me to a positive view on where this business can go. Importantly, we believe that we can make 2016 in financial terms the bottom for this business. Lastly, have sometimes done on where I see this company in its journey to realize what I see as incredible potential.
I mean, this company is improving every day every step of improvement just leads to more potential. And it's the upside of this company is enormous. The journey we've been on has had a couple different thrust. 1 of goal has been to make this company more than the sum of the parts. And I think that's a goal that we're making progress on that will be, but will be in front of us for years to come.
And if that goal actually can be a fundamental foundation for sustainable growth for us for many years ahead. The second goal is actually which is to make sure each individual business, each segment in each geography, each sub segment in each geography has enough focus, enough initiatives, enough investment support, enough discipline to move businesses that in many cases, we're trending downward. There's a lot of volatility, but through the trend, volatility, many of them were trending downward and turn those businesses into businesses that will still have volatility but through the volatility are trending upward. Last week, we had a town hall for all of our staff. To me, the most exciting part of that town hall was some of the discussion of some of the transformations that have happened in this company.
Don't think anybody listened to that town hall, any of our staff without walking about walking out motivated and excited about where we are moving the company. The people moves we're making, the ability to attract people, the support of our people and the culmination of focus and support that is taking businesses not only turning them up, but creating better platforms for our businesses going forward. On these calls, we've talked about that at a higher level. We talked about corporate finance that had had many years of decline, and we thought we had globally it had bottomed out in 2014 and was moving in a head right direction. And we had similar conversations around econ and about the major strategic turnaround in Stratcom.
We talked about the fact that those businesses in various years period of time, these businesses had been turned into growth engines, and I continue to hold that belief. We also talked to you about 2 businesses we didn't think were there yet. One was the tech business we just discussed. And as I just said, I am confident that beginning next year, this business starts to return to being a growth engine again. The other one we talked about was FLC, which has a lot of subparts, some of which were growing and some of which we had fixed agendas.
And we've talked about some of the fixed agendas and the fact that we thought we would get those efforts and help solutions, some overseas positions done by the end of this year. In closing, I'm restating my conviction not only that each of these businesses are great businesses with terrific professionals and real opportunity, But I actually believe that all of these businesses by the end of this year will be put into place where they are engines for growth going forward. And not only do I believe that, but importantly, the leaders of the businesses and the people within those businesses believe that. That doesn't mean we can't have a setback per quarter in any of these businesses or market forces that are in our headwind for a year. And it certainly doesn't mean there isn't any opportunity for improvement.
I think the most energizing part of that town hall was that the businesses that most changed saw themselves with the most opportunity ahead and the most opportunity for further improvement. But it does mean that all of our businesses in my view are extremely well positioned going forward. And I have a lot of confidence in where we can take each of those businesses. And therefore, the company as a whole. So with that, let me turn the call over to Ajay to take you through the quarter in more detail before we take
and guidance for 2016. Now instead of walking through every aspect of each segments results individually, I will speak to those aspects at the segment level which have a material impact on our consolidated financial results. All details we provided in our Q3 2016 earnings release, supplemental earnings materials and the 10 Q remain the same. First, let me give you our GAAP and adjusted EPS highlights, and then I'll walk you through the income statement before turning to our guidance. Our third quarter met our expectations for EPS, which were for lower EPS in the second half than in the first half of the year.
3rd quarter GAAP EPS and adjusted EPS were $0.52, This compares to GAAP EPS of $1,000,000 charge or a $0.28 per share loss related to the early extinguishment of debt. Adjusted EPS were essentially flat compared to $0.53 in third quarter of 2015. Worth loading, our adjusted tax rate for the quarter was 32.2 percent, which compares to 38 point was largely a result rate is lower than in the U. S. And lower state taxes.
Our lower adjusted tax rate in the quarter resulted in a $0.05 benefit to adjusted EPS. It is important not to extrapolate this because of the variability of many factors that can affect our tax rate, including GAAP EPS declined by $0.12 and adjusted EPS declined by $0.14. Our corporate finance business had weaker performance, driven primarily by reduced distressed activity. Most other businesses did better sequentially which underscores the importance of As Steve mentioned, our technology business is beginning to report better results sequentially. Year to date, GAAP EPS is up $0.54 from $1.34 in Q3 last year to $1.88 this year.
Prior year GAAP EPS was reduced by $0.28 related to our debt extinguishment mentioned above and Current year GAAP EPS includes a reduction of $0.10 related to special charges taken in the First And Second Quarter. Both of these items are excluded from our adjusted year quarter improvement was impacted by the significant reduction in interest expense as a result On an operating basis, improvements in economic consulting and corporate finance were offset by declines in our technology to $2 which reflects the favorable impact of the interest expense reductions. Now Turning to the details on our income statement. Consolidated revenues of $438,000,000 for the 3rd quarter declined $17,400,000 over on a quarter over prior year quarter basis. During the quarter, foreign currency translation, driven largely by the decline of the British pound relative to the US dollar negatively impacted revenues by 8.4 revenue, as reported, increased $7,900,000 in our economic consulting business primarily because of growth in This increase was more than offset as we had a large M and A related second request engagement in the same quarter last year that has been completed and reduced demand for litigation services.
In strategic communications, $8,500,000 in lower pass through revenues represented the majority of the quarter over prior year quarter decline. Now on a sequential basis Consolidated revenues for $5,000,000 decline in our corporate finance business driven primarily by reduced distressed activity We're all aware that from the activity we saw there were a few key industries: retail, energy and mining, where enough disruption had occurred to trigger distress. Even with the current accommodating liquidity environment. Our results in the third quarter reflect a sequential slowdown in restructuring activities in these sectors in aggregate. In strategic communications revenues declined $4,100,000 sequentially as Q2 'sixteen was a very strong quarter with activity peaking on a number of projects.
Some of our largest projects were completed during or shortly after Q2 2016 which explains a portion of the shortfall, with the remainder from seasonality effects from the summer months and a slowdown due to Brexit in EMEA. Other businesses did better sequentially. Economic Consulting Revenues increased $4,500,000 as we had some large M and A related antitrust cases in the third quarter, specifically in the healthcare sector. So despite global M and A activity hitting its 3 year low during the quarter, We continue to win more than our share of the opportunities that are in the market, and that supported our sequential revenue increase. In technology, revenues increased $2,200,000 sequentially.
Consolidated adjusted EBITDA of $47,200,000 declined over prior year quarter basis. At the segment level, the decrease was primarily due to an in adjusted segment EBITDA related primarily to under utilization and higher costs in corporate finance from the ramp up of experienced hires brought on during in adjusted segment EBITDA was a result of lower demand and realized pricing for our managed review services on large scale projects compared to the prior year quarter. By adjusted segment EBITDA improvements in our forensic and litigation consulting business, or FLC, resulting from higher success fees in our health solutions practice and an economic consulting where we reported revenue growth and improved utilization. On a consolidated basis, we reported of 12.3% in the prior year quarter. Now sequentially, adjusted EBITDA for the quarter declined $9,400,000 Despite adjusted segment EBITDA improvements in economic consulting, technology and FLC, these improvements were more than offset by a $14,300,000 decline in adjusted segment EBITDA in corporate finance as we had lower volume for our higher margin in billable staff in corporate finance, a portion of which is our annual influx of campus hires, but about half of the headcount increase was experienced hires.
Speaking to sequential increases in billable headcount in aggregate, Billable headcount grew to 3618 professionals, which is up 3.9% sequentially, and 1% from Q3 2015. This 1% year over year growth is in the face of headcount reduction actions we have taken in the last 12 months, including exiting a Brazil business in FLC in 4Q 'fifteen, headcount reductions in the first quarter in our technology business and 2nd quarter actions in our health solutions practice Excluding these reductions, billable headcount was up 4.3% year over year. Unallocated corporate expenses of $21,700,000 increased $800,000 or 4.1 percent compared to $20,900,000 During the quarter, our cash and cash equivalents grew by $42,500,000 to $225,200,000. In addition, we repaid $25,000,000 of our senior secured bank revolving credit facility. Total debt now stands at $475,000,000, down from at the end of Q3 2015.
We did not repurchase any shares in the quarter. Our net debt declined and we have ample liquidity to opportunistically return capital a $100,000,000 stock repurchase program. We will opportunistically look to take advantage of this authorization going forward. Turning to guidance. We are now guiding downwards to $1,800,000,000 in revenue for 2016.
The lower end of the previously provided In addition to year to date results where revenue was lower than anticipated in third quarter, there are several potential risks from both external and internal factors that we considered when deciding to guide to the lower end of our previously provided revenue range. These include slowing restructuring activity and foreign currency translation impacts especially related to the decline of the British pound following Brexit. Having said that, our adjusted EBITDA for the quarter was very much in line with our expectations and we are reaffirming our 2016 guidance for adjusted EPS of between $2.15 $2.45. Before I open the call for your questions, I would like to reiterate some key themes both from our Our results were in line And with that, organic revenue growth potential. Our technology business that has been underperforming its potential is showing signs of improvement.
We have very strong cash flows and numerous opportunities for capital allocation including continued organic growth, returning capital to shareholders, reducing debt and acquisitions. As Steve mentioned at the beginning of the call, this is my first earnings call with the company, and I'm delighted to be here. And thank you for your continued support of FTI.
And we'll take our first question today from Randy Reece with Avondale Partners. Your line is open.
Good morning.
Good morning Randy. How are you?
Doing alright. I was wondering if we could talk about bankruptcy and restructuring activity by vertical? And, what kind of changes that you had seen there?
Sure. Let me give a high level view. And then if you need to, you can supplement, you know, more of the details. I think there's been the way to think about this, I think, is that the overall bankruptcy market is at this point and hasn't been in a boom state, right? Because we still have loose money.
I actually have a lot of confidence over the next few years. The global authorities will not keep to lose money forever. And so over the next few years, I think we have a lot of confidence that this will be a growth business. But what really has been helpful in the last couple of years has been 3 verticals, mining energy and then also retail. And I think I mentioned, we probably got out ahead of the market last year.
We started reporting higher numbers early last year, basically through strength in all three of those, mining incredible strength and also we just won disproportionate shares of the other jobs. We still continue to win jobs. There's been some slowdown in the overall market. I think the belief is that there will be energy deals for some time to come and mining deals, but the 1st wave of deals is you've has happened and now you're on the 2nd wave and so forth and the $50 in oil sticks around, we will not the business will not plummet, but it will no it will no longer be a boom business. It will taper.
Then we were somewhat surprised to see that there were almost no retail filings during the course of the summer. And we were a little perplexed last year just about the surge of retail filings. It's just seemed obviously there's some secular things going on that cause mall stores to be under stress, the internet and so forth, but it seemed like the surge we had in 2015 and into the early 2016 was disproportionately high. And that's one reason I had caution about this. The summer, it looks like disproportionately low.
And I don't actually know why that is. But we saw we're seeing general slowdown in the in the amount of volume and energy in mining, it's not a precipitous decline. And we saw a big drop in the amount of filings in retail over the summer. I don't know if that's just a temporarily low or not. And Liminda, just to close that, I think longer term, we feel like the overall market will be up, but that will be requiring not just industry specific, issues, but just a reduction of this, of the world's loosest money that the world has ever seen.
Did I answer your question, Randy?
Yes, very well. I had one other question about what are the cost implications of the decisions that you made in the Technology segment?
Cost implications of the businesses. Look, I think you mean in terms of reductions of cost to be we look, we have already taken out a fair amount of cost in that business. Randy, I think, as you know, both in the, I'll give you somewhat of an update on that. I guess a pretty full update, I think, in the second quarter that said we were taking actions then. We've continued to run that tight.
There's always attrition in businesses and you have choices as to whether to backfill that or not. And we backfilled some, but a lot fewer So if you look at the headcount in that business, it's down considerably versus where it was a year ago. I think we've got a much leaner operation there than we did.
And So this doesn't change your path for spending intentions in the future?
Well, we have certainly look, there are lots of elements to this strategy, and I'm not sure how much detail we're going into. But as you remember, I mean, we, I made it a point of making sure we invested an awful lot in ringtail this year internally, we had a meeting and I authorized an additional, I don't know if we say the number, but multimillion dollar spend on on ringtail relative to the budget they had at that point in time because I wanted to get it to be over the hump on certain capabilities and ready for 3rd parties if we were going to do it. And so there's a there's, there's those activities, which were surges in spending, which of course, you don't have to replicate surges in spending. We have lots of activity underway in terms of data center movements and so forth. So we've got a lot of activity underway that is part of just making this into the leanest most fighting machine, but we've already made a lot of progress on that, Randy.
And I think we have right now have a business that confidence and we'll be heading in the right direction next year. Does that help?
Thank you. And we'll take our next question today from Kevin McVeigh with Deutsche Bank.
Steve, never better yourself?
Good. You like the new digs?
I do. I do. I'm with Tuoper so far. Thanks. Thanks for asking.
I was going to ask God, you had a very same question. That would be my second question. So I wanted to openly, as you think about the technology business overall, particularly expanding the ringtail vertical. How does that kind of impact the go to market strategy? And do you think you'll get any kind of pushback from some of those potential clients given that you use it in house?
Well, obviously, that's something we think hard about. And particularly given our history as a company, I mean, I went out to the marketplace. As you know, I wasn't here 5 years ago, but more recently, I went and talked with people who dealt with us. And we were not seen as somebody who was interested in licensing our technology on a neutral way to anybody who could be perceived as potentially competing with the consulting business. And so, obviously, if you're going to build the ecosystem, you have to address that squarely.
Nobody is going to license from you, if you don't, if they don't believe that you are going to deal fairly with them and that they're getting treated as well as your internal colleagues. And we are heavily focused on that, which is why we have very much separate attention focused on it organizationally within segment and a set of incentive structures being worked on for the leaders of that to make sure that they're focused on the right part of it I'm not sure I want to go any more detail then, but it's a perfect question and that you will never make the ecosystem grow unless you address it. So let me just say we understand that and we're addressing it. I hope that helps.
No, it does. It does. And then just what if you think about the restructuring business currently, what's the mix of kind of what you'd call distressed versus non distressed right now?
It's a good question. We get it every quarter. I usually defer to my CFO for that, but I don't know if you're up to speed enough to know
the answer. I take over half, just over half is distressed.
Got it. That's helpful. And then my last one I'll get back in queue. Ajay, I know you haven't been on the ground that long, but just Any thoughts on kind of initial reads, ups, positives or just any initiatives you think about as you're kind of settling in there?
As I summarized at the end of my prepared remarks, What stands out for me is the practitioners in this company, I mean, I get a report on all the matters that the company is winning every day, and I feel like I'm reading an excerpt from virtually every financial newspaper on the planet. The breadth with scope of the practitioners globally and the kinds of work that they're winning is stunning. In terms of initiatives, it's a combination of as a CFO, it's in my DNA to watch cost and cash and I continue to do that. But at the same time, you have to optimally allocate resources for growth. I won't go into any further specifics.
You did
a great job, Ajay. Nobody nobody is asking questions. Okay. Well, look, thanks very much. Again, we have another question, sorry?
Are we good?
Pardon the interruption, we actually do have another question. We can go to Mark Riddick with Sidoti and Company. Your line is open.
Hey, good morning.
Mark, are you settling into the new role? Yes, I am. Thank you. I appreciate it.
I wanted to get a sense of maybe sort of give us a bit of an update on what you're looking at for year end headcount. I think maybe previously you were looking sort of at least 5% or so and then maybe some of the areas that you may be targeting? And then I have a follow-up on that.
Yes. Look, I don't have the exact forecast ahead in front of me, maybe somebody to dig this out. But Look, let me just say a couple of things about that more conceptually. First of all, the goal of having all of our businesses be growth engines means that growth engines will typically at least have 5% growth in headcount. A year.
And if you look at the businesses, which we said were positioned to be growth engines as of now, as we talked about in that way earlier in this year, you'll see the numbers are much higher. I mean, my sense is that Corp Fin, Econ, StrATCOM, I mean, those businesses are probably closer to the average, closer to 10% headcount growth than they do 5% or at least in the middle of that. And over a couple of years, even higher, I think corp fin might be up like close to 25% over 2 years, which is probably not sustainable, but as a measure of when you have the businesses positioned, we have the ability to attract great people. And when you have the businesses positioned, and you go after it, it happens. The issue is, as we've been sequentially working through businesses, and figuring out where we have a right to win.
It's meant we've cut back other places. So if you looked at Stratcom, which has grown a lot over the last year, in the 1st year, actually, it looked like it didn't grow at headcount at all. And that was because we were investing some places like Brussels and some places, and we were exiting other places. And so you can look at things and see net headcount 0 or down in certain subparts while you're doing that focus. And that's what we've been going through this year with tech and some parts of FLC.
And so I think the 3 parts of the business, which we had thought we had gotten to fundamentally a good place are well on that way and well north of 5%. I think if you look at the numbers year on year and will be at the end of the year, The issue is how much corrective action has had to take place in some of the other places and how much does that drag And so that's the net of those that will affect the end of the year numbers. And if you remember, FLC We exited 85 people in a business in Brazil We took some overhead actions and some actions in various overseas places. And then we've had all these movements that we've been doing in tech my view was earlier that notwithstanding all that, the net of that would come out in the mid single digit. And I was targeting 5% at the end of the year, whether our current forecast is 3.8or5.2, I don't know, but probably somebody can get back to you on that if we disclose at that level, but it's still mid single digits for this year.
Okay, great. And I guess one other question is just touching on the share repurchase program that they're if I recall, there was sort of a temporary hold placed on it for a little while. I was wondering, is that still in effect, or what we should look as far as going forward on that? Because the $100,000,000 program authorization back in Jim's when sort of when that might kick in? Thank you.
Yes. So look, there's no hold on that at this point. I put a very hold on it while Ajay was getting on board just so that I wouldn't make all sorts of decisions that he then said, what the heck did you do, Steve? But we don't make any commitments as to when we're going to use that. If you think about, this company's history, we've done a lot of share repurchase and in retrospect, we did it at market peaks.
And, what I'm trying to do with this company is accumulate enough cash that we can take advantage of lots of things in the marketplace. If ever the stock fell out of favor, you want to have cash. I remember starting this company and the company had just bought back stock at 42. And before shortly after the stock was then at 29 and I wanted to go buy back shares and we didn't have any money to buy back shares. I said, but 4 weeks before I joined, you bought it back at 42.
And they said, so what's your point? I mean, and that's, we're never going to get into that situation. But also, think the cash, we have been very careful about acquisitions. My sense is great acquisitions come along, when they come along. I always want to have the cash available for great acquisitions when we have it.
So we are not
one
of the things that happens in professional services firms, it's almost like, sorry, philosophy, it's almost like you can look at industrial companies. If you look at industrial companies, they're flush with cash when the markets are booming, and that's when they do their acquisitions. And then when the markets are in troughs, nobody has any money to do acquisitions. We are never going to do that. I want to have I want to have cash available to be opportunistic on share repurchases or acquisitions when the time is right.
And we have moved this company into that position. The the balance sheet of this company, I think, has never been as strong. And I don't know if there are many stronger ones in this industry. So we do have we have no constraints on no artificial blockage on share repurchases, but nor are we making any specific commitments as to timing on any of that. Does that address your question?
Yes, yes, it does. That's excellent. I
appreciate it. Thank you.
Great. Do you
have any other questions?
We do. We'll go next to Tobey Sommer with SunTrust. Your line is open.
Is the mid single digit target for billable headcount growth by year end a net number or are you adjusting it for headcount reductions? Because you gave both figures in the prepared remarks?
The number I always use is net. I mean, yes, no, no, gross, we add a lot of people. I mean, professional services, there's always turnover, right? I mean, I don't know many professional services firms that don't have 15% turnover in a given year or whatever. So if you're going to grow X, you have to grow 15 or whatever plus X, So now it's net.
2nd question is, how does the 3% year over year kind of proactive headcount reductions that you cited in, I guess, primarily Brazil, Tech And Healthcare. How does that differ from what you may consider normal needs on an annual basis to kind of look at the businesses and prune a little bit? Is that 3% larger, the same or smaller what could be an annual type activity?
So I don't know where the 3% number comes from. So let me answer the question conceptually, all right. I think it's a good question. We will always have ongoing pruning, which is day to day stuff. We will also always have some businesses where we made vets where we thought they were going to work and have some fix agendas, all right?
So the notion of saying, well, but we're not hitting our headcount needs because of agendas is if used universally is not an appropriate thing to do. I think the way to think about this though is in the last two years, what we've done is done a systematic move that I don't think we've ever done in this company, business by business, sub business by sub business, turning over each business and saying, okay, where do we really have the right to win in Stratcom? Which sub parts of it? Are we betting on which sub parts are we retreating from? Where do we have the right to win in each of the other businesses?
And that systematic process as we've gone business by business has led to, in my experience, a bigger set of resets both positively and negatively, then you would do on an ongoing basis. And so when I exclude Brazil, I do it because that's a consequence of a more systematic process that hadn't been done in this company for a long period of time. I think going forward, I think if it's normal routine attrition, when we're saying each business should be headcount for growth, net of all that we ought to be growing headcount 5% or more, even including all those things. Did I address your question, Toby?
Sure. I was looking for kind of a numerical answer, but that's okay. In terms of the quantity of revenue in EBITDA, could you kind of maybe ballpark what the headwind may have been from those, I guess, that more rigorous scrubbing of the businesses in the closure of Brazil and the in the headcount reductions in tech And Healthcare. Just trying to get a sense for what the rest of the business, how it performed by comparison. So to quantify the impact of those actions would be helpful.
Tobey, we don't break it down to that level of granularity. I'm afraid. But you can see that if you look at the year to date, you can see the technology, the sorry, the econ, the corporate finance, which are the big engines doing quite well. And you can see that the technology side and some of the FLC sites not as much. And that is virtue of some of those situations of which we've addressed.
Okay. Last question for me, and I'll get back in the queue. How long do you think it'll take to build third party relationships to adopt ringtail? And, when should we have a when could we reasonably expect to ask you the question about seeing progress and have you have just stated the process long enough to give us a kind of full response on that?
Yes, it's a good question. And it's one that I'm having active discussion with internally. So I'll Look, we'll give you updates. As we always do, we'll give you updates as any material strategic changes occur. It obviously can't take 4 years before you sign new contracts or else you're kidding yourself, right?
I mean, that's just not the way professional services work. And we've got some people pretty focused on it. There's a lot of interest in the market to be honest at this very point in time. So we'll figure out the right way in the normal course of of updates to keep you guys informed.
Thank you.
And we'll take our next question from Tim McHugh with William Blair And Company. Your line is open.
Good
morning. Tim, are you, are you a cubs guy?
I'm a south side of Chicago guy. So if you're familiar with Chicago, that's the answer. But everyone in Chicago is a cubs fan right now. So good luck. First, I guess, and I apologize, I joined a little late because of multiple calls, but the technology comments splitting kind of the two sides Can you comment at all on how we should think about the financial aspect or the financial split of those in terms of the revenue or EBITDA share between the two businesses?
I think, look, I'll let, if there's a more technical answer, I'll let that Ajay think, but we're that's going to stay as one reporting segment. At this point. So we're not going to be breaking those out at this point.
The answer there is opportunity there is to expand our market opportunity by allowing us to use channel partners as well. So it's a future state.
Fair enough. Lots of change in that. Part of the world. The maybe the comment I missed or you said earlier that basically September got a fair amount better in terms of your performance versus even July August.
Can
you give us more color? Was that in particular business segments? Was that broad based? I guess what parts got better later in the quarter?
Well, I probably wasn't universal, but it was broad based. It was very broad based. We just had and I think it just happens sometimes. You had a lot of stuff end Some of what we expected, some of it we didn't expect, because sometimes litigation ends abruptly usually because of good things for your client. But it, but, we had a bunch of stuff and then if people have been working as hard as they were in the first half of the year and it happens to be July August, I mean, people don't necessarily go return phone calls.
They sort of say, look, can we lead in 3 weeks after I take my vacation? So we had We always have lots of vacations in July August, but we had a lot of vacations in July August. So it was pretty broad, widespread. It was just it was just more than I expected. And then, but we had good pipeline of work and people kept reassuring me that September would be better.
And I always liked All right. Is August going to be better? And so August was better. It wasn't as it wasn't fabulous, but it was better. So then you get reassured September actually has been good, but it was pretty widespread.
It wasn't like one spike. Okay.
And you talked about healthcare, will you talk about FLC broadly and trying to get back to where you want it to be? Health care is a smaller piece, but I know been a focus area to try and get back on track. And it sounded better in 2Q, but worse kind of again in 3Q. Are you have that business? Have you figured out where you want to take it?
And is it where you want it to be?
Yes, I'm not sure it was worse in 3Q than it was in 2Q. So, but I look, I think, here's the thing. I think we have good leadership in that group at this point, who is really focused on the right stuff it's actually probably the most bonded leadership team. It's not that big a partner group in there. It's probably 20 partners maybe 25.
And they're all focused on the right stuff at this point in time. I think they're heading in the right direction. Part of your question was do I think it's where I want it to be now, no. Do I believe it will be there pretty soon? Yes, they're working on the right stuff.
And I think that's the same thing for some of the other sub parts of FLC that we're lagging. That's why I believe this FLC as a whole will be the return to being a contributor to organic growth beginning next year, because I think the weakest part we have really good attention on. And the good parts, it works. I mean, it's interesting. I pulled aside, I took a look at a chunk of North America where I think we're so strong.
And I looked at how many headcount we had added over the last 2 years. And it was 100 heads per billable heads. And I looked at what our revenue per billable person was in that part from last 2 years ago and this year. And we added 100 heads to that subpart and the revenue per billable head changed $1 a year. Went for that subpart and I don't think I shouldn't say the exact numbers.
But when we add headcount behind the right set of professionals, in the right markets, it just continues to grow the business. And maybe there's a 6 month delay or maybe you get a headwind, but it works it's a matter. Sometimes, we've had some positions where we've been not focused on realistically assessing how strong or weak we are in doing the things that we needed to. And I think we now have management focused on that. Some places you wish it had happened a little earlier, but I think we have management focused on that every place.
And I think that's why I have the confidence that we're going to have all the businesses turned into a sustainable agent for growth, beginning next year. Did Did I address your question, Tim?
Yes. Just one and then maybe I thought of one quick follow-up. The headcount additions you did make and maybe I'm parsing it to finally here, but when in the quarter did they come in? I'm just trying to think about the expense impact of all the hiring and whether we saw a full impact from that in Q3 or if I need to be thinking about a higher expense run rate as you kind of have all these people on board and continue to hire going into Q4.
I don't know that specifically, I'll let Ajay think about this. But my experience is that, you don't have the full effect in the third quarter because you don't have that many, I mean, the 3rd quarter July, August, September, right? You don't typically have the new hires from campus starting in July. They usually start in September. Now the lateral hires can start pretty evenly through.
Those tend to be the more expensive people. Here, numbers, the numbers are usually in the third quarter, the numbers are mostly the campus hires and those usually come in at September. It's about half and half in your characterization in terms of the months is correct.
And I'm showing we have no further questions at this time. I'd like to turn the call back to Steve Gunby for any closing remarks today.
Good. Thank you very much. I mean, just to reiterate where we were, I think, the quarter actually came in very much where we expected and we're reaffirming guidance. I think the more important issue is the progress we're making on all of these businesses. And I'm excited about that.
And as some of your questions point out, we're not through all the fixed agendas. But we're not that far away either. And it doesn't mean we won't have fixed agendas in businesses going forward. You always do, but this first systematic walk through all of our businesses. I think we're near completion.
And when you look at the places where we've completed it and the trajectory they have and the confidence that the people have, as we heard in the town hall or what you see in the results, it's fun. It's fun. And sometimes this business can be pretty fun. So thank you very much for your time and attention. And your support.
Have a good day.
This does conclude today's conference. Thank you for your participation. You may disconnect at any time.