Good day, everyone, and welcome to the FTI Consulting First Quarter 20 16 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 first 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 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 our earnings press release issued this morning. A copy of which is available on our website at www.fticonsulting.com. Well as other disclosures under the heading of risk factors and 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 statement which speak only as of the date of this such as adjusted EBITDA, adjusted segment EBITDA, total adjusted segment EBITDA, adjusted earnings per adjusted net income and adjusted segment EBITDA margin.
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 we have posted to our Investor Relations website this morning for your reference. These include a quarterly earnings call presentation that we will refer to during this morning's call and an Excel file and PDF of our historical financial and operating data, which has been updated to include our first quarter of 2016 results With these formalities out of the way, I am joined today by Steve Gum, our President and Chief Executive Officer and Cathy Freeman, our Interim Chief Financial Officer, Senior Vice President, Controller And Chief Accounting Officer. At this time, I will turn the call over to our President and Chief Executive sir, Steve Gumby.
Thank you, Molly. And thanks to everyone who joined the call this morning. As usual, let me say a few words upfront I'm going to turn it over to Kathy, who will take you through the details of our first quarter and our updated outlook for the year. And after that, the 2 of us look forward to your questions. As you saw in this morning's press release, this was a terrific quarter.
On a number of key metrics, this was the best quarter the company has ever seen. If you look at revenues, we had organic revenue growth of over 8% if you adjust for exchange rate, it's over 10%, which is the highest year over year organic growth rate that we have achieved in close to a decade. The adjusted EPS of $0.83 was up 46%. Versus a year ago and is at an all time high. So this was a terrific quarter what I thought I would do in these introductory remarks was spend a few minutes talking about where these results come from and a little bit about what we think they mean.
And let me start with what I would characterize as the least important driver of the results. In this quarter, there were some things that in any given quarter can cut positively or negatively versus expectations. And a whole lot of those things cut positively this quarter. Those are things such as bad debt discovery, translation gains, the timing of success fees, those all cut more positively than we expected in this quarter. So the way I look at that, there's a part of the drivers of this success that I just set aside that I say, geez, that's nice to have, but it's not critical to have.
It's not that important on a long time basis because it's kind of just happened to cut in our favor. So put those aside and I'd say nice to have. And Cathy will talk a little bit more about those items, their benefits, adjusted EPS, in more detail in our remarks. So I set those aside. A second contributor to our strong results and see that partially as part of the drivers of the results in Corp Fin were due to some cyclical factors that we all know exist in some of our businesses.
Now let me put that in a little perspective. The bankruptcy market as a whole is actually not booming. Corporate default rates remain below their 30 year average. The effects of loose money are still out there. What has happened is that the corporate debt default rate has moved up substantially from the cyclical low hit in 2014.
Some of the sectors of our economy are seeing particularly increased activity. And so part of the cause of the the growth in corp thin with some cyclical activity. And so you can think about that as a second key point. But let me move to the 3rd contributor and underscore what I think is the most important point about this quarter. For econ for Corp Fin and for the company as a whole, which is a big part of the results in this quarter when neither of the two things I mentioned, they're needed results of behind businesses where we knew we had a right to win where we weren't succeeding and moving those businesses ahead.
Those business building driver activities where the root cause of a huge portion of the outperformance this quarter. And it, of course, is the stuff that is the most exciting because that's the most durable. That's the basis for which you can think about growing this company. And so let me spend a little bit more time talking about that. And I'll illustrate that particularly the two segments that outperformed this quarter the most.
And with one of the regions, But I think you actually can see those themes in every one of our segments and businesses right now. And that's an exciting part of where we are. So let me start with Corp Fin because we just talked about Corp Fin. In Corp Fin, of course, there are more opportunities due to some of the cyclical factors I just mentioned. But opportunities are just opportunities.
You actually have to win the opportunities. There's competition out there. It's the strength of our people plus amazing activities, weekend work and so forth, but also amazing activities over the last while when the markets weren't strong to build our brand position, to re strengthens our team, to maintain our team that led us to being selected in a huge number of places. For example, it was obviously the economy and debt loads caused the increased activity in mining this quarter. But it was the efforts of our mining teams and the capabilities of our mining teams and the investments they made in building brands and driving results in the past that led us to win the disproportionate jobs of the mining.
And you think there's, I think you know, but there's a whole list of those, but they include Peabody Energy, Queensland Nickel, the Arch Coal, among a bunch of other ones. And the same thing is true in energy. We have a fabulous energy team based in Texas, which for a while, there wasn't much energy work. They kept that team together. They grew that team.
They grew the capabilities. They supported people. They attracted people. And so when the energy market comes back, That team, together with a terrific leveraging of the global platform, teaming with people in New York and elsewhere around the world, is what allowed us not just to participate, of them coming since the beginning of the year. Those engagements again include some of the largest restructurings and bankruptcies in this cycle, and engagements that range from upstream to midstream to oilfield services to manufacturing to parts and equipment.
Yes, there are more opportunities than there were a year or 2 ago. Have to win those opportunities. And it's because of the capabilities of our team, the dedication and the efforts they've made over the last years that our teams are winning. The third example I'd like to point out relates to a business that we've talked about as having difficulties in the past, our Australia Corp Fin business. We've referred in the past to some of the challenges the teams are working through.
When you face those sorts of challenges, teams can make choices. They can give up Where they can say, no, no, we have really right to win. We have great people. We have something relevant for the market. We have ways to grow our capabilities.
We have grades to grow our visibility in the market, and I can do something about it. And our team down there chose to do something about it. And the consequences of those efforts is that we are now leading the most visible one of the most visible ones in years called the Queensland nickel case, as well as supporting the global team and the Peabody energy operations doing the lower Ashley restructuring and we're doing other ones. That's not a function of market factors. It's not a function of one off factors.
That's a function of great people dedicating efforts over sustained periods of time not only where we've been historically successful, but places where we've struggled. And you can say that other places around Corp Fin as well, our investments in growing our non distressed practices are also work we've talked about these bets. And I think there was some skepticism about multiyear bets. 4 years ago, 2 years ago, we were we were losing money in some of those bets in Europe. And we had a view that by this year, we'd have those moving to profitability and they are profitable.
And more importantly, they now create a platform for future growth, for future investment for building, and that is pretty exciting. That's all on Corp Fin. Let me move to another segment. We also had fabulous results this quarter at econ. It's actually the segment with the largest improvement year over year with record revenue, revenues up 23% and EBITDA almost doubled versus a year ago.
I think in that segment as well, it's hard to trace the results to market forces. I think you can trace the results to the brand, the capabilities, the efforts and the capability, the just the sheer capability of those organizations involved there. For example, I think most of us would say the M and A market is down year over year. We had the strongest M and A related revenues ever in Econ this quarter. Essentially the professionals there and our leading market position overall allowed us to win most of the big jobs in the market.
Compass Lexicon subsidiary had advised on the vast majority of the largest M and A antitrust related assignments. We can't mention them all, but 3 we can mention include the state Office Depot merger, the Dell EMC transaction, the Aetna Humana merger. Those are big important assignments. And our teams because of their reputation and the efforts they make on behalf of clients disproportionately get select and that was the primary driver of results in the M and A side. And nor was the success in Aecon Limited M and A.
The U. S. Financial Economics Practice, which is the leading such practice in the world once again performed strongly this quarter, with revenues up significantly year over year. It's a business where we continue to be invited to participate in the most important cases country ranging from continued litigation over the financial crisis to valuation of the World Trade Center to many other assignments. Actually, in truth, virtually every econ sub practice, and I've only mentioned 2, significantly outperformed Q11 2016 versus Q1 2015.
And for the most part, we can't trace that to one off factors or cyclical factors. But mainly to the persistent efforts are some of the things I'm excited about in those two segments. I can't talk about all the segments. I think, Cathy, you're going to talk more detail about segments, but I will say let me just mention FLC. FLC had more mixed performance, but within FLC, it's the same story.
You look at the FEEDA practice, you look at complex litigation investigations practice. I mean, we are supported by outstanding client service delivery professionals in key markets around the world. And we get drawn into assignments. So if another part of FLC is weak, it's the strength of that performance of those people that allow our business to continue to grow and prosper and us to invest behind our professionals there. And you can look at this from a regional perspective as well.
And I know, Cathy, I need to turn it over to you to go through all the numbers, but let me take one more minute to illustrate this theme on a regional perspective. I'd ask most of you on the call, how many of you think the European economy is booming? I suspect few of us would think it is. And yet, our EMEA business grew revenues 12% this year over year and EBITDA grew substantially. Results again, not due to a booming economy, not due to cyclical factors or one offs, They're the result of sustained investment in the right places behind the professionals that you think are worth betting on.
And if you do that, including sustained commitment to attracting great people, promoting people, promoting our brand, developing people, that doesn't work every as they make a difference. Before I turn it over to Kathy, I want to make 3 other different types of points. First of all, I've only talked through a couple of businesses in one region, which is of course only a subset of our businesses. I just want to point out that in addition to a couple of our businesses substantially outperforming expectations, which is econ and corp fin, another thing that influences factor this quarter was that That seems like a strange thing to note, but if you think about the volatility of our business, that's fair. It's actually hard to do.
And almost every quarter somebody because of the volatility of our business underperforms. And significant 0 significant underperformance doesn't happen automatically. And I think that this quarter had not only outperformance by a couple, but no place where we significantly underperformed on any place. And that is a testament to the efforts within those segments, even where they're weak to redouble efforts, to win market share, or to have strong businesses continue to outperform. The second point I'd like to make is related to our tech business.
We talked last time about technology, ringtail, and to fully leverage the expertise of some of the world's best e discovery professionals. That is a thought process that is still underway. And, we don't have much to report today, but I did want to let you know that we have approved some additional investment spend that will begin to ramp in the second quarter, both for our R and D for our ringtail software and our Radian software. And other than that, unfortunately, we'll not be able to update you in any way today, more on that later in the year. Lastly, I want to make a more personal note and thank Bob Duffy, who led our co led our corp fin practice for a number of years.
Bob, as some of you know, is moving on. He's been terrific in terms of working to ensure a seamless transition. And most important, I want to thank him for leaving the segment in such an incredibly strong position. This is a segment with unbelievable talent and importantly, one where we've committed to grow and have grown that talent over the last few years. Even in the face of the slow corporate bin market, we've committed to grow the talent in that business and done so successfully.
We reinvested We entertained people. We promoted people. We attracted people from competitors in other places. We invested in adjacencies. We had people rejoin the firm.
And we've grown that the capabilities and headcount in that group enormously by 18% headcount grown by 18% alone in the last year. And that's happened at both the SMD levels and more junior levels. Today, I believe we have the strongest team we have ever had. And I would also like to thank Bob for helping develop a great group of leaders in that business. We actually have, in fact, a great group of leaders below Bob.
We have terrific people. People running our creditor practice, our debtor practice, our European operations, our Asian operations, our Latin America, operations, the energy team, our TMT practice, our transaction services practice. I mean, we have a group of leaders there, are committed to building the individual businesses and working collaboratively as a team to build FTI more generally. That is a strength that is an incredibly powerful platform on which to build. So I wanted to say thank you, Bob, for your tireless efforts in building that and we wish you well going forward.
With that, let me turn the call over to is going to walk through the quarter in more detail, and then we'll open the floor for your questions.
Kath? Thanks, Steve. Just to set the stage, I'm going to start with a review of our quarterly consolidated and segment results and then conclude with our revised guidance and outlook for company. Turning now to $3,000,000, up 8.8% from prior year and up 6.4% from Q4, almost all of which was organic. Excluding an estimated to the prior year quarter.
Adjusted EBITDA in up $10,000,000 compared to $58,700,000 or 13.6 percent of revenues in the prior year quarter. Sequentially, adjusted EBITDA was up $33,500,000 from $35,200,000 or 8 percent of revenues in Q4 of 2015. Fully diluted or GAAP EPS was $7.3 compared to $0.57 in the prior year 1st quarter EPS included Technology segment and a $1,000,000 charge for an increase in our estimate of a future contingent consideration or earn out payment related to an acquisition in our strategic communications segment. These items reduced EPS by $0.08 excludes the special charge and the increase in our contingent liability were $0.83, which compared to $0.57 in the prior year quarter and 0.24 dollars in Q4 of 2015. Within our GAAP and adjusted EPS on a below the line basis, a reduction in interest expense as a result of our debt restructuring in the third quarter of last year positively impacted EPS by $0.10 compared to the prior year of 37.6% compared to 33% in the prior year, which negatively impacted EPS.
By about $0.06. As you may recall, last year we had a tax benefit related to a reduction in our state tax liability, which lowered our 5. And corporate finance and restructuring revenues in the quarter increased 19.7% to $127,200,000 compared to $106,200,000 last year. Excluding the estimated negative impact of FX, revenues increased $23,000,000 or 21.6% compared to the prior year quarter. This increase in revenues was driven primarily by higher demand services in North America.
We continue to win large marquee bankruptcies during the quarter in mining, retail and media, and also saw a substantial uptick in energy activity as Steve mentioned. Disrupt activity was strong in January the beginning of February, but ramped up even more in the back half of the quarter as our pipeline and wins generated more work for us than we expected. Essentially, revenues were up 14%. Adjusted segment EBITDA for the quarter was $31,600,000 or 24.9 percent of revenues, as compared to $22,500,000 or 21.2 percent of revenues in the prior year quarter. The quarter over prior year increased North American restructuring demand with improved leverage on larger cases and higher average realized rates.
We also recorded lower bad debt expense due to recoveries of amounts previously reserved. On a sequential basis, adjusted EBITDA increased from $18,900,000 or 17 percent of segment revenues in Q4, to $31,500,000 or 24.7 percent of Rec segment revenues this quarter. Which again reflects the strength in our restructuring practice as well as seasonal strength in our North America Real Estate Advisory practice. Which is heavily engaged in tax forensic and litigation consulting or FLC, revenues declined 3.5 percent to $119,000,000 in the quarter, compared to $123,300,000 in the prior year quarter. Excluding the FX impact, revenues decreased by two point 6000000 dollars or 2.1% compared to the prior year quarter.
Revenue declines in the quarter were the prior year were primarily due to lower demand in our health solutions and global construction solutions and dispute advisory practices. This was partially offset by higher demand for our financial and enterprise data analytics or feeder practice as more mortgage backed security cases continue to be a strong contributor. We also saw improved demand for our and services in North America, EMEA and Asia. Sequentially, revenues were up 2%. 1st quarter EBITDA was $19,800,000 or 16.6 percent of FLC revenues compared to $22,100,000 17.9 percent of segment revenue in the prior year quarter.
The decline in segment EBITDA margin in the quarter versus prior year was primarily driven by decreased demand in our health solutions and construction solutions practices. Again, offset partially by higher utilization in our feeder practice coupled with lower bad debt and reduced personnel costs related to health solution overhead reductions taken over the course of the prior year. On a sequential basis, adjusted EBITDA increased from 8,800,000 or 7.5 percent of segment revenues in Q4 to $19,800,000 or 16.6 percent of segment revenues this quarter. With higher revenues, lower direct costs, some of which was related to the headcount reductions and the sale of our TSC business in the fourth quarter, and lower SG and In economic consulting, revenues increased 23.2 percent to $130,700,000 in the quarter, compared to $106,100,000 in the prior year quarter. Excluding the estimated negative impact of FX, revenues increased 24 $25,900,000 or 24.2 percent.
The increase in revenues for the quarter was driven by 2 key stores. The first being substantially higher demand for our M and A related antitrust services. As Steve mentioned, we had our highest quarter M and A related revenues ever in this business, driven by an And the second factor related to strong performance broadly across the other U. S. And EMEA based practices in Econ, driven by increases in financial disputes, international arbitration and regulatory disputes.
Sequentially, revenues were up 10.3 percent of revenues compared to $11,600,000 or 10.9 percent of revenues in the prior year quarter. EBITDA margin improvements were driven by lower bad debt expense and a reduced percentage of overhead costs in relation to the revenue increase. On a sequential basis, adjusted EBITDA increased from $18,800,000 or 15.9 percent of segment revenues in Q4 $21,300,000 or 16.3 percent of segment revenues this quarter. Turning to technology. Technology revenues declined 11.7 percent to $48,300,000 versus $54,700,000 in the prior year.
Excluding FX, revenues decreased by 5 point $7,000,000 or was largely due to reduced demand for both cross border investigations and financial services litigation. This was partially offset by couple of quarters, our technology results are being impacted by the roll off of a couple of very large multinational assignments The team is working but not at the same size and scale.
And as you know, in the
M and A space, we have seen an uptick in activity These engagements usually tend to be much Sequentially revenues were up 3.7%. Adjusted segment EBITDA for the quarter was $7,800,000 or 16.2 of segment revenues compared to $10,100,000 or 18.4 percent of segment revenues in the prior year quarter. The decline in adjusted segment EBITDA margin was due to lower demand for managed review services related to the decline in these large scale cross border engagements that I mentioned and lower realized pricing for our consulting services related to the mix of client engagements. This was partially offset $6,000,000 or 12.8 percent of segment revenues in Q4 to $7,800,000 or 16.2 percent of segment revenues this quarter. And turning to our last segment, in strategic communications, revenues increased 7.1% to 45 point $1,000,000 percent year over year excluding FX impacts.
Higher demand for the segment's financial by a decrease in revenues from reputational crisis related work. Sequentially, revenues were down 7.5%, as our first quarter is historically our weakest quarter when clients with recurring and discretionary work are normally sorting through their budget spend for the year. Adjusted segment EBITDA was $6,100,000 or 13.5 percent of segment revenues, which was relatively consistent with our prior year quarter results of On a sequential basis, adjusted EBITDA decreased from $7,600,000 or 15.6 percent of segment revenues in Q4 to $6,100,000 or 13.5 percent of segment revenues this quarter. Turning to based demand we mentioned in both our corporate finance and economic consulting segments. In EMEA, our economic consulting segment was the largest draw of positive year over year revenue and adjusted EBITDA, with particular strength in our international arbitration and complex new practices in this region.
Asia Pacific Revenues improved year over year as we Realized improved performance in Australia, as Steve mentioned, which was partially offset by softness in other areas of the region. North American continues to lag with softness in our investigations and construction solutions practices. Turning to Slide 7. Our cash and cash equivalents were $114,500,000 at quarter end. In our first quarter, as you know, we normally consume cash as we make our annual bonus payments.
Therefore, net cash used by operating activities was $33,100,000 compared to net cash used by operating activities of $51,300,000 in the prior year quarter. This $18,000,000 reduction in our use reflective of our lower DSO During the first quarter we spent $2,900,000 to repurchase 85,100 shares at an average price of $34.12. And we borrowed an additional 7,000,000 under our short term revolving credit agreement cover our annual bonus payments previously mentioned. Our net debt defined as debt minus cash increased by $42,300,000 from December 31, 2015, but declined by $93,200,000 from March 31, 2015 or the same time last year. Now turning to our revised guidance, I would like to address 2 questions.
First, what drove our over performance in the first quarter. And second, how did we consider this as well as other factors in developing our guidance for the remainder of the year? To address the first point, as Steve noted, this was the highest quarterly adjusted EPS on record. Worth noting about $0.09 of adjusted EPS in the quarter were related to favorable discrete items we did not expect, including success fees that were booked in Q1 which you heard about in my discussion of several of the segments impacted by some recoveries of receivables reserved in prior periods lower corporate bonus expense and positive FX transaction gains. Which relate to the re measurement of receivables and payables that are to be settled in different currencies.
To be clear, these items but in this quarter, they all benefited us. 2nd, but more importantly, we enjoyed exceptionally strong performance as noted in both our corporate finance and economic consulting segments, where we saw an acceleration of work in the back half of the quarter on multiple large engagements in both So with this as a backdrop, we now estimate that full year adjusted EPS will be between $2.15 and $2.45, and revenues will be between $1,840,000,000 $1,870,000,000. So now turning to the second question, what factors did we consider in developing our new guidance range? As just mentioned, we consider the strength of our Q1 performance and our view about its sustainability, It would be hard to predict another record quarter. We considered our current backlog of activity, where we have a better visibility into the 2nd quarter, but limited visibility into the second half of the year.
And we considered our evaluation of external market factors. Although we would the high and low side half of the year with more certainty, include, among other things, declines or increases in M and A and restructuring activity, shifting commodity prices, in particular, the price of oil. And lastly, the uncertainty created in the financial markets by both political and regulatory events. And this year, two examples include the U. S.
Presidential election, and the vote on whether or not Britain stays in the European Union. These external factors may positively influence 1 the timing and impact of which is hard to predict for anyone segment in the short term. And beyond these macro factors, there is always some uncertainty regarding the timing of the roll off and replacement of big event driven case work, which certainly helped us in the first quarter. As an example, part of the econ run up, was due to an acceleration As it turns out, the case will not go to trial and we will not be called on to testify. So as quickly as that additional work kit, it will just as quickly drop off.
That said, to give a little more color by segment in corporate finance and restructuring, given that some of the large bankruptcy assignments are beginning to ramp down or are scheduled to end in the near term, and new ones may not emerge, we don't expect the second half of the year to be quite as strong as the first quarter levels, although we expect continued strength in the second quarter. And we do strong demand in our investigations practices. But we have experienced a slowdown in our LatAm and EMEA construction solutions practices as engagements have rolled off and not yet been replaced. We do have an active pipeline of both dispute and construction project management work, However, these could be impacted by uncertainty regarding commodity prices. Just as a reminder, We invested heavily in key markets in FLC last year, with almost a 7% increase in billable headcount.
Excluding our TSC divestiture from the same quarter last year. This continues to leave us well positioned with improved leverage to support both business as usual, but also to take on large multinational complex dispute and investigative work when it arises. In econ, we are cautious about M and A activity despite our record first quarter as some large M and A related antitrust cases that drove record results to a 2 year low in first quarter of 2016. And it appears that increased U. S.
Regulatory scrutiny may lead to a substantial decrease in the number of companies willing deals over $5,000,000,000 were down 24% compared to the prior year quarter, according to Thompson Reuters. Similar regulatory trends are evident in Europe, and these combined with the uncertainty surrounding Brexit, could create a chill in and we discussed in detail last quarter. This industry is going tremendous change, and we are continuing to evaluate our options. But we are ramping up taken during the quarter. Steve mentioned the spending will begin to ramp up in Q2.
And at this time, we currently don't have any large multi jurisdictional engagements in the pipeline and are cautious about M and A related second request activity. Additionally, next quarter we will have some tough comparisons to our prior year in M and A revenue as we had an unusually large M and A engagement peak in Q2 2015. Finally, in strategic communications, we believe external headwinds such as Brexit and the U. S. Presidential election, may negatively impact our and mid cap clients in this space reduce discretionary spending.
Turning to our investment spend, which we outlined last quarter, it is important to important to note that 2 thirds of our spend for 2016 is planned for the second half of the year. This uptick in investment is included in our guidance considerations for the back half of the year. To summarize, we had same rate given the confluence given our current view of backlog activities specifically within corporate finance, although not as strong as Q1. We have a number of market factors that could impact our event driven businesses in the second half of the year, both positive and negative. And we believe that On a middle ground within our guidance range, our back half EPS could be 50% to 60% in the first half, considering all of the impacts we have mentioned and our seasonably low fourth quarter.
To conclude, the key takeaway here is that we had a terrific quarter. We certainly don't expect our annual performance will equate to Q1 earnings times 4. And therefore, we try to provide our view of the most important market risks and opportunities and how they can impact us. However, even if we hit the low end of our guidance, we will have delivered a 31% increase in adjusted EPS over the last 2 years. And at the midpoint, we will deliver about a 40% increase.
As Steve said, we are moving forward by the power of We are very excited about our first quarter results and the progress we are making across the firm. With that, we will open up
We'll take our first question from Kevin McVeigh from Macquarie.
Great. Hey, congratulations on the great outcome on all fronts. Hey, Steve or Kathy, I wonder you help us understand on the corp fin side, how much of that is kind of distressed versus non distressed? And as we think about this restructuring cycle, how does it how should it compare to the last 2 in terms of duration?
Kathy, how's your crystal ball?
I think in terms of the first quarter, it's non distressed is or restructuring engagements as we talked about in both retail, media, energy, etcetera. And mining. So I think as I mentioned, we do have a backlog and a strong backlog in the second quarter. But those are much harder to predict in the second half of the year in terms of when they ramp up if our normal restructuring work turns into bankruptcies, the timing of that is hard to understand. But I'd say quarter really relates to the distressed activity.
Got it.
And Kevin, in terms of the crystal ball, look, it's as you know, I'm not from this industry, but I talk to all our guys. And even they don't have a crystal ball, I think thing that would give you encouragement over the long term is we still have a very loose money situation out there. And if you look at the 30 year average of bankruptcies, even with the comeback in mining and energy across corporate sectors as a whole, we're not at the 30 year average. And so if you say, okay, sometime over the next 6 years, we're going to get back to average and maybe above average gives you a bullish thing. Now the reality is though, we have loose money out there.
And if oil prices go back up and commodity prices go back up, things that are fueling the current, mini boom in the or the boom in those things could go away. And so you don't know. So I guess I would say, I think there's fundamental positive forces over the next X years, but whether that could mean we go backwards for a few quarters the guys in this segment, they could. We don't expect that in the second quarter, but even by the second half for the fourth quarter of this year, we don't have much visibility. I really am telling you that my crystal ball is positive over an extended period, but pretty cloudy out beyond a couple of quarters.
Do you have a better crystal ball, Kevin?
If I did, I wouldn't be in this business, Steve.
Okay. Thanks. Good question. Anything else? Thanks.
No, I'm all set. Congrats.
Thanks very much. Nice to hear your voice.
And our next question comes from Randy Reese from Avondale Partners.
Good morning. I was I've been impressed by the ramp of headcount in Corporate Finance And Restructuring And Econ as well, it supports even though there's some potentially unsustainable surge of business, you have an underlying belief in the strength to some degree, how when you do increase headcount there, how flexible is that when I see an increase like that, Is there a portion of that that is attached specifically to engagements and would go away pretty quickly, or do you have to be a little more careful about making decisions about adding heads in that business? Because of the because you can't flex it as quickly?
I think it look, I think it's a mixture of 2, if I could, could comment on that, right? And let me use this as a pivot to making sure I underscore a strategic point, which is look, when we're committed to organic growth, which we are, we are committed to adding great heads and keeping them even if the business isn't strong for a few quarters. And I think that is the essential element of organic growth. And you have to have a belief that with the right best heads, if you put them in the right places where we have a right to win, you keep those people even if times are slow and My experience is the slow periods don't last for more than 12 or 18 months. Great professionals figure out what to do.
And so we that's the strategy we're on. Now there's a second part, which is in professional services firm, there's a certain amount of turnover at any point. And you hire people in, there's 15% turnover a year on the junior lengths as people go back to graduate school or all that sort of stuff. And so that is actually, that is also a phenomenon. So it's not like when you hire 18% new people, if the business goes totally away, you're stuck with everybody because some there's natural attrition on that.
But we are going to stick with the people who we believe are key to the future. That is a commitment we're making to those people. It's a commitment we're making to our future. It's frankly we've made over the last 2 years. And in a couple of quarters, it didn't look so good based on it.
But if we hadn't made those core commitments, we wouldn't have had the capacity energy and elsewhere to do what we're doing now. And so that's part of what we're doing. It may create a little bit more volatility in quarters. But I think it is part of what leads me to believe we are a sustainable growth company on a long term basis. So did that help Randy?
Yes. One more question really quickly. If we look over the last few years in FLC, there have been periodic dips of utilization rate into the low 60s. And they're not always usually not driven by just seasonal headcount additions, but significant fluctuations in activity levels. Wondering, you made some progress there this quarter after being low utilization in the second half of last year.
Wondering what your strategic intent is as far as an objective for utilization rate in FLC?
Yes. I'm not sure I we have specific utilization metrics that we we talk about, but maybe I can give a more, I mean, in terms of intent. But let me give a maybe a summary of sort of the conversations that I've had with the leaders there and the leaders are having among themselves. I think where we have low utilization where we believe we have a business that is in the process of establishing itself. We'll tolerate that for extended period of time.
Where we have loaded utilization in a great business, like right now, I think in construction in North America, we're not having the utilization rate that we've historically had. That's a great business. We're not going to do stupid things. And now where we have low utilization in businesses where we don't really have a theory on what the right to win is then we need to take action on that. And we as you know, we sold off our TSC business in in Brazil.
We took some action in some overseas markets and so forth. So it's a mixture, but I think again, look, FLC is one of the strong powerful core businesses for us. I think we have a real right to grow it in the U. S. And overseas.
It's a matter of how do we make the right bets do we make sure we monitor those and make sure they're working and then read that? And then, of course, correct, if we make a mistake along the way. And I think that's how we're thinking about it. Does that help?
Yes. Thank you very much.
Thanks very much.
And our next question comes from David Gould from Sidoti.
Good morning, David.
Hi, good morning. Just a little bit by way of follow-up actually to that last question. So Steve, just thinking more broadly, I mean, I guess a few goes in goes out to the quarter and it sounds like obviously 2nd quarter going well, with some maybe question some of the business lines about sustainability. But if we layer that over over, how to think about you having to continue to balance that utilization with hiring. How should we look at that?
What can you give us a sense for hiring plans in, some of the business lines, yeah, anywhere you be adding this year, particularly, in light of the demand you have and what you view is sustainable?
Let me just check here whether we do, do we give hiring, do we give our hiring plans out? No, I guess we don't. I'm going to ask and the colleagues here.
Even if it's broad brush?
Yes. Look, I would say, broad brush, we are committed to growing headcount in look at every business, we have opportunities to grow. What you'll see is that sometimes you can't see that in the numbers. Like for 1 year, I think the 1st year I was here, we grew headcount in a subset of strat comms substantially, but we also shrunk headcount in another subset of Stratcom. And so it looked like the headcount for Stratcom was flat.
And then last year, we continued to grow headcount in the places we were betting on in Stratcom. And because we didn't have the offset, it looked like we were growing. And I'd say that's the strategy we are following. We don't have it's sort of hard to think about our business because we have we have 5 segments that we report on, but each of those segments have sub segments. And then frankly, each of those sub segments have geographies, right?
I mean, our position in the talent level we in Spain isn't the same thing as the talent level we have in Morocco. Actually, we don't have operations in Morocco. But And so you make these individual bets and you say, okay, we like this team. They're doing the right stuff. Let's let's we believe they can grow.
They can't grow without headcount. So support them and you make different decisions in other places. So that is the planning process that we go on. And, and, I think it's an important it's a pretty basic process, but I think it is actually the most important process in some ways in a professional services thing because forecasting revenue is a hard thing, but you can actually forecast and deliver on growth of people. And then if you make the right bets over time, at least most of the bets turn out to be right over time you grow the business.
So that's how we're thinking about that. And that's true within FLC as well as I would say that's true for every segment. Does that help David a
little bit?
It does. I guess from
looking at or sort of more curious on is when we think about utilization, I mean particularly you're thinking about economic consulting at 79%. Historically not a sustainable level. Obviously, there were some factors to lead you to think there'll be some cooling there, but basically how does one managed that? Could it go another quarter at 79% if need be?
Well, we'd love it to go another quarter. We'd love it to go another 10 years at 79%. I doubt it will is my guess. I mean, Kathy mentioned, we had just some stuff that surged in the first quarter there, and that some of which ended actually by the end of the quarter or right beginning of this quarter. I can't remember which.
So I doubt we will continue at that run rate. But let me just say 2 things. I mean, we're not the thing that's interesting about organic growth, right? I mean, you don't to run at 79% to be building a business, both for your professionals, but also for your shareholders. I mean, if you add staff and add leverage to your senior people and the additional staff is reasonably utilized and lower than your the average utilization goes down, your profits can actually go up.
And one of the issues we had in the past was our we had allowed our leverage ratios to get out of whack on the low One of the things we're doing is rebuilding our leverage ratios. So I think in some of our businesses, you could say, at the same utilization rate, we're actually making more money than we did 2 years ago. And that's because of increased leverage. And so we're looking not at utilization as a single metric. It's not a really good metric by itself not a really very good metric to think about how to build a firm or to build shareholder value.
I mean, you got to look at it for your tiny tolerable utilization for an extended period of time. You have to ask questions, but we're looking at building businesses and building over a medium period of time real returns to our shareholders. And so utilization is a kind of funky metric in that regard. So I'm pretty comfortable that if econ drops utilization, we're not going to do something stupid there. We got a great business there and we're investing in that business.
And I just asked the guys in econ, where else can we grow and where can we extend And where we have any good ideas, we're going to continue to invest. And if it means a quarter or 2, the utilization levels are lower, if in in 6 12 18 months, our profits are higher and our brand is even higher, I'll make that trade off anytime. Does that help?
And our next question is from Timothy McHugh from William Blair.
I'm good. How are you doing?
We're doing good. Thanks.
All right. A couple of questions, I guess, one, let me just ask on the restructuring side. You've talked about it in a couple of different ways, but I think you were a little cautious on how significant the energy sector energy and mining, if I throw them together. Might be for you guys in terms of given this relative to the strength you had last year. And seen you win a few things.
I guess, were you just surprised at the things you won and the strength you've seen there? I mean, has your view changed on I guess, how significant that might be for you guys?
Yes. Look, I think there's several questions embedded in that. Let me take a crack and Kathy, correct me if I say something wrong. I was surprised. Not about our strength in those sectors, but just how strong this quarter was.
And remember, we were cycling really strong year last year. I think we did better than the market as far as we can tell last And so even though we had we know the strength we have in mining and we know some of the strengths we have in energy, we were not predicting as strong a performance as we had in this first quarter. And part of that was that a lot of the stuff that hit this quarter wasn't even visible to us really in the quarter. Our January was very consistent with our plan for the year. And then as I mentioned, like in the energy side, we sold a whole bunch of stuff after the 1st the year, which I think we had in some backlog as theoretical, but they were timed for later in the year.
Some of this stuff moved faster than we thought. And I think that's the dynamic nature of this. My sense is that's a there's a dynamic nature in all our businesses and then a lot of times we've gotten caught on the negative side of here. I think we got caught on the positive side. We did not anticipate as strong as the business was going to be in the first quarter.
And even into January, that wasn't a projection. So did that start to address part of your question?
Yes. I think I was trying to get to the sustainability of it, too.
That's the crystal ball question that Kevin also asked. And look, we don't know. You have visibility into the 2nd quarter. And then you have backlog reports, which are the same backlog reports that we used to forecast our first quarter. And I think I think some of the work we did in this first quarter was stuff we anticipated doing later in the year.
So in some one sense, we borrowed against later in this year. And then some of this is incremental. So, we're certainly not anticipating at this point 4 quarters like this 1st quarter. Kathy, you want to add something
Yes. Just in terms of the energy sector, I think the one thing that was a little bit surprising is we won more work on the debtor side. It may have been saying last quarter that our sweet spot has been on the creditor side.
We won that.
And mining and a few in energy. And on the data side, that work can go on a little bit longer and it's usually a little bit at a little bit higher rate. So again, that's maybe not the crystal ball again, but that's a bit of a shift. What we've seen historically.
But Tim, we feel very good. Look, let me say this again. I just want to reiterate, although we were cautious on how much incremental improvement us. I think we have the strongest professionals in their practice of anybody. It's a matter of just how much we performed last year and not assuming sustained outperformance.
We got surprised. We got even more sustained outperformance in the first quarter. I'm reluctant to say we're going to just, I'd like Bryce Harper to continue to hit 9 home runs in every 14 games this year, which would set a new I think most people would think he's unlikely to continue at that rate, although he's a great professional. He's maybe the best baseball player in the world. But he's not going to hit that many home runs.
And I think that's the same thing we got to believe here, but we have a lot of confidence in this business, not just in the U. S. But around the world. And we're excited about it over the rest of this year and going forward. Does that give some help, Tim?
Sure. And
I guess just because it's been in the press, I think it's probably and I'm getting questions. You mentioned the change in the leadership. And I think there's a couple of people who left the ranks
in the corporate finance
segment. Their names were attached to some big kind of more retail type of stuff last year. What's the risk, I guess, or the impact around that? And does that Is that any part of what the commentary you're giving about the run rate I guess you would expect going forward?
Yes, that's not the key part of the commentary of the run rate going forward. But look, I think it's, look, we're in professional services business. You gain lots of people, you sometimes lose people, a lot of the people you lose, you don't you're not concerned about it's mutual or it's the normal attrition and sometimes you people who you really like. And when you lose people you really like, that's that hits you. It hits you emotionally, really going to hit you emotionally in terms of particularly the people they work with closely and because contrary to popular belief consultants are human too.
And there's tight relationships and sorts of stuff. And so you have to work through those things when you lose good people. I mean, look, from an investor perspective, you got to put some perspective on that, too, right? I mean, we have gained a huge number of great people over the while. I mean, you never want to lose people you want to keep.
And my sense is over the while, we've done way better than the average firm on that. Our attrition rate overall is lower than the firm I came from, which was a great firm. It's lower than the the averages that Holly gets from some industry sources. Net net over the last years, for a long time, we've been net gainers, and particularly in the last couple of years, as we've committed to organic growth, we've been net gainers. We've been we've had people return from other firms who had left us earlier.
We've had people just call us from other firms and say, we want to join you guys. You guys are moving. And so it's always sad when you lose good people. And we will fight to make sure we don't have too many good people leave ever. But from a perspective, I would say net net, we are moving ahead and where our headcount is obviously substantially up and say the practice has never been stronger than it ever has been in the past.
Does that help, Tim?
Yes, that's fair. And then, just one last question. You talked about with economics, the timing of, I guess, one case as you did a bunch of work ahead of a potential trial. That I guess isn't going to end up happening is how much of the strength is really one case? I recognize you can have some big cases, but and trying to think about what was just kind of a more of a steady improvement, if you will, in the economics practice versus if you're highlighting kind of a lift from one case that won't continue trying to can you help us think about how much of an extra lift, if you will, that was adding in the first quarter?
Let me take a crack and then let Kath add any details. It depends on which part of our segment. I mean, I think in general, our econ business is not as hit business as some other businesses where like our
tech business at some points in time has had a very high
concentration ratio and general econ is not that. Now within that, our M and A business, given the prominence of some of the M and A assignments, can have real bikes in any given quarter where it's because we're involved in the biggest M and A cases in the world. And and the stakes are huge. And if you're getting ready for trial in one of those and it's a contested, a major contested thing, there can be a lot of people on that. So for any small period of time, we can we as a percentage of our M and A revenues, one client can spike as a percentage of our overall econ revenues is less.
And of course, on the firm, it's less. So that's the general answer I'd give. I don't know if you want to give any more specifics, Kath or not.
Yes. No, I think it certainly was maybe part of our unexpected ramp up in February March. So in terms of the outperformance that we saw, it was certainly part of it. But if you look at just our internal metrics in terms of numbers of cases and average size per case, They certainly have been ticking up from the end of the year kind of at a steady pace. So it's more than 1.
But again, we pointed out that one in terms of its, it's kind of a quick spurt in February, March, and and how it impacted our expectations for those months. Okay. Thanks.
Thanks Tim.
And our next question comes from Tobey Sommer from SunTrust.
Morning. This is Duane Kim on
for Toby. This is Duane Kim on for Toby.
Hey, Juan. How are you?
What is your expectation for CapEx this year and maybe give us a sense for how much would be tech related?
I think currently, we're estimating our CapEx to be about 35 to 45 $1,000,000, which is what we thought at the end of the year. We'll continue to take a look at that as time goes by, but that does include our estimate around technology spending, which is not, it's a part of it. But in the other part of the spending, that includes our infrastructure spend, our facilities, lease spending, etcetera. So it does include some of that. And as I talked about, some of the investment that we're spending will not be capitalized, but will be expensed certainly as we're in the predevelopment stage.
So there'll be higher expense, which we'll see in the P and L, and then somewhat of a normal trend within the capital portion.
Got it. Thank you.
Thanks, Juan.
And that appears there are no further questions at this time. Mr. Gunnar, I'd turn the conference back to you for any additional or closing remarks.
Thanks, everybody. Thanks for your attention and thanks to everybody for your support over this last while. I mean, let me maybe just close with echoing some of the comments, Kathy, that you made at the end of your speech. This was a terrific quarter and that's nice in and of itself. I think we really have 2 messages here.
One was the one that Kathy wanted to make sure you heard, which take the first quarter and multiply it by 4. And because we have some one off factors in there and there's a cyclical back and there's some cyclical forces in the particularly in the second half of the year that could cut against us and we need to take those seriously. And so that's the one message. The other message though is the one that those of us who are not trying to just forecast quarters, but are trying to say, where's the company going? I think I think that you should take away from this or at least I take away from this is, is this is a real testament to what our teams are doing in the marketplace.
And yes, I know some of you have concerns sometimes we invest headcount and they're sitting there idle and we're going to get that wrong sometimes. We're not going to get that right all the time. But my experience in professional services, if you have terrific people and you bet behind those people and you give them the license to go follow their head challenge the propositions, make sure they're real, and then give them the headcount to try to build a business. And yet, they're going to succeed a lot of the time. And they might not succeed in the first quarter, but they're going to succeed a lot of the time.
And if you have that ethos, then you have challenges along the way, but you have that ESOs in that level of support. You can build a business. At least if you have great people to start with, and we do, we have great people, lots of places around the world. And that is what we're doing. This quarter, it happened to show up really terrifically.
Some other quarters, it may show up on the other side. The real question to me is sustainably is it going in the right direction. And I believe it is. We will be from a investor's point of view, we will clear if we hit the midpoint of our range, as Kathy said, this will be the largest 2 year gain in EPS in a long, long time. Think just as importantly, from our team's point of view, it reinforces a sense that we're going places and that we're building stuff.
And even in places where we've been troubled in past, we can turn things around and build stuff. And that to me is a great proposition for our people and for building an enterprise. And that's what leads me excited right now. So thank you for your time and support and we look forward to engaging with you further.
That concludes today's call. Thank you for your participation. You may now disconnect.