Good day, everyone, welcome to the FTI Consulting First Quarter 2016 Earnings Conference Call. As a reminder, today's call is being recorded. Now for opening remarks and introductions, I'll turn the call over to Mollie 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 21E 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 our 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 10-K and in our other filings filed with the SEC. Investors are cautioned not to place undue reliance on any forward-looking statements which speak only as of the date of this earnings call and will not be updated. During the call, we will discuss certain non-GAAP financial measures such as Adjusted EBITDA, Adjusted Segment EBITDA, total Adjusted Segment EBITDA, Adjusted Earnings Per Share, 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 Gunby, 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 Officer, Steve Gunby.
Thank you, Mollie. Thanks to everyone who joined the call this morning. As usual, let me say a few words up front, I'm going to turn it over to Cathy, who will take you through the details of our first quarter and our updated outlook for the year. After that, the two 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.
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. 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, a whole lot of those things cut positively this quarter. Those are things such as bad debt recovery, translation gains, the timing of success fees. Those all cut more positively than we expected in this quarter. 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-term basis because it's kind of just happened to cut in our favor." I put those aside and I say, "Nice to have." Cathy will talk a little bit more about those items, their benefits, Adjusted EPS in more detail in her remarks. I set those aside. A second contributor to our strong results, see that partially as part of the drivers of the results in Corp Fin, were due to some cyclical factors that as we all know, exist in some of our businesses. 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 it hit in 2014, and some of the sectors of our economy are seeing particularly increased activity. Part of the cause of the growth in Corp Fin was some cyclical activity. You can think about that as a second key point. Let me move to the third 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. A big part of the results in this quarter, were neither of the two things I just mentioned. They're neither the one-time factors that happened to cut in our favor this quarter or the cyclical factors.
Rather were the results of major efforts by individuals in this company and key groups of people to invest behind great businesses, to invest 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 were the root cause of a huge portion of the outperformance this quarter, and 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. Let me spend a little bit more time talking about that, and I'll illustrate that particularly with the two segments that outperformed this quarter the most, and with one of the regions.
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. Let me start with CorpFin because we just talked about CorpFin. In CorpFin, of course, there are more opportunities due to some of the cyclical factors I just mentioned. Opportunities are just 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 strengthen 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 that caused the increased activity in mining this quarter.
It was the efforts of our mining teams and the capabilities of our mining teams and the investment they've made in building brands and driving results in the past that led us to win a disproportionate jobs of minings. I think you know, there's a whole list of those, but they include Peabody Energy, Queensland Nickel, Arch Coal, among a bunch of other ones. 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.
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, but to win a disproportionate number of jobs. I believe right now we're working on 33 energy assignments in CorpFin right now, with more than 10 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 oil field services to manufacturing to parts and equipment. Yes, there are more opportunities than there were a year or two ago, but you 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 CorpFin 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, or they can say, "No, no, we have really a right to win. We have great people. We have something relevant for the market. We have ways to grow our capabilities. We have ways to grow our visibility in the market, and they can do something about it." Our team down there chose to do something about it.
The consequences of those efforts is that we are now leading the most visible restructuring case in that market, one of the most visible ones in years, called the Queensland Nickel case, as well as supporting the global team in the Peabody Energy operations. We're 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 to leverage our positions or enhance our positions. It's just great to see, not only where we've been historically successful, but places where we've struggled. You can say that other places around CorpFin as well, our investments in growing our non-distressed practices are also working. We've talked about these bets. I think there was some skepticism about multi-year bets.
Three years ago, two years ago, we were losing money in some of those bets in Europe. We had a view that by this year we'd have those moving to profitability, and they are profitable. More importantly, they now create a platform for future growth, for future investment, for building. That is pretty exciting. That's all on CorpFin. 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. Revenue is 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 just the sheer capability of those organizations involved there.
For example, I think most of us would say the M&A market is down year over year. Yet we had the strongest M&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. Our Compass Lexecon subsidiary had advised on the vast majority of the largest M&A antitrust-related assignments. We can't mention them all, but three we can mention include the Staples-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 selected. That was the primary driver of results in the M&A side. Nor was the success in econ limited to M&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 in the 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 two, significantly outperformed in Q1 2016 versus Q1 2015. For the most part, we can't trace that to one-off factors or cyclical factors, but mainly to the persistent efforts by world-leading professionals to build a business. Those 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.
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 feeder practice, you look at the complex litigation investigations practice. We are supported by outstanding client service delivery professionals in key markets around the world, and we get drawn into assignments. 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. 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. Yet our EMEA business grew revenues 12% year-over-year, and EBITDA grew substantially. The 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. If you do that, including sustained commitment to attracting great people, promoting people, promoting our brand, developing people, that doesn't work every quarter. If you do that on a sustained basis, they make a difference. Before I turn it over to Cathy, I want to make three other different types of points.
First of all, I've only talked to a couple 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 this factor this quarter was that no businesses underperformed our expectations. That seems like a strange thing to note, but if you think about the volatility of our business, that's actually hard to do. In almost every quarter, somebody, because of the volatility of our business, underperforms. Zero significant underperformance doesn't happen automatically. I think that this quarter had not only outperformance by a couple, but no place where we significantly underperformed on any place.
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 the efforts we have underway to fully realize the power of this business. Strategies to both maximize the power of our market-leading 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. 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&D, for our Ringtail software and our Radiance software.
Other than that, unfortunately, we will not be able to update you in any other way today. More on that later in the year. Lastly, I want to make a more personal note and thank Bob Duffy, who 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. 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 a slow Corp Fin market, we've committed to grow the talent in that business and done so successfully.
We reinvested, we retained people, we promoted people, we attracted people from competitors and other places. We invested in adjacencies. We had people rejoin the firm. We've grown the capabilities and headcount in that group enormously. Headcount's 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. 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. We have 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.
We have a group of leaders there who 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. 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 Cathy, who's 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 the company. Turning now to slide four. Revenues for Q1 were $470.3 million, up 8.8% from prior year, and up 6.4% from Q4, almost all of which was organic. Excluding an estimated negative impact of foreign currency translation, or FX, revenues increased 10.4% compared to the prior year quarter. Adjusted EBITDA in the first quarter was $68.9 million, or 14.6% of revenues, up $10 million, compared to $58.7 million, or 13.6% of revenues in the prior year quarter. Sequentially, Adjusted EBITDA was up $33.5 million from $35.2 million, or 8% of revenues in Q4 of 2015. Fully diluted or GAAP EPS were $0.73 compared to $0.57 in the prior year quarter, and $0.25 in Q4 2015.
First quarter EPS included a special charge of $5.1 million for severance related to the previously announced headcount reductions in our technology segment, and a $1 million 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 and $0.02 respectively. Adjusted EPS for Q1, which 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 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 quarter.
This was partially offset by our current quarter effective tax rate 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 rate by about four percentage points. Turning to our segments on slide five. In Corporate Finance & Restructuring, revenues in the quarter increased 19.7% to $127.2 million, compared to $106.2 million last year. Excluding the estimated negative impact of FX, revenues increased $23 million or 21.6% compared to the prior year quarter. This increase in revenues was driven primarily by higher demand and realized rates for the segment's distressed services in North America. We continued 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.
Distressed activity was strong in January and 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. Sequentially, revenues were up 14%. Adjusted Segment EBITDA for the quarter was $31.6 million, or 24.9% of revenues, as compared to $22.5 million or 21.2% of revenues in the prior year quarter. The quarter over prior year quarter increase in Adjusted EBITDA and margin was driven primarily by 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 $18.9 million, or 17% of segment revenues in Q4, to $31.5 million or 24.7% of 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 work in the first quarter. Moving to Forensic and Litigation Consulting, or FLC, revenues declined 3.5% to $119 million in the quarter, compared to $123.3 million in the prior year quarter. Excluding the FX impact, revenues decreased by $2.6 million, or 2.1% compared to the prior year quarter. Revenue declines in the quarter versus 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 FIDA practice.
As more mortgage-backed security cases continue to be a strong contributor. We also saw improved demand for our investigation services in North America, EMEA, and Asia. Sequentially, revenues were up 2%. First quarter EBITDA was $19.8 million, or 16.6% of FLC revenues, compared to $22.1 million, or 17.9% of segment revenues from the prior year quarter. The decline in Adjusted 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 FIDA practice, coupled with lower bad debt and reduced personnel costs related to health solutions overhead reductions taken over the course of the prior year.
On a sequential basis, Adjusted EBITDA increased from $8.8 million, or 7.5% of segment revenues in Q4, to $19.8 million, or 16.6% 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&A costs, largely related to reduction in bad debt expense. In Economic Consulting, revenues increased 23.2% to $130.7 million in the quarter, compared to $106.1 million in the prior year quarter. Excluding the estimated negative impact of FX, revenues increased $25.9 million or 24.2%. The increase in revenues for the quarter was driven by two key factors. The first being substantially higher demand for our M&A related antitrust services.
As Steve mentioned, we had our highest quarter of M&A-related revenues ever in this business, driven by an increase in the number and average size of engagements. 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 10.2%. Adjusted segment EBITDA was $21.3 million or 16.3% of revenues compared to $11.6 million or 10.9% of revenues in the prior year quarter. EBITDA margin improvements were driven by higher utilization in North America, higher realized bill rates in EMEA and North America, 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 $18.8 million or 15.9% of segment revenues in Q4 to $21.3 million or 16.3% of segment revenues this quarter.
Turning to technology. Technology revenues declined 11.7% to $48.3 million versus $54.7 million in the prior year. Excluding FX, revenues decreased by $5.7 million or 10.3% from the prior year quarter. The year-over-year revenue decline was largely due to reduced demand for both cross-border investigations and financial services litigation. This was partially offset by a significant increase in M&A-related second request activity. As we have seen in the past 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 hard to fill the pipeline and continues to win new engagements at a solid pace, but not at the same size and scale. As you know, in the M&A space, where we have seen an uptick in activity, these engagements usually tend to be much shorter in duration than our investigation and litigation work.
Sequentially, revenues were up 3.7%. Adjusted segment EBITDA for the quarter was $7.8 million or 16.2% of segment revenues, compared to $10.1 million or 18.4% 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 by a timing-related decline in research and development expenses. On a sequential basis, Adjusted EBITDA increased from $6 million or 12.8% of segment revenues in Q4 to $7.8 million or 16.2% of segment revenues this quarter. Turning to our last segment in Strategic Communications, revenues increased 7.1% to $45.1 million in the quarter, compared to $42.1 million in the prior year quarter.
They increased $4.4 million or 10.4% year-over-year excluding FX impact. The increase in revenues was primarily driven by higher demand for the segment's financial communications and public affairs offerings which was partially offset 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 $6.1 million, or 13.5% of segment revenues, which was relatively consistent with our prior year quarter results of $5.8 million or 13.7% of segment revenues. On a sequential basis, Adjusted EBITDA decreased from $7.6 million or 15.6% of segment revenues in Q4 to $6.1 million or 13.5% of segment revenues this quarter. Turning to our geographies on Slide 6.
In North America, revenues were driven by the strong U.S.-based demand we mentioned in both our Corporate Finance and Economic Consulting segments. In EMEA, our Economic Consulting segment was the largest driver of positive year-over-year revenue and Adjusted EBITDA, with particular strength in our international arbitration and complex dispute 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 America continues to lag with softness in our investigations and construction solutions practices. Turning to Slide 7, our cash and cash equivalents were $114.5 million at quarter end. In our first quarter, as you know, we normally consume cash as we make our annual bonus payments.
Net cash used by operating activities was $33.1 million, compared to net cash used by operating activities of $51.3 million in the prior year quarter. This $18 million reduction in our use of cash year-over-year is largely reflective of our lower DSO in the quarter of 98 days compared to 101 days in the prior year quarter. During the first quarter, we spent $2.9 million to repurchase 85,100 shares at an average price of $34.12. We borrowed an additional $7 million under our short-term revolving credit agreement to cover our annual bonus payments previously mentioned. Our net debt, defined as debt minus cash, increased by $42.3 million from December 31st, 2015, but declined by $93.2 million from March 31st, 2015 or the same time last year. Turning to our revised guidance, I would like to address two questions. First, what drove our over-performance in the first quarter?
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 that we expected to receive later on, lower than normal bad debt expense, 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 remeasurement of receivables and payables that are to be settled in different currencies. To be clear, these items were not significant individually and could be for or against us in any given quarter.
In this quarter, they all benefited us. Second, 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 the restructuring and the M&A space. 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 $1.84 billion and $1.87 billion. Turning to the second question, what factors did we consider in developing our new guidance range? As just mentioned, we considered 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 better visibility into the second quarter, but limited visibility into the second half of the year. We considered our evaluation of external market factors. Although we would like to have a crystal ball in the short-term horizon, we are still impacted on both the high and low side of our guidance range by external event-driven activities. The external factors that impact our ability to predict the back half of the year with more certainty include, among other things, declines or increases in M&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. 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 one segment and negatively impact another. The timing and impact of which is hard to predict for any one segment in the short term. Beyond these macro factors, there is always some uncertainty regarding the timing of the roll-off and replacement of big event-driven casework, which certainly helped us in the first quarter. As an example, part of the econ run-up was due to an acceleration of some pretrial work in February and March on a large antitrust engagement. As it turns out, the case will not go to trial, and we will not be called on to testify. As quickly as that additional work hit, it will just as quickly drop off.
That said, to give a little more color by segment, in Corporate Finance & 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, we do see new opportunities and energy, as Steve mentioned. In FLC, we are seeing some strong demand in our North America FIDA practice and in both North America and EMEA investigations practices. 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.
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&A activity despite our record first quarter as some large M&A-related antitrust cases that drove record results in Q1 have rolled off, as I illustrated previously. According to Thomson Reuters, worldwide M&A fell to a two-year low in the first quarter of 2016. It appears that increased U.S. regulatory scrutiny may lead to a substantial decrease in the number of companies willing to contemplate large-value M&A transactions.
In fact, deals over $5 billion were down 24% compared to the prior year quarter, according to Thomson Reuters. These, combined with the uncertainty surrounding Brexit, could create a chill in the European M&A market. For technology, as Steve mentioned and we discussed in detail last quarter, this industry is going tremendous change, and we are continuing to evaluate our options. We are ramping up our investment in the development of both our Ringtail and Radiance platforms, which will partially offset cost savings from the actions taken during the quarter. Steve mentioned the spending will begin to ramp up in Q2. At this time, we currently don't have any large multi-jurisdictional engagements in the pipeline and are cautious about M&A-related second request activity.
Additionally, next quarter, we will have some tough comparisons to our prior year in M&A revenue, as we had an unusually large M&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 growing public affairs business. Additionally, our energy services may continue to be impacted by low oil prices as our small and mid-cap clients in this space reduce discretionary spending. Turning to our investment spend, which we outlined last quarter, it is important to note that two-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 a great first quarter, which is likely not to be sustainable at the same rate given the confluence of events that led us here. We still see a strong second quarter given our current view of backlog activity 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, we believe that our full-year guidance contemplates both the up and downside of these factors as we see them today. On a middle ground within our guidance range, our back half EPS could be 50%-60% of 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 four, 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 two years, at the midpoint, we will deliver about a 40% increase. As Steve said, we are moving forward by the power of our people. We are making steady progress that is not all driven by cyclical performance or unexpected items. We are very excited about our first quarter results and the progress we are making across the firm. With that, we will open up the call for your questions. Thank you.
If you would like to ask a question, please signal by pressing star one on your telephone keypad. If you're using a speakerphone, please make sure your mute function is turned off to allow your signal to reach our equipment. Again, it is star one to ask a question. We'll take our first question from Kevin McVeigh from Macquarie.
Great. Hey, congratulations on a great outcome on all fronts. Hey, Steve or Cathy, I wonder, can you help us understand on the Corp Fin side, how much of that is kind of distressed versus non-distressed? As we think about this restructuring cycle, how should it compare to the last two in terms of duration?
Cathy, how's your crystal ball?
Crystal ball. I think in terms of the first quarter, non-distressed is still part of the picture, but it's largely related to our restructuring engagements as we talked about in both retail, media, energy, et cetera.
Mining.
Mining. I think, as I mentioned, we do have a backlog, and a strong backlog into the second quarter. 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. I'd say about 70% in the quarter really relates to the distressed activity.
Got it.
Kevin, in terms of the crystal ball, look, as you know, I'm not from this industry, but I talk to all our guys-
Yeah
Even they don't have-
Sure
a crystal ball. I think the thing that would give you encouragement over the long term is we still have a very loose money situation out there. 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. If you say, okay, sometime over the next X years, we're going to get back to average and maybe above average, that gives you a bullish thing. The reality is, though, we have loose money out there. If oil prices go back up and commodity prices go back up, the things that are fueling the current mini boom, or the boom in those things could go away. You don't know.
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 say they could. We don't expect that in the second quarter, but even by the second half or 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.
Our next question comes from Randle Reece from Avondale Partners.
Good morning, Randy.
Good morning. I've been impressed by the ramp of headcount in Corporate Finance & Restructuring and Econ as well. Supports even though there's some potentially unsustainable surge of business, you have an underlying belief in the strength to some degree. 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 you can't flex it as quickly?
Look, I think it's a mixture of two, if I could comment on that, right? 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. I think that is the essential element of organic growth. 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. My experience is the slow periods don't last for more than 12 or 18 months. Great professionals figure out what to do. So that's the strategy we're on.
There's a second part, which is in professional services firm, there's a certain amount of turnover at any point. You hire people in, there's 15% turnover a year on the junior ranks as people go back to graduate school or all that sort of stuff. That is also a phenomenon. It's not like when you hire 18% new people, if the business goes totally away, you're stuck with everybody because there's natural attrition on that. 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 a commitment we've made over the last two years, and in a couple of quarters, didn't look so good based on it.
If we hadn't made those core commitments, we wouldn't have had the capacity and energy and elsewhere to do what we're doing now. 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. 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 usually not driven by just seasonal headcount additions, but significant fluctuations in activity levels. You made some progress there this quarter after being at low utilization in the second half of last year. I'm wondering what your strategic intent is as far as objective for utilization rate in FLC.
Yeah. I'm not sure we have specific utilization metrics that we talk about, but maybe I can give a more, in terms of intent. Let me give 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 an extended period of time. Where we have low 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.
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. As you know, we sold off our TSC business in Brazil. We took some action in some overseas markets and so forth. It's a mixture. 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, how do we make sure we monitor those and make sure they're working and then re-bet and then course correct if we make a mistake along the way, I think that's how we're thinking about it. Does that help?
Yes. Thank you very much.
Thanks very much.
Our next question comes from David Gold from Sidoti.
Morning, David.
Hi, good morning. Just a little bit by way of follow-up, actually, to that last question. Steve, just thinking more broadly, I guess a few goes ins and goes outs to the quarter, and it sounds like obviously second quarter going well, with some maybe questions, some of the business lines about sustainability. But if we layer that over how to think about you having to continue to balance that utilization with hiring, how should we look at that? Can you give us a sense for hiring plans in some of the business lines anywhere you might be adding this year, particularly, in light of the demand you have and what you view as sustainable?
Let me just check here whether we do we give our hiring plans out? No, I guess we don't. I'm just asking the colleagues here.
Even if it's broad brush.
Yeah, look, I would say broad brush, we are committed to growing headcount. Look, in every business, we have opportunities to grow. What you'll see is that sometimes you can't see that in the numbers. Like for one year, I think the first year I was here, we grew headcount in a subset of Strategic Communications substantially, but we also shrunk headcount in another subset of Strategic Communications. It looked like the headcount for Strategic Communications was flat. Last year, we continued to grow headcount in the places we were betting on in Strategic Communications, and because we didn't have the offset, it looked like we were growing. I'd say that's the strategy we are following. It's sort of hard to think about our business because we have five segments that we report on, but each of those segments have sub-segments.
Frankly, each of those sub-segments have geographies, right? Our position and the talent level we have in Spain isn't the same thing as the talent level we have in Morocco. Actually, we don't have operations in Morocco. You make these individual bets and you say, "Okay, we like this team. They're doing the right stuff. We believe they can grow. They can't grow without headcount, so let's support them." You make different decisions in other places. That is the planning process that we go on. I think 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.
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. 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?
Yep, got it. It does. I guess from looking at our sort of more curious on is when we think about utilization, and particularly thinking about Economic Consulting at 79%, historically, not a sustainable level. Now, obviously, there are some factors that lead you to think there'll be some cooling there. Basically, how does one manage that? Could it go another quarter at 79% if need be?
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. As Cathy 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. I doubt we will continue at that run rate. Let me just say two things. The thing that's interesting about organic growth, you don't have to run at 79% to be building a business, both for your professionals, but also for your shareholders. If you add staff and add leverage to your senior people, and the additional staff is reasonably utilized and lower than your current, the average utilization goes down, your profits can actually go up.
One of the issues we had in the past was we had allowed our leverage ratios to get out of whack on the low side. One of the things we're doing is rebuilding our leverage ratios. I think in some of our businesses, you could say at the same utilization rate, we're actually making more money than we did two years ago. That's because of increased leverage. We're looking not at utilization as a single metric. It's not a really good metric by itself. Not even really a very good metric to think about how to build a firm or to build shareholder value. You got to look at it, if you're tiny, terrible utilization for an extended period of time, you have to ask questions.
We're looking at building businesses and building over a medium period of time real returns to our shareholders. Utilization's a kind of funky metric in that regard. I'm pretty comfortable that if Economic Consulting drops utilization, we're not going to do something stupid there. We got a great business there, and we're investing in that business. I just ask the guys in Economic Consulting, where else can we grow and where can we extend? Where we have any good ideas, we're going to continue to invest. If it means a quarter or two utilization levels are lower, if in 6 and 12 and 18 months our profits are higher and our brand is even higher, I'll make that trade-off anytime. Does that help?
It does. Perfect. Thank you.
Our next question is from Timothy McHugh from William Blair.
Morning, Tim. How are you?
Hi. 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 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. I've seen you win a few things. Were you just surprised at the things you won and the strength you've seen there? Has your view changed on how significant that might be for you guys?
Yeah, look, I think there's several questions embedded in that. Let me take a crack, and Cathy can correct me if I say something wrong. I was surprised not about our strength in those sectors, but just how strong this quarter was. Remember, we were cycling really strong year last year. I think we did better than the market as far as we can tell last year. Even though 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. Part of that was that a lot of the stuff that hit this quarter wasn't even visible to us early in the quarter. Our January was very consistent with our plan for the year.
As I mentioned, like in the energy side, we sold a whole bunch of stuff after the first of 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 there's a dynamic nature in all our businesses, and in a lot of times we've gotten caught on the negative side of that. 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. Even into January, that wasn't the projection. Did that start to address part of your question?
Yeah. I was trying to get to the sustainability of it, too, more so.
Well, yeah. That's the crystal ball question that Kevin also asked. Look, we don't know. You have visibility into the second quarter, then you have backlog reports, which are the same backlog reports that we use to forecast our first quarter. I think some of the work we did in this first quarter was stuff we anticipated doing later in the year. In some sense, we borrowed against later in this year, then some of this is incremental. We're certainly not anticipating, at this point, four quarters like this first quarter. Kath, you want to add something?
Yeah. 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. We may have been saying last quarter that our sweet spot has been on the creditor side.
Particularly in mining, we won that.
In mining and a few in energy. On the debtor side, that work can go on a little bit longer, and it's usually a little bit higher rate. Again, that's maybe not the crystal ball again, but that's a bit of a shift from what we've seen historically.
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 we saw this year versus last year when we first forecast this year, it's never been because of a lack of confidence in that practice. I think we have the strongest professionals in that practice of anybody. It's a matter of just how much we outperformed 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 nine home runs in every 14 games this year, which would set a new record. 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, he's not going to hit that many home runs. I think that's the same thing we got to believe here. 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. Yeah. I guess just because it's been in the press, I think it's probably. I'm getting questions. You mentioned the change in the leadership, 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? Is that any part of what the commentary you're giving about the run rate, I guess you would expect going forward?
Yeah, that's not the key part of the commentary of the run rate going forward. Look, I think it's. Look, we're a professional services business. You gain lots of people. You sometimes lose people. A lot of the people you lose, you're not concerned about. It's mutual or it's the normal attrition. Sometimes you lose people who you really like. When you lose people you really like, that hits you. It hits you emotionally, really. It hits you emotionally in terms of particularly the people they work with closely. Contrary to popular belief, consultants are human too, and there's tight relationships and those sorts of stuff. 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. 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 averages that Holly gets from some industry sources. 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 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." 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. From a perspective, I would say net, we are moving ahead and where our head count is obviously substantially up, and I'd say the practice has never been stronger than it ever has been in the past. Does that help, Tim?
Yeah, that's fair. Just one last question. You talked about with Economic Consulting, 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. How much of the strength is really one case? I recognize you can have some big cases, but in trying to think about what was just kind of a more of a steady improvement, if you will, in the Economic Consulting 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 Cath add any details. It depends on which part of our segment. I think in general, our Economic Consulting 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. In general, Economic Consulting is not that. Within that, our M&A business, given the prominence of some of the M&A assignments, can have real spikes in any given quarter where. Because we're involved in the biggest M&A cases in the world, and the stakes are huge, and if you're getting ready for trial in one of those, and it's a major contested thing, there can be a lot of people on that. For any small period of time, as a percentage of our M&A revenues, one client can spike.
As a percentage of our overall Econ revenues is less, of course, on the firm, it's less. That's the general answer I'd give. I don't know if you want to give any more specifics, Cath, or not.
Yeah. No, I think it certainly was maybe part of our unexpected ramp up in February and March. In terms of the outperformance that we saw, it was certainly part of it. 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. It's more than one. Again, we pointed at one in terms of its kind of quick spurt in February, March, and how it impacted our expectations for those months.
Okay, thanks.
Okay. Thanks, Tim.
Our next question comes from Tobey Sommer from SunTrust.
Morning, Tobey. How are you?
This is Kwan Kim on for Tobey.
Hey, Kwan. How are you?
Good. What is your expectation for CapEx this year? Maybe give us a sense for how much would be tech-related.
I think currently we're estimating our CapEx to be about $35 million-$45 million, which is what we thought at the end of the year. We'll continue to take a look at that as time goes by. That does include our estimate around technology spending. It's a part of it, but in the other part of the spending, it includes our infrastructure spend, our facilities lease spending, et cetera. It does include some of that. 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 pre-development stage. There'll be higher expense, which we'll see in the P&L, and then somewhat of a normal trend within the capital portion.
Got it. Thank you.
Thanks, Kwan.
It appears there are no further questions at this time. Mr. Gunby, I'd like to turn the conference back to you for any additional or closing remarks.
Well, thanks. Thanks, everybody. Thanks for your attention, and thanks to everybody for your support over this last while. Let me maybe just close with echoing some of the comments, Cathy, 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 two messages here. One was the one that Cathy wanted to make sure you heard, which is don't take the first quarter and multiply it by four. Because we have some one-off factors in there, and there's cyclical factors, and there's some cyclical forces, particularly in the second half of the year, that could cut against us, and we need to take those seriously. 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 that you should take away from this, or at least I take away from this, is this is a real testament to what our teams are doing in the marketplace. 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.
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, they're going to succeed a lot of the time. They might not succeed in the first quarter, but they're going to succeed a lot of the time. If you have that ethos, and then you have challenges along the way, but you have that ethos and 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? I believe it is. From an investor's point of view, if we hit the midpoint of our range, as Cathy said, this will be the largest two-year gain in EPS in a long, long time. 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. Even in places where we've been troubled in the past, we can turn things around and build stuff. That, to me, is a great proposition for our people and for building an enterprise, and that's what leaves me excited right now. 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.