Good day, everyone, and welcome to the STI Consulting Fourth Quarter and Full Year 2015 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, Senior Director of Investor Relations at FTI Consulting. Please go ahead, ma'am.
Good morning. Welcome to the Consulting Conference Call to discuss the company's 4th quarter and full year 2015 results as reported this morning. Management will be with formal remarks, after which we'll take your questions. Before we begin, I would like to remind everyone that this conference call may include forward looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21 of the Securities Exchange Act of 1934 that involve risks and uncertainties. Forward looking statements include statements concerning plans, objectives, goals, strategies, future events, future revenues, future results and performance expectations, plans or intentions relating to financial performance, acquisitions, business trends, and other information or other matters that are not historical, including statements regarding estimates of our future financial results and other matters.
For a discussion of risks and other factors that may cause actual results or events to differ from those contemplated by forward looking statements, investors should review the Safe Harbor statement in the earnings press release issued this morning, a copy of which is available on our website at www.fti consulting.com, as well as other disclosures under the heading of risk factors and forward looking information in our most recent Form 10K and in our other filings filed with the SEC. Investors are cautioned not to place undue reliance on any forward looking statement 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 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 the accompanying financial tables that we issued this morning. There are two items that have been 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 and PDF of our historical financial and operating data which has been updated to include our fourth quarter and full year financial results. With these formalities out of the way, I am joined today by Steve Gunby, our President and Chief Executive Officer David Johnson, our Chief Financial Officer and Cathy Freeman, our Senior Vice President, Controller And Chief Accounting Officer. The group is sitting in different locations this morning, so I apologize ahead of time if there is a delay in response as we try not to speak over each other. At this time, I will turn the call over to our President and Chief Executive Officer, Steve Gumy.
Thank you, Molly, and thank you all for joining us this morning. Like to start by thanking David. David, I believe this is your last earnings call. It is difficult to see David leave, but I do think the most folks understand and respect his decision to join an organization that is today dealing with some of the world's most difficult and immediate problems. David, you have incredible strengths on behalf of all your colleagues at FTI and myself.
I hope the IRC makes great use of those strengths as you attack those problems. I'd also like to take a moment to welcome Cathy Freeman through our earnings call. As many of you know, Cathy has been with FTI since 2007 as our Controller and Chief Accounting Officer, and she's a member of our Executive Committee. I'm pleased to announce that Cathy, while we continue our search for a permanent successor to David, has accepted the role of interim CFO. We are fortunate to have someone with Kathy's continuity or commitment or experience and just overall strength, Kathy.
In this role. So thank you very much for taking this on. In terms of the agenda for the call, David will take you through our fourth quarter and full year results And then I'd like to take some time to talk about where we are with our respect to our change efforts generally and provide some specifics on a couple of businesses, including technology. David?
Thanks, Steve. Thank you for the kind words and the opportunity serve here. So before I begin, I want to thank the shareholders, analysts and others on this call for the honor and privilege of serving you for the last 18 months. I have tremendous respect for each of you. Your sophistication, integrity and candor enriched every conversation.
And since I know that our audience on these calls includes many of my FTI colleagues, I again convey my thanks to all of you. FTI's professionals are some of the most talented to resourceful, dedicated and resilient people I've ever had the good fortune to work with. Me. I wish you well. Turning now to Slide 4.
Revenues for Q4 were $442,000,000, up percent from prior year and down 3% from Q3, excluding an estimated negative impact of foreign currency translation or FX, revenues increased diluted GAAP EPS were $0.25 compared to $0.02 in the prior year quarter and $0.25 in Q3. As a reminder, fourth quarter a year ago, included a number of unusual items. Adjusted EPS for Q4 were $0.24, which compared to $0.53 in Q3 and $0.04 in the prior year quarter. Adjusted EBITDA in 4Q was $35,200,000 or 8 percent of revenues compared to $56,000,000 or 12.3 percent of revenue and $36,100,000 or 8.5 percent revenues in the prior year quarter. For the year, revenues were one point $7,800,000,000, up 1.3% compared to the prior year, excluding a 2.8% negative impact from FX, organic revenue growth 58, which included $19,600,000 in debt extinguishment charges compared to $1,440,000 in the prior year, which included special charges, $1,000,000.
Adjusted EPS for 2015 were $1.84 up 12% compared percent of revenues, which compares to $210,600,000 or 12 percent of revenues in 2014. Excluding an estimated 1.2% negative impact of FX, adjusted EBITDA organic decline was 1.1%. Turning to our segments on Slide 5. In corporate finance and restructuring, revenues in the quarter increased 19.9% dollars or $18,500,000 impact of FX, revenues increased $21,000,000 or 22.6 percent compared to the prior year quarter As expected, sequential revenues were down slightly 1.7% from Q3. Adjusted segment EBITDA for the quarter was $18,900,000 or 17 percent of revenues compared to $9,900,000 or 10.6 percent adjusted EBITDA margin in the prior year quarter and $26,700,000 or 23.5 percent margin in Q3 of this year.
For the full year, adjusted segment EBITDA increased 62%, moving from $55,500,000 in adjusted segment EBITDA in 2014 to $90,100,000 in adjusted segment EBITDA in 2015. The Corp Fin year over year increase are obviously outstanding, driven primarily by the tremendous strength in our distressed service offerings in our North American practice supported by improved profitability in Australia and EMEA, partially offset by higher bad debt. Sequentially, EBITDA used back with the slight seasonal decrease in revenue in peak and increased SG and A, again, driven predominantly by a bad debt reserve. Turning to our outlook. Given our outperformance in 2015, we more guarded double digit top line growth in Corp Fin as initiatives across the segment continue to generate growth.
However, throughout the year and adding support staff to match the dramatic increase in both revenue and billable staff we experienced last year. Thus, we are looking for full year EBITDA margins in the high teens, producing a low single digit increase in 2016 EBITDA versus 2015. In the first quarter, we look for revenues to be slightly up versus 4th quarter with margins similar to 4th quarter levels. In Forensic And Litigation Consulting, or FLC, revenues decreased 3.7 percent to $116,700,000 in the quarter, compared to $121,000,000 1,000,000 partially offset by gains, driven by higher realized rates and demand for North American feeder services as mortgage backed security cases started to ramp back small pickup in investigations in our EMEA region. Full year revenues were essentially flat versus 2014.
4th quarter EBITDA was $8,800,000 or 7.5 percent adjusted EBITDA margin compared to 19,400,000 dollars or 16.1 percent margin in the prior year quarter. The decline in adjusted segment EBITDA margin in the 4th quarter was primarily driven by lower utilization because of our investments in increased headcount in our disputes and investigation practice. The decrease in 4th quarter EBITDA margin was also due to declines in health solutions, coupled with termination cost for a small number of highly on a in Q3. Turning to our outlook for FLC. We are looking for a partial recovery in this segment in 2016.
So not back to the record levels that we achieved in 2014. We're looking for revenues flat to 2015 with margin recovery to slightly below the mid teens level. In the first quarter, revenues should be flat to very slightly up sequentially from 4Q 'fifteen with significant margin recovery back to the of already executed cost reduction, disposal of a small loss making business in Latin America, which also had the effect of reducing heads by rough about 70 year over year and refocused execution in our healthcare business. Our North American run rate so far in 2016 are consistent with the level to maintain point 4 percent to $118,600,000 in the quarter compared to $106,500,000 in 20 14. Excluding the estimated negative impact of 5% sequentially from $114,500,000 in Q3.
The increase in revenues for the quarter was driven by continued high demand both year over year and sequentially. Some of the significant disclosed M and A engagements we were involved with during this year in decline in demand for our non M and A related antitrust litigation, which declined both year over year and sequentially and financial litigation, which declined year over segment EBITDA was 18 1000000 dollars or 14.5% margin in Q3. Adjusted segment EBITDA margin returned to the mid teens levels due to higher realized rates better utilization in some of our practices, lower bad debt expense and the absence of a large state tax equalization employee benefit expense that we recorded last year in fourth quarter, we've curtailed that program and do not expect that sort of expense going forward. We are cautiously optimistic going into 2016, with 3 of our 4 major practice areas in econ increasing sequentially in the 4th quarter However, this continues to be activity. In our outlook, we look for low single digit revenue growth in 2016 with low to mid teen EBITDA margins that are only slightly better than 2015.
First quarter 2016 revenues, we see as being similar to the fourth quarter 2015 levels. Just as we saw for the last 2 years, first quarter margins should dip couple 9, dropping 20 percent to $46,600,000 versus $58,200,000 prior year and down $9,000,000 from 55.6 $1,000,000 in the third quarter. And litigation and by lower realized pricing. These were only partially offset by a higher demand for M and A related second request work. Adjusted segment EBITDA for the quarter was $6,000,000 or 12.8 percent margin compared to 13,300,000 22.8 percent margin in the prior year quarter and $10,800,000 in 3Q.
Decline in adjusted segment EBITDA margin was due to lower utilization consulting, lower realized pricing and consulting, hosting and managed review. Earlier this month, we took actions to realign the tech segment workforce to address the changing nature of this business and the ensuing competitive pressures. These actions included the separation of approximately 50 employees, including our segment leader in 5 SMBs. This is about 10% of the segment's workforce. We estimate the impact of these actions will result in a pretax income charge, which will be recorded as a special charge, in the area of $5,000,000 in the first quarter of 2016.
Steve will speak about our ongoing strategic review look assumes essentially flat financial performance in technology in
2016 with low to
mid single digit shrinkage in the top line, by the cost actions we the cost actions will communications. Revenues increased 5.3 percent to $48,800,000 in the quarter compared to $46,300,000 last year. The increased 10.4% year over year if we adjust for FX. Sequentially, revenues were down about $7,000,000, but the decrease was more than 100% attributable to a drop in pass through revenue versus 3Q, where we had a bulge due to a single large program. Adjusted segment EBITDA was 7 point margin in the prior year quarter and 8.7000000 dollars, 15.6% margin in Q3.
In our outlook, we are looking 15 full year results. 1st quarter is historically the weakest in this segment. Again, we looked for very modest year over year revenue growth, with low double digit 28.5 percent of revenues were from outside North America in the quarter, consistent with Q4 2014 and Q4 2013. For the year, 26.8 of our revenues were from outside North America down about 1% from 27.6% in 2014. Our primary growth engine in In EMEA, our investments in transaction advisory and in tax in corporate finance helped both revenue and EBITDA in the quarter and the year, as did of contributions from the region for the fourth quarter again saw a positive improvement year over year due to a lower cost structure in Australia.
And Latin America continues to be a bit slow. Turning to Slide 7, our cash and cash equivalents were $149,800,000 at quarter end. Net cash provided by operating activities $139,900,000 compared year quarter. During the 4th quarter, we spent $26,500,000 to repurchase shares at an average price of 34.7 under our this year, but assumes no other capital actions. The board will revisit this question after the current program is completed.
Turning to $90,000,000 $215,000,000. This guidance calls for revenues between $1,800,000,000 $1,850,000,000. Depreciation and amortization should run about 40,000,000 and we currently estimate a tax particularly as we have shifts between US and overseas income. Finally, I'd like to speak to corporate expenses and investments. We reported $77,700,000 on this line for 2015, down from $80,800,000 in 2014.
Our guidance anticipates a significant increase of roughly $15,000,000 in 2016. Which is 100% explained by an As Steve says, in our business, we invest EBITDA, not capital. So the 20 plus they are generally not capitalized. A new courses more than we would in the ordinary course to cover a perceived significant new opportunity. Generally, this type of work is done in our segments, and this investment and the cost of it is reported in their direct cost lines and to a lesser extent in SG And A.
The providing growth in a segments reporting between the incremental practice growth that they do ordinary course and growth spurred by this type of strategic investment is hard to expect several million of EBITDA contribution in 2016 from practice investments of this type that they have reported in their regular results. However, in addition, we maintain a fund at the corporate level for activities of investments like this that segments aren't able to absorb in their regular budgets 10,000,000 of this type of investment in 2015 from the corporate fund. Ultimately, we spent less than $1,000,000 in the corporate fund in this category. Delayed and will now happen in 2016. Also, some of the projects that we funded or intended to fund launch so quickly and fully that they turned out not to require any material investment to win.
An excellent example of this our new initiative and activism in M And A solutions, which we were prepared to fund heavily, but they turned out not to need it. This one stop shop for consulting on activist engagements in M And A is a unique service that only FTI could deliver. We bring to the table an investigative forensic and international communications capability that takes activist work far beyond traditional financial analysis. We offer an integrated team from our shift the balance to an in an activism or a hostile M and A engagement. Our experts in forensic accounting and background investigations, industry operations, government affairs, restructuring and strategic communications have already made a significant impact many of the successful marquee activist and M and A defense situations of 2014 2015, including Allergan against Pershing Square and Valiant, perrigo in its defense against Mylan and Shire in connection with ABBV.
As we continue to execute for to what we've already what we mean by practice expansion investment. We were very fortunate that we were able to launch successfully without having to spend money. But we hope to find fund a lot of those where they turned out not to need money in 2015, we now have a real pipeline of roughly $5,000,000 in cost that we will fund in the corporate line, for initiatives just like activism that we are spending money on in the first quarter of 2016. Like to find 5,000,000 more, but we will not spend the money if good opportunities are not available. So that's 5000000 to 10000000 for practice expansion corporate funded investment.
Of those potential action
decision
one of our modernized. And third, as Steve will discuss, we now have an exciting new opportunity to continue to invest in our new radiance and our existing ring our
funds.
So with that, I will be handing the finance function role to Kathy Freeman, who I have absolute complete confidence in and so should you. And I hand the call back to Steve.
To our company. I'd like to perhaps before we go to Q And A, take the conversation up a level and talk a little bit about where I see us on the overall change agenda. As David said, this year, we delivered double digit EPS gain and in the best year over year improvement in EPS since 2009. Now to be fair, that was also off a base that I and I suspect many of you think was unacceptable. And therein I think lies where we are.
It's a clear sign of progress, major progress, the progress that we need to and intend to continue. And that's like what I'd like to talk about for the next few minutes. As you know, we are engaged in a significant change effort and it's one that will continue this year. I do want to underscore, we are not engaged in turnaround. In most of our businesses and geographies, we have amazing professionals and strong market positions.
There are a fair number of fixed elements to our change agenda But in many ways, this is more about figuring out where we have trapped value or where we pay too little attention to value creating opportunities or opportunities to bet behind our terrific professional, and doing the work to begin to liberate that value to allow the great group of professionals to flourish, to create shareholder value and to create a more vibrant growing company. This year, one of the most exciting things is that whether it's at the center or in the segments or in the regions, the changes that people are driving are working. Or at least showing major progress. And by now, in many places, progress is sufficiently large to become visible. You can see that on some of our cross company thrusts For example, organic growth, we clearly have much more upside on organic growth, but we are now moving in the right direction.
Excluding the impact of FX, we were up 10% cumulatively organically over the last 2 years. Similarly, in terms of rebuilding our pipeline and leverage ratios, We grew our headcount about 7% this year and 98% of that growth was below the SMB level. We had a slow start on that. But we are now making real progress. And as we've discussed a couple of times with respect to capital allocation, We said we're going to be disciplined and we have been.
As a result, we had cash, cash available to retire debt and repurchase stock which has left us with substantial EPS benefit for this coming year without leveraging up our balance sheet. And to the contrary, we've had a substantial deleveraging of our balance sheet. And we have the ability to use But as least as important and exciting as the stuff we're doing company wide, you also see progress in the individual segments and the regions in the sub parts of our practices in initiatives that group of our professionals are driving. And I can't go through all of those, but I'll just highlight a couple. StrATCOM, as you know, we put in place a major change of program 18 months ago, which the team embraced and came up with It's driven a 48% increase in adjusted EBITDA from 2013 to 2015.
And at least as important, the foundation we now have in that business is much more powerful. Similarly in corporate finance and restructuring, where we reinvested in our core retail and TMT practices, we made significant bets overseas and in our non distressed services, as David said, we delivered a 62% year over year increase in adjusted segment EBITDA. And those are just two examples, which are the most visible and vivid on an aggregate basis. But in fact, in most places around the company, we now have teams who are not just executing but also driving major change agendas with increasingly visible technical delay while I'm trying to get my video back so I can see David in a remote location. I'm pretty I am obviously, you can tell by the tone of the voice, I'm pleased with the progress we're making and I'm excited about what people are driving.
Having said that, and this is again the yin and yang of where we are, I want to underscore we are still in a major change effort, and we are a company with a lot of work to do. And one sobering, but important way to look at that is to look at EBITDA. Now if you want to look at it positively, you can clearly see that we have changed the trajectory. We were a company that averaged an average $20,000,000 decline And we did that despite reinvesting substantial amounts of cash and acquisitions, which typically contribute to EBITDA. So if you want to look at progress, it's clear we've slowed that decline dramatically.
And we've slowed that decline even while essentially cutting out the masking effects of acquisitions. So that's progress. On the other hand, we've only slowed that decline. We have not yet achieved a year over year increase in EBITDA at the company level nor are we confident enough yet to forecast that for this year at least not with the reinvestment in new initiatives to stimulate growth that we believe are powerful. For me before we can declare victory on this 1st phase of the change journey, we need to move the company to position where we are confident that across our businesses, we can grow EBITDA organically on a sustained basis.
That is a step we are much closer to, but we are not yet there. Back to year in a row of double digit EPS growth. The 1st 2 year run since 2007 to 2009. So we are looking even while continuing this major change program, even while investing to show strong performance this year. Before I close, I'd like to get a little more granular about 2 businesses, one that had a terrific year and one that didn't.
With respect to Corp Finance and restructuring, as David said, our strong 2015 is leading us to be cautious in our forecast for this year. Although the market was up a bit last year, our data would suggest that we were up more than the market, with our disproportionate share of large distressed wins. Therefore, we are not forecasting substantial gains this year. As you know, in 2015, we made the mistake of forecasting huge gains in another segment 2 years in a row, without really diving in enough to the root causes and what would run off and so forth. And we are not going to do that again.
But the sobriety of our outlook is not driven by a lack of confidence or a lack of success to the contrary our results give us confidence that we are the best position we have been in a long while for sustained strong performance. Our caution for 2016 is really driven by the level of outperformance of this business in 2015. Our technology business is a more complicated story. On a tactical level, we clearly did not fully anticipate the revenue challenges at the front of this the assignments rolled off, we replaced those with more medium and small assignments. And as a consequence, our revenue came in almost below our forecast from the beginning of the year.
While aggressive selling efforts are showing good results, they are stabilizing our business at a much lower run rate. And we had aspired to at the beginning of 2015. As a consequence, we had to rationalize costs and we did so. Given the shortfalls of sales, some changing market dynamics and some other important conversations internally, we also undertook a fundamental strategic look at this business. So there's where it gets interesting.
I would perhaps paradoxically, the more we look at this business, the more excited we've gotten about the potential. To drive this business and create value here. And so let me give you a feel for that thinking and the current state of play of the thought as this is an area that's going to occupy significant focus this year. As many of you know, within tech, we have really 2 businesses. 1 is a software business.
Software business that many people believe software for the most complicated assignments. It's one of the 2 highest ranked leaders in Gartner's Magic Quadrant's Rediscovery software as well a top ranked software for legal review and another partner's report called critical capabilities for eDiscovery software. That's the one business. The 2nd business is a consulting and services business that leverages ringtail to actually deliver services for law firms and for corporates. That business has a number of amazing professionals, people who are viewed as the most outstanding consultants in this field and are heavily in demand for the most complicated assignments.
Historically, we have pursued prietary basis and view that as the key to our competitive advantage. This strategy meant that we of course didn't go look for channel partners. People who competed with our services. And in fact, we didn't retain many. More fundamentally that strategy meant we didn't treat this asset as I believe a Solking business.
And to be fair, successfully so it was a strategy that worked very well when this was a more fragmented industry and everybody wanted it his own software and a lot of players were following the same direction. At this point in time, it's becoming clear that most players our combined software and services providers have not been able to keep up with us and the other major competitor in terms of R&D. And are 2, maybe 3 players that has a chance of being the leading software provider for an extended period of time. So we are actively exploring how to do that. The core of that strategy, and this is work in progress.
So assuming we pursue it, is that we're going to have to make our software available in a neutral way to other parties, not just ourselves. And as you imagine, that's a pretty radical move from where we've been in the past. In the sense that doing so will mean we have to actively seek out and support channel partners. It would also require some changes, enhancements to make it easy for other people to customize the software in the way they want, adding a software sales force, expanding channel support for channel partners and a bunch of things like that. Importantly, for this year's budget, all of those changes would come with significant upfront cost.
R and D, the cost of software focused sales, the costs associated with 40 third parties in a way that we haven't. Having said that, if the strategic analysis that is underway holds up, these are actions we are prepared to take. It would require real investment. Some of it would be capitalized, but a lot of it would come out of this investment fund that David was talking about. But we believe we have the best software in the market, and we believe that holding it to ourselves is either a long term sensible strategy nor a value maximizing optimize the ringtail opportunities, but we'll obviously update you as the thinking progresses.
And one other point regarding technology, ringtail is not the only software investment we're making. At legal tech, we introduced another piece of amazing software, which we've been investing behind called Radiance, which is in a different adjacent space called information governance. That is also a key investment area that some of you have asked about, but we couldn't talk about before competitive reasons. This is a the expectations. But once again, you should understand that it is a hit to our P and L right now, not a benefit, a hit, both in terms of R and D and marketing and sales and will be for this year and likely into next but it is an investment we're excited about long term.
We look forward to keeping you on the loop on this as well as we push the thinking ahead. But before we get to questions, let me just close perhaps where I started. We are in the midst of a major change agenda. It's underway the multi year change agenda. And there are lots of issues associated change agenda.
There's a chance of disruption in addition to normal market volatility and there's enormous amount of work to do. But the good thing is it's enormous of a round of work behind an incredible company, a company with great professionals, people who are committed, And it's working behind a company that I believe is finally starting to realize that potential. Some places we are not as far along as I would like, probably every place. I always think we can do better. So we are moving.
And this business is moving ahead. Change journey means sometimes it's stressful to be here. There's so much work to do. But it's also most days, a real joy. I look forward to where we're taking this company.
I look forward to being on this ride with many of you. With that, let me open the floor
questions. We'll go first with Randy Reese with Avondale Partners.
I'll make this quick. It's probably noisy where I am. I wanted to know what you could tell me about the difference in revenue performance in 2015 between software and services and the segment?
Yes, I think I'll take that if I can. Although David or Kathy correct me if I get the numbers wrong, but Randy, truthfully, we don't really sell the software. We have some people have licensed it for a long time and that's a pretty constant revenue stream, but historically, we haven't. And so what we're selling is a bundled offering of our consultants typically working on ringtail. And so that bundled offering is what has dropped.
It's not that we had any of the prior stream of licenses who dropped, but nor did we pursue this strategy last year? We have not been out there actively trying to license it. So that's a forward looking thing. So that question will become relevant as we pursue if we end up pursuing this strategy, are you making progress or people licensing and all that sort of stuff, but over the past 12 months, it was the bundled offering essentially that was the drop. Does that answer your question, Randy?
Yes.
And I was also wondering if you could quantify the magnitude of the severance expenses in and FLC. I don't know if you touched on the exact numbers there before. I was just wondering how unusual the level of severance expense was compared to normal? Kathy or
David? Just a moment. Yes, it's
It's a, a minor amount, I mean, less than $1,000,000. For Q4.
All right.
Thank you very much. I have
a variance, but not a big number.
And we'll go next to Tim McHugh with William Blair.
Good morning. On technology, can you still own that business if you're trying to both compete with and licensed software to competitors?
Look, that's obviously an important question. We intend to own the business. One of the questions is will we be credible with competitors if we own 100% of it? And that's a real question. And if I'd love to continue to own 100%, but if this strategy looks as promising as we think it does, And to be credible with channel partners, we need to sell a share.
We will, we'll consider that. I'd prefer it to be a minority share because I really think this is a pretty good asset. But if the strategy requires creating that distance and separation, Tim will we'll do that. And we just need to figure that out over the next couple of months. Does that answer your question?
Sure. And then I guess on the distressed comments about 2016, can you just, I think reconcile I understand you're trying not to compound on top of compounding, but the in the market, I mean, I've seen several kind of higher profile cases in the last couple of months, you guys still seem to be adding, obviously, the stress of the energy markets continues to build. So why wouldn't that continue to lead to a healthy amount of distressed work for you guys?
Well, yes, I'll take that again. It will lead to a healthy amount of work. The issue is only, how, what share we won last year? I mean, go back and look last year at at some of the major deals and try to find which ones we weren't participating in. And then in some of the retail stuff, just how much share we gained I think what we're trying to do is and we've taken a much deeper dive this year into testing our assumptions for growth and not just sort of extending lines.
And we feel pretty confident where we are in Corp Fin. On the other hand, we think we outperformed the market substantially last year. And I'm not one for betting that we're just automatically out perform the market every year. Sometimes that balances out. And that's the issue where it's not a lack of confidence in in that business nor is it a sense I do think that the second half of this year will be a stronger business for the industry because of some of the energy stuff that's going on.
But there's a shared dynamic and I think we may have, performed at a level that you can't just assume going forward and hence, hence it's averaging out of those two things, Tim. Does that make sense?
Sure.
And then I guess lastly, just you touched on it that EBITDA is still declining and I guess it implies it's going to decline this year. You've resisted kind of wanted to set a margin target because you've talked about just growth and you'd rather focus on growth in EBITDA dollars, but with EBITDA still declining, Can you talk in some, I guess, whatever fashion it is about kind of the returns on these investments, not just obviously the ones you're just making now, but the last few years, I think I get that question a lot about really the efficiency, I guess, of the organization and I guess, how that's being balanced against, desire to invest in various things?
Yes. So, that's a multi tag pronged question. Look, we can go through some of the investments. I have to say, I would say that the issues over the last years have had very little to do with those investments. Almost I would say on average, they have outperformed my expectations.
The issues we've had the last couple of years is us stumbling over things under rocks that we didn't know about that in some places you couldn't know about some places we could have been better at knowing about and that's stuff. Where we've invested, most places, it's worked. Some places we got ahead of our skis and FLC, some of the head increase, we got 6 months to earlier or 12 months to early. And that happens, but some other is actually the headcount got picked up faster like our Corp Fin headcount in just got picked up much faster than we had a reason to expect And then some of the more specific bets, some of the investment we did in building our practice in corp and in Europe, in We've talked about in transaction advisory service and a tax service and our investment in non distressed in the U. S.
I mean, these things are exciting and they're working. So I think I think that's working. I think the issue we just need to grapple with is 2 things, Tim. One is And I don't know how whether you guys as analysts do this, but it's always useful to sometimes take out the masking effect of acquisitions on EBITDA. Right?
I mean, when people buy companies, it drives up EBITDA. Sometimes it's interesting to go look at companies and say, if they hadn't bought that, what would the EBITDA be looking like? And In our case, even with the acquisitions, we were dropping at $20,000,000 a year, even with the acquisition. And I'm not allowing the masking effective acquisitions. And now we're down single digit drops.
Is single digit drops what I want? Absolutely not. But if we make enough of these investments work, those numbers are coming up and those numbers will be coming up in 2017, 2018, 2019, if we do the right things without necessarily using the cash. The cash becomes accretive on top of that. And if you have those 2 things going, you're creating a world class engine for performance.
And that's what we're trying to do here. But you're right about the numbers. Right now, When you take into account the investment we're planning to make this year, our forecast is down a bit on the EBITDA line, offset by the powerful use of cash. The last thing I'd just say on that, I'm sorry for a long answer. What we're focused on is targeting turning this company into a sustained double digit EPS growth company.
And I mean a sustained double digit EPS without gains on the balance sheet that, that increased leverage. We got double digit this year while decreasing leverage. And our goal going forward will be to try to get on a sustained basis double digit EPS. And that's probably the metric we're most looking at. Long answer, but did it at least somewhat answer what you're looking for, Tim?
I guess somewhat. Are you confident that this is the last year for, I guess, EBITDA declining then? Given the investments. You alluded to that, I mean, you'd see it better trends in 2017, 2018 2019. So just to be clear, I mean, are we as you foresee the need for investment, I guess.
The goal here is to continue to invest every year. Now the goal is with the investment to turn the EBITDA line to positive. And that is the goal subsequent to this year's. Does that answer?
Yes. All right. Thanks.
All right. Thank you. Nice to talk with you. Thanks.
We'll go next to David Gould with Sidoti.
Hi, good morning.
Good morning, David.
So, just a couple of questions. 1, just point to follow-up. Going back to the restructuring piece and Tim's question, I guess from the outside looking in as you might imagine the area where most folks look to the success you're having in the environment in the markets and even given the positive market share, I guess, the question here is do you have a view related to that business to are you thinking that the economy improves and we see less or you think there's more and we just can't maintain the market share that we saw last year?
I don't think any of us are forecasting that the economy is dramatically improving. I mean, the bankruptcy as a whole is not surging. It's individual sectors that are is surging. Actually, on a multiyear level, it's still relatively low, but it's a couple of sectors that are surging. Obviously, there's a chance that, we don't people are terrible at forecasting oil prices So there's always a chance that oil prices are back to $100, in which case, the bottom falls out of that business.
But we're not forecasting that as well. I mean, I think our view is basically the view that you all seem to be indicating that in certain sectors, this will be a hot certain sectors, notice that this will be a hot restructuring market, particularly in the second half of the year, some other sectors will be as dead as they have been. And so our issue here isn't purely a share issue of having outperformed last year, David. That answer?
Yes, it does. And then the second half of that question is you spoke about making some investments on the corporate finance side of that business. Can you give us a sense in what areas or what types of practices you might look to build out there on the corporate finance
Rather than dominate, let me let David take that one.
No, I think it's just across the board. The adding billable staff in areas, again, trying to stay, in line with the, stay up with the demand as opposed to get significantly ahead of demand. We are trying to be measured, but particularly I think, actually interestingly in non distressed, we have some hopes to add capacity there. We'll be carefully monitoring that is demand, but that it's we're doing pretty well there. And it's been masked in some ways by how significant the success in distressed has been, but that's been a steady opportunity.
We've been investing in growing revenue. And we expect that to continue in 2016. That and then also some marginal increases overseas in EMEA. Just generally across the board in the areas where we are expecting steady growth in the corporate finance practice.
Got you. Got you. Okay. And then Steve, one broader one. When I think back to the Analyst Day in mid-twenty 14, remember thinking of that moment as we went through some of the initiatives that you were funding that if even half of the initiatives you were looking at worked I think, we had a good shot of achieving that 250 plus in 2016 And now as we get here and we look and say maybe it's more of an aspirational 2017 target, maybe we were a little earlier on that.
Obviously, there were some market forces but can you speak a little bit to what the biggest variances were that basically, it didn't quite get us to where we hope to be for this year. I mean, is it obviously some market, but not entirely market. So can you just give some color there?
David, thanks for that. As you might imagine, it's a question that I have looked into hard and has gotten my stomach turning a fair amount just so just on a personal note, I have never in my life missed a target or certainly not by any significant margin. And So that's significant. It's usually frustrating for you. It's frustrating for me.
I think there are 3 different buckets you could talk about I just want to separate those out, right? I mean, one is the market. There's a little bit of that. Candidly, I am smart enough to have factored in the market. The second is success and failure on individual initiatives.
We're not actually doing worse than I thought we were going to. Yes, FLC is behind where I thought it was, but it'll catch up. Corp Fin is ahead of where I thought it was. Handedly, the mistake the big, the bucket and it's a whole series of things in there was, was overestimating how clearly I understood the baseline of the business and and how fast some fixed agendas would get done. There were stuff that we didn't actually even know on some cost stuff that was much more significant than I thought, I mean, and which is not so good, right?
At that time is 8 months in and we were having a CFO transition and I didn't know some of the stuff I should have known. There was naivete in some other places where there were cost increases. There was naivete about how huge sales increases would overcome those the impacts of contracts that have been signed several years earlier that were come to 4. And those sales increases were naive. And at that point, you don't know who is an overoptimist.
And then there was some naive say about how fast we'd fix some places that were broken around, like, for example, Australia acquisitions, which by that time we're beginning to be clear that they were broken, but that it would the expectation was it was a quick fix So that's pretty sobering. But the reason I want to underscore that, because it's It's made me more humble, David, but I do want to underscore that bucket because I think I'm now 2 years into this company. And you never want to believe everything, and that you've turned over all the rocks, but there aren't that many left to turn over. And I believe we've improved a lot of processes. We dig deeper into some stuff.
We challenge stuff. We don't just have sort of bottoms up forecast. We have a much more aggressive for challenging process at this point in time. And I believe we have much more sound budgets at this point than we did at that point in time. And the other thing is the places where we have been investing are generally pulling out just off of a lower base than I expected to be off.
So that's I could probably do a 2 hour version of this and maybe a couple of days with the shrink, but does that work for you on this call, David?
It does. It's definitely helpful. Thank you.
And we'll go next to Paul Gagnocchio with Deutsche Bank.
Good morning. This is Ato Guerra on for Paul.
Hey, good morning. Welcome.
Thank you. One question on your healthcare practice, but some of the headwinds that you that you saw there in the fourth quarter. Was that my was that broad based or was that more specific to like some client specific delays or projects winding down?
I think it was,
we, that business is relatively small one. And so they have a certain lumpiness in their revenue cycle, having to do with the staging of kind of initial evaluations versus, follow on work that they often are awarded after the initial evaluation. And we had, kind of business in that 2 stage pipeline that produced in the fourth quarter. But I think that they've got a lot of things underway, and the pipeline is filling out nicely and it gives us confidence they should be able to deliver more smoothly in 2016.
And they also obviously had a
little bit of action, but that didn't hit the revenue.
Got it. And for corporate finance and restructuring, the strong results you had in the 4th quarter, and some of the predictions you have around, I guess, not necessarily repeating the same were your results, do they have a larger normal contribution from success fees or completion fees, or is a lot of that like just time and billing, arrangements as I start to think about the kind of step down we might see in 2016?
Yes, no, there wasn't a significant contribution or unusual contribution from success fees in the fourth quarter. I think the real difference is that when you have very large marquee major projects in bankruptcy, in particular. The utilization just spikes up. And as you know, in this business, your margins, a outsized benefit relative to the revenue when you go very high utilization on a large, massive matter, and particularly in 1st 3 quarters of 2015. We benefited from that.
It took our margins up about 20%. That's really driven by both the pricing and the high it's not just the amount, but it's a mix and the margin impact that we're not calling as much benefit from in 2016. We're definitely expecting to grow and we're expecting to see both good distress and non distressed business, but we're not envisioning the same sort of margin surges that you get when you really win the big ones disproportionately.
Got it. And lastly, looking at incremental $15,000,000 of investments that you're doing on the corporate line in 2016. You gave a great disaggregation of that. I want to make sure they have there. That looks like $5,000,000 is tied to attack in IT, another $5,000,000 related to your practice expansion initiatives.
And that has like a potential another five $1,000,000 behind it as well. Is that the right way to break that up?
I think David gave you an overview. Maybe I can take that question because I think to be clear, that's a David gave you a cut at one way it could sort out. This report Paul Linton have gone through the stuff in front of him. He's got $35,000,000 of potential requests in front of him. And they range from $5,000,000 of the type that David was talking about.
We have behind the activist investor, there's a bunch of corporate stuff around systems, few other smaller corporate things. There's a lot that we could potentially end up spending behind tech And then there's some strategic looks we want to do for market expansions where we may use a little bit that help and which is another bucket. The whole of it is substantially higher than what we have got in the budget. But usually what happens is you sort it down both because the priorities aren't there and it's not ready or you look at people in the eyes and you don't think they're going to deliver And so I think David gave you a cut at one way it would break out. I think that stuff that has changed each of the last 2 years has changed during the course of the year a bit.
David, does that sound fair to you?
Well, I think it's an extremely good point, Steve, that this will be dynamic. And that just because we've allowed in our guidance, 20 plus of room for these types of investment just as in 2015, if the opportunity is not there, then we won't spend the money. But, yes, the, and I would say in particular, with a range of practice expansion, probably a minimum of 5, but with opportunity and lack of competing in investments, we could go to 10 and similarly the investment in support of the technology strategic activity could easily be anywhere from 5 to 10. So those will definitely, potentially shift, in terms of one going down or one going up depending on the exact opportunity The $5,000,000 of kind of corporate infrastructure investment is probably what we have taken those decisions, that's a if we move forward on that, that will be much more in the line of a kind of a fixed budget and spend that we would then expect to to move forward with it.
Thank you.
And we'll go next to Tobey Sommer with SunTrust.
Taking my questions. With respect to the technology in ringtail, would there be positive cash flow implications from taking on a partner?
You mean if we start licensing it to partners, would it be positive cash flow implications? Absolutely. I mean Yes.
Or taking an investment in the business.
Well, sure. The question is how does that net against the investment we need to be making in this business is an interesting question. But of course, if to a prior question, we're forced by the channel partner strategy to take on a another investor. Obviously, they would they would pay, we presume a reasonable amount for it to have a chance to participate in that, and that would be I don't think that's an operating cash. I'll let David and Cathy talk about that.
I don't think he classify those as operating cash. That's an, but it's an inflow of cash. Am I hearing your question right, Toby?
Yes, I'm also curious about the ongoing CapEx. It's kind of pretty significant CapEx item historically and I'm wondering whether that would that burden would be lessened on a go forward basis?
Yes. I think the answer is the burden wouldn't be lessened, but the point is the revenue base over which it would be amortized would be higher. I mean that is clearly what's going on in this industry, I mean, to stay leading edge, you have to spend a lot of money. And if you look at it, it used to be, there are a lot of software providers at and some of you know a lot, some of these players in-depth, even if some of them are private. My sense from the outside, a lot of places, people sort of have software, but they basically said I can't compete and they're not willing to invest the R and D necessary to compete.
And we So we are, but what I believe is in order to do that and to stay leading edge and you need to not just be licensing it to ourselves. So the goal of this would be to continue to invest in the R and D and probably do some, as we said, some some significant add ons this year, but on an ongoing basis to continue to invest, but the goal here is to amortize that over a lot more a bigger ecosystem and you get a big revenue stream from licensing and that's pretty margin. That's a high margin business. So that's the goal. Is that Does that answer your question, Tobey?
I guess it does. So there's external as well as internally funded distribution channels on the table?
I think that's right. People outside is the thought we are thinking about. Yes.
Okay. What is the expectation for CapEx this year and how much of it is tech segment related?
David or Cathy?
Yes. Kathy will take that.
I think we we've disclosed in the K, it's range of about $35,000,000 to $45,000,000. We don't disclose specifically what but some of that number will shift towards PAC as part of the R and D expense that they experience year turns into capital, but it's included in that range that we talked about.
Could you give us a historic range, if not for 2016, about how much was check related?
I don't think we've ever disclosed that, but But I would say, look, this is a pretty outside of technology. This is a pretty simple business. It's furniture and fixtures and it's laptops for the practitioners, but not 90% tech either. Though. But I mean, the point of, I guess, the global point is this company generates a lot of cash, and has fairly simple CapEx need for practice with approaching $2,000,000,000 of revenue.
So we're not constrained in our ability to make capital investment, should we need to. But even with the kind of the run rate we're on in terms of plans for technology coming out of 2015, it's a very managed amount of capital expenditures if we needed to increase that. Well within our reach sources. Okay.
Steve, to what extent can you share junior staff among segments so that positive cyclical swings kind of like the one that Corp Fin restructuring is experiencing now, don't have to always result in a one for one addition of new headcounts in order to meet that demand?
Look, the obvious answer is we can do more than we have in the past. Now, we don't have all the same segments And obviously, it's not just, segments, but geography. If you have extra heads in Australia, it's not quite easy to have them staffed on cases in New York, right? So it's all those sorts of issues. And what you need to be a leader in Stratcom is different than what you need to be a strong junior person in our econ business.
But obviously, you pick on two areas where the question sort of leaps out of you, which is junior staff and FLC and junior staff and Corp Fin with many of whom places where we recruit from the same background. And it's an issue we're looking at.
Okay. And, how would you characterize big project risk in the P and L today and maybe contrast it with a year or 2 ago? Thanks.
Look, I think there's always big project risk. And that's one reason why we have a range on our on our guidance, right? I would say that I think we're doing a better job of understanding the distribution of those risks than we have in the past. There's risk on the upside that you get a lot of jobs and there's also risk on a downside that some major assignment settles, which is great for the client, but then means you have an abrupt end to your your revenue stream. And I think we've historically thought those were kind of symmetrical.
And when you really look at it, actually, the ending thing happens faster than the ramp up stuff and so forth. And so we've gotten one of the things we've done over the last months is try to get a little bit more analytical about where we've missed in the on our budgets and correct for some of we have more disciplined budgets right now and are doing a better job of trying to calibrate those risks than we have in the past 5 years, including during the 1st couple of years when I was here. So, does that mean we're perfect? No. And will I probably I'm here for the next 5 years, will I come up in front of you and say, wow, we got blindsided by that almost certainly.
Because it's just there is a randomness to this business, but it's not quite as random as we've been whipsawed by and we're trying to tighten that. Does that answer?
Yes, it does. And my last question just has to go with the collection of businesses again. You learned something about technology and having a thought in the process to kind of unlock some value in there maybe you weren't capturing historically. I get a lot of questions about the fact that there are 5 reporting segments that don't share all the same drivers. And for a company of this size and a stock of this size, maybe that seems like a long conversation to walk through at all for some investors.
Is this new thought about how to leverage tech? Is this a first step or, are you still persuaded, 2 years plus on the job that that this collection of businesses is still sort of the appropriate framework to move forward.
Yes. I'll take that unless David you were waiving. Did you did you was that in the last question? Okay. As to the separate locations, we have a video screen up.
So we're trying to figure out who's taking the question. So I didn't know whether David was taking that. Look, as I say internally, any I love my house. And I'm not going to sell my house as my kids grew up there. On the other hand, if somebody comes along and offers me stupid money for my house, I will listen.
And so that's always the case in as a CEO of any major company. That's the responsibility as you have to the shareholders. But the other reason why people sell businesses is because they don't have confidence in those businesses. And I think that's the more often reason why people sell businesses. And I was worried about that.
When I first came in, that was the first dig, right? And some of you said is, we can't do anything with Stratcom with the whipping boy of the day. And you should be dumping that. And every business I've looked at we have real opportunities to build those businesses and where we have those, I don't spend a lot of time trying to think about selling those businesses. And that's where we are on all of our businesses today.
We have real upside. There's been a lot of value that we could have created over time and that we can create going forward. And that's what the management team and I are focusing on. And we're getting tighter and tighter on and more effective at focusing going forward. So that is my focus going forward here.
Now if you want to come along and have somebody offer us Google evaluations for, for any, any, any, my house, by the way, I'm happy to listen to it. But other than that, we're I'm not looking to dump any of these businesses and I'm looking to create the value out of them. And let me use that to close on a key point. I believe we do we don't have to be perfect. Do the right things with most of our businesses, most times on these bets.
We don't have that perfection, and we continue to improve these businesses in a significant way where disciplined. We're a little bit more rigorous on our planning processes, so we know when we're kidding ourselves. And we stay disciplined with cash, except when the right acquisition comes along, which will be periodically, but we're disciplined, we will turn this company into sustained double digit EPS growth. And that is a pretty good performance. And I think we're not far from that.
In fact, we have a shot this year of being the first time in 2 years first time since 2007 to be 2 years in a row. And we're looking by the end of this year to put ourselves in platform for sustained double digit growth. I think we can do that without dumping businesses. And that's where we're thinking right now, Tobey. That clear?
It does. Thank you very much. Thank you. I think we're over with questions I just want to say thank you all for joining the call. And, we're looking forward to this year, and we look forward to engaging with you during the course of this year.
Thank you very much.
This does conclude today's conference. We thank you for your participation. You may now disconnect.