Good day, everyone, and welcome to the FTI Consulting Third Quarter of 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 Abby Healey, Manager of Investor Relations at FTI team. Please go ahead, ma'am.
Good morning. Welcome to the FTI Consulting conference call to discuss the company's third quarter of 2015 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 the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934 that involve risks and uncertainties These 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 the cause actual results or events to differ from those contemplated by forward looking statements, investors should review the Safe Harbor statement in the earnings press release issued this morning. A copy of which is available on our website at www.fticonsulting.com, as well as other disclosures under the heading of Risk factors and forward looking information in our with the SEC.
Investors are cautioned not to place undue reliance on any forward looking statements, which speak only as 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, dollars in come. 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. Lastly, there are two items that have been posted to our Investor Relations website this morning for your reference. These include a the historical financial and operating data, which has been updated to include our third quarter of 2015 results.
With these formalities out of the way, I am joined today by Steve Gundby, our President and Chief Executive Officer and David Johnson, our Chief Financial Officer. At this time, I will turn the call over to our President and Chief Executive Officer, Steve Gunby.
Thank you, Abby. Good morning and welcome. We have a fair amount of to cover this morning. So let me briefly introduce some key messages and turn it over to David to give you some granular detail. Then I will come back before Q And A and share a three points, 2 that are somewhat sobering and one that's substantially more positive.
First, the Q3 numbers look reasonably solid. As David will talk about, embedded in those numbers are some concerning trends in a couple of businesses that we believe will persist into Q4 and well in next year. As a result of those trends and some timing issues, we are down to a range of $180,000,000 to $195,000,000. 2nd, and a message that I find that would toughest to swallow is that based on that lower in the timeframe just a number to me. For me, it's somewhat of a milestone for our firm, marking a targeted end of the 1st phase of the major change efforts that we are collectively driving here.
So we'll talk about it that the progress we're making, I and we had serious hopes of getting there in the next 12 months. Though we are making considerable progress in our change efforts and the efforts are showing momentum both in qualitative terms and in financial terms, There are some current business headwinds and some legacy headwinds that have persisted longer than we anticipated when we first set the aspiration for 2016, to make it no longer realistic to say we're on track for hitting that number in 2016. And I'll come back to those comments in my close. The last point I and the rest of our team remain very bullish, not just on where this company can go, but where we are already heading. The platform of this year's results is not as high as we had hoped, but the results are still indicative of substantial improvement and a positive trajectory.
Organic headcount, stopping poor acquisitions, using cash in ways that is accretive and investment behind Corvettes and making investments that are working. Growing the capabilities of this organization to identify and make great bets to drive organic growth. Realizing the initial bets, the results of the initial bets, good deployment of cash means that notwithstanding legacy issues and some current business headwinds candidly some places where we're simply not performing at the level we need to, notwithstanding all of that, the numbers are going up. This year, for the 1st year in many years, we're going to have growth in our EPS and not only growth, but growth in double digits. And we believe that through a prudent use of cash and organic growth we are in a path towards steady year in, year out double digit EPS growth.
Let me get back to some of these points in a little bit more detail after David has had a to go through some of
were $455,500,000, up 1% from the prior year quarter. FX cut an estimated 3.1% from revenue growth, and adjusted, we grew 4.1% year over year with 3.6% of that being organic. Revenues were up sequentially from Q2 2015 by 1.4% $5 in the prior year. EPS in the current quarter included our previously disclosed $19,600,000 loss on early extinguishment of debt. Which decreased EPS by $0.28.
Adjusted EPS for Q3 were $0.53 versus $0.63 last year. Adjusted EBITDA was $56,100,000 or 12.3 percent of revenues compared to $63,400,000 14.1 percent of revenues in third quarter 2014 and up fractionally from 55.8 in Q2. Turning to our segments on slide 5, corporate finance and restructuring revenues increased 13.4 percent to 113,500,000 compared to $100,000,000 last year. This was net of an estimated 4.3% negative hit from FX. Excluding FX revenues increased dollars.
Revenues increased 4.9 percent sequentially from Q2, excluding FX. Adjusted segment EBITDA for the quarter was $26,700,000 or 23.5 percent of revenues compared to a 15.5% margin in the prior year, 22.2 percent margin North American distressed work, which in turn drove higher utilization and improvements in staff leverage. We are particularly pleased with the improvement in leverage. Corporate Finance grew headcount 15% year over year and 7% sequentially, exactly when they were needed. Turning to the outlook.
Several of our largest North American distressed projects will likely wind down in the 4th quarter. Our backlog is good, but it does not match the levels we saw at this point in the prior three quarters. Coupled with normal seasonality causes us to expect some pullback in Q4 from our year to date pace. Revenue will likely but still north of $100,000,000 in the 4th quarter and margins will be mid to high teens. In Forensic And Litigation Consulting or FLC, we reported revenues of $116,200,000 in the quarter, decreasing 4.6 percent from prior revenues litigation practices, offset only partially by success fees and health solutions and improved demand in our North American data analytics practice.
FLC's adjusted segment EBITDA was $13,400,000 or 11.5 percent of segment revenues. Compared to $22,300,000 or 18.3 percent margin in the prior year quarter. On a sequential basis, adjusted segment EBITDA was down 6 point $6,000,000 from practices, coupled with the ramp up of hiring in certain core practices and higher bad debt expenses compared to bad debt recoveries in the prior year quarter. These results are a significant disappointment. While FLC met its targets in July Revenues and profits weakened sharply in August.
The trend continued in September and our current backlog indicates little hope recovery in the fourth quarter. There are 3 things occurring here. First, we continue to suffer from the comparison with 2014, which was the best year in FL these history. Several large matters drove utilization and profits up dramatically. Most of that business is now in the rearview mirror.
2nd, several large North American offices are now seeing weak demand versus even our normal run rate expectations. We're aggressively analyzing the drivers, but much of this business is reactive. If the volume of investigations and disputes drops, then so does our business. We do not perceive a loss of share, but we are looking closely. 3rd, much of the increase in costs is intentional.
Just as in corporate finance, FLC headcount, particularly junior staff, is up in FLC, 6.5% year over year, excluding health solutions. Normally, revenue lags headcount, we've been lucky in corporate finance that it hasn't. However, when demand doesn't just lag, but instead drops, The cost from the headcount goes right more than $3,000,000 as salary costs to the quarter and year to date, they are more than $11,000,000. Nonetheless, we are completely and totally committed to both the hiring program it's not a sufficient condition for growth, but we must have the staff. In our outlook, expect to see revenue, margin and EBITDA in the fourth quarter to all be slightly down again from 3rd quarter levels.
This is a further step back from our last forecast when we expected FLC second half to be stronger than the first half of the year. The core FLC business will likely tread water in 4th versus third quarter. And the segment reported EBITDA should see a small step back from 3rd quarter levels, which benefited from SSDs And Health Solutions. 3rd quartereconomic consultingrevenues declined 4.9 percent to $114,500,000 compared to 120 negative impact of FX. A small acquisition made in the fourth quarter last year contributed $1,700,000 of 3rd quarter revenue, a 1.4% lift Excluding both the acquisition and FX, revenue declined $5,000,000 or 4.2% year over year.
M and A related in for non M and A related antitrust and financial economic services. However, sequentially, revenues in the segment increased 5.4% from $108,700,000 in Q2. Adjusted segment EBITDA decreased slightly to $16,700,000 year over year and increased slightly from $15,300,000 In our outlook, 2nd and third quarter levels. Given that December is historically very weak in this segment, that means we are hoping for some improvement versus our year to quarter. $600,000 decreased 10.9% compared to $62,400,000 in the prior year quarter, including a 1.5% decrease from Excluding FX, revenues decreased 9.4%.
The decrease in revenues was primarily due to a decline in consulting and other services by M and investigations that drove 2014. Sequentially, revenues dropped 10.1%. Adjusted segment EBITDA was $10,800,000 or 19.5 percent of segment revenues compared to $17,800,000 percent of segment revenues in the prior pricing related to client mix and reduced licensing revenues. Technology is a business that we know is extremely dynamic and lumpy, 1 or 2 big projects can materially change results. Nonetheless, based on our current backlog, do not expect this business to dramatically change in 4Q or to early 2016.
We expect revenues to be slightly down in the 4th quarter with minor In strategic communication, 3rd quarter revenues increased 19.7 percent to $55,700,000, which included an 7% unfavorable impact from FX. Excluding FX revenues increased 26.7%. However, of this $9,300,000 was a result of higher pass through revenue with the other 3.1 1,000,000 coming from organic growth, driven largely by higher M and A and public affairs project based revenues in EMEA and North America. Sequentially revenues were 28.5 percent or $12,000,000 higher, but also benefiting from the pass through revenue. Adjusted segment EBITDA was $8,700,000 or 15.6 percent of segment revenues compared to $6,600,000 or 14.2 percent in the prior the 6th straight quarter of double digit matching headcount towards profitable work and the improved staff leverage that resulted from cost saving activities initiated in 2014 as well as a shift in 3rd quarter to reverse, leaving 4th quarter revenue at levels comparable to 3rd quarter, but excluding pass through.
Excluding pass throughs, those were $42,000,000. Margins should be relatively unchanged, leaving EBITDA very slightly down. As usual, I won't spend a lot of time on the geographic breakdowns on Slide 6. North America remains our primary engine with corporate finance driving results for the 3rd quarter in a row. EMEA dropped a little bit due to negative contributions from technology and FLC, but was largely in line with normal revenue contribution in the past two quarters.
Asia Pacific remains weak, still driven largely by Australia, though EBITDA in the region saw a positive improvement year over year. In Latin America, was a bit slower than expected with a drag in FLC revenues and negative FX impact in STRATCOM. Turning to Slide 7. Our cash and cash equivalents were $105,000,000 at quarter end as we completed the retirement of our 6.75 percent notes. We estimate $8.
For 2016, we expect a further on top of the $0.08 incremental benefit of $0.17 or slightly north depending on your volatile from quarter to quarter. Finally, we look for our corporate investment spending to peak in the 4th quarter our corporate expense line should approach $30,000,000. The largest part of the increase just as was the case last year as our annual LS MD meeting, which produces $0.06 to $0.07 of cost. Given the weakness we are seeing in results, we considered postponing the meeting. However, that would be exactly the wrong relief fluctuations.
These annual sessions are not parties. They are intense planning and training sessions in our strategy for growth, and they are essential for our future. As you saw in our release, we have lowered our outlook for 4th quarter significantly. The midpoint of our new range is $0.18 below the previous level. The vast majority of finance.
As Steve will discuss, our belief that value is created by organic growth with disciplined use of capital is unchanged Each of our businesses has and will benefit from our program line of increased talent both developed internally and hired from outside 2, incremental expansion of products in areas of practice 3, deepened coverage of countries and regions 4, R and D, where it is relevant 5, improvements in cost structure and 6, expansion of our vision of and capabilities and origination. Doing these things will increase EPS. However, this is a volatile business and our growth will always be off a difficult to predict baseline. Since the beginning of 2015, we've seen 6 major changes in our outlook. 1st, corporate finance has materially outperformed.
2nd, the earnings benefit we found from the use of our cash to restructure our debt proved high. Unfortunately, we also now have 3 segments with weaker results in 2015 than hoped, economics, technology and now FLC. Up until now, this weakness has been offset by corporate finance and delayed investment spending. But with FLC down and our investment programs underway, we will have to grow in 2016 off a lower base. We are not yet ready to provide our 2016 guidance.
However, given our run rates going into the fourth quarter, it is unlikely we can reach $2.50 per share in 2016. Now I'll hand it back to Steve. Thank you, David.
Let me pick up on David's points and bridge a bit between the results this quarter, the fact that it's taking longer to reach 250 a share and the positives that we are seeing. One way I'd like to do that is provide some historical perspective Disaggregating our business into 2 parts, a group of 4 businesses that I got a lot of questions on when I first started The 4 businesses that I received a lot of questions about when I started were Stratcom, Corp Fin, FLC And Health Solution. And if you look at the slide on page 8, you'll see, I guess, why many of the people were asking about those businesses. From 2000 to 9 to 2013, as I think most you know, these businesses were down substantially in adjusted EBITDA, cumulatively $114,000,000. Is about $1.70 was notwithstanding the fact that during this period, we invested a substantial amount of money in acquisitions behind some of these businesses.
Some of the decline was the aftermath of the restructuring boom in 2009, but as you know, and can see on slide 9, the decline persisted for an extended time after the restructuring boom ended and collectively dropped before below pre restructuring boom levels and had the exceed to grow in these businesses, not to shrink, but to be growing them. We have great professionals. And in many geographies, we have very strong competitive positions. We should businesses, but we invested behind other ones. And we made a lot of what we call bets, which are the colloquial term, it means investments are behind key positions.
And a number of those investments are working. Cumulatively the effect is that we've begun to turn these businesses around. In 2014, those businesses cumulatively were flat in EBITDA and adjusted EBITDA. Now flat, I think we all would agree is hardly exciting but compared to a drop of $26,000,000 a year over the prior years. Flat without any support from acquisitions is a start.
This year, when we look at substantial investment headcount. Cumulatively, these businesses will be up roughly 10% this year in adjusted EBITDA. The 10% growth is with far from all of these businesses humming some of the acquisitions we've talked about from time to time are not yet fully performing. Some places, some of the new revenue bets are not working. Added headcount in some places that are not fully deployed.
But even with those headwinds, there's enough good stuff that is going on in these businesses that we've been able to take this pattern of many years and start to turn it around. This is what we need are strong solid investments that collectively work. And we are seeing those results here. Let me switch from where we've made clear progress to the other 2 businesses. If you look at Slide 12, you see a different story for econ and tech for 2007 to 13.
Today were wonderfully stable businesses during this period, with growth up to 2011 and stability thereafter. Really the core rocks of stability for the company during this period. If you look over the last 2 years, of course, they have not been the combined they are down $50,000,000 in adjusted EBITDA between 2013 and where we believe they're going to come out this year. The biggest surprise for me has been econ. We have unbelievable professionals in this business.
And it had been a real growth business historically. There were new employment contracts beginning in 2014 and some other cost issues that created a margin hit for the business. But the forecast that time and for many quarters since was that EBITDA though it would take a short term hit would be back up that top line growth would over come this hit. As you know, the expected revenue growth hasn't come. If you look deeper in fact, econ EBITDA peaked in Q1 of twenty thirteen at $26,000,000 and declined with some jagged edges to roughly half that level by early 2015.
A year ago, based on the revenue forecast, I had expected that we would get the earnings back to 2013 levels by 2016. And this is clearly not going to be the case and is one of the major reasons why the 250 a share aspirations for 2016 is unlikely to be nor have we yet turned these econ businesses back into substantial growth businesses. But we believe we have a much better handle on these businesses and significant actions by the teams involved have stabilized these businesses. We've taken a hard look at the businesses on two dimensions. First, simply to make sure we have more realistic revenue forecasts And second, to talk about what do we need to do to actually get these businesses growing again.
We have the best franchise in the world, the world's best professionals, are businesses that have historically produced tremendous growth. We are committed to and we believe those investments and the efforts of the professionals have stopped the multi quarter hit that started in the first quarter of 2013. And we've thus eliminated a significant persistent drag on our earnings. We look forward over time to turning these businesses back to the financial growth engines they once were. The second issue is tech.
We've always known that this business is heavily dependent on large jobs, and we're worried about both the risk that any quarter or 2 would lack for the large jobs and the more systemic issue of whether as the financial crisis litigation ran off the market as a whole might slow. I would say that the market has moved as fast in a negative direction as our scenario ranges feared, and we've been affected by that about as much as we could envision. We believe the eDiscovery business will be around for a long time, and we have a terrific position in that business and terrific professionals. Nevertheless, given the market dynamics, we are looking at the fundamental strategic elements and working to figure out and I'm confident we will find good answers given the strength of those professionals. Having said that, none of that gives us confidence, particularly in the absence of big core job or 2 that this is a substantial growth engine for 2016.
So let me step back where does that leave us as a whole? It leaves us with a substantially lower base than where I had hoped we would be at this point in time. But the beginnings as well of a growth trajectory. Trajectory. Time any one of those businesses can be off in a significant way as we've seen this year with FLC.
Cumulatively, we believe we've turned a major corner on a very difficult yet claimed to have returned econ to its historical growth trajectory, we do believe we've bottomed out the decline and have the right sort of conversations going on internally to over time return it to growth. And more important, we have the right set of professionals to do that. We clearly some uncertainty near term about tech, but we also have terrific for people there who are focused on the right questions. And I'm confident we will find good answers. The net of all that is for sure a lower base than we had hoped, but even so a base that we believe this year will be up double digits over last year in terms firm that the lights and inspires the great professionals, but also that delivers on sustained double digit EPS growth going forward.
So with that, let me open the floor for questions
We'll go first to Tim McHugh from William Blair And Company.
Thanks. I guess, first, I guess maybe just to focus on eDiscovery And Economics. I get you kind of you made some comments maybe start with economics that you feel like you've kind of stop the declines and are in a better place. But I guess what's going to drive? I mean, I guess, can you elaborate on what's what gives you confidence that we are on a better trajectory here other than I know the comparisons and so forth get easier, but maybe a little bit more detail there?
Well, I think actually the comparisons are a big part of it. Year over year, we have had weakness in finance we had weakness in Financial Economics And Private Anti Trust that started fourth quarter last year. And those have persisted, but we've bottomed out and actually now started to see sequential, sometimes a sequential growth. So we're now not going to be fighting negative from fourth quarter onward in those segments and in the other businesses where we've been seeing substantial growth, which has been offset by those weaknesses, any further positive efforts we have there now can go to the bottom line. Now M and A, again, you can't that's volatile too.
And we are at we will rise or fall with the our share is great there. And we've been doing really good in that area and in arbitration all through the year. It's just been offset by by the comparisons in the other two segments. Those are now stabilized with some signs of sequential growth. And we're still looking for good stuff in international arbitration and M and A.
And arbitration is not as volatile or susceptible just to the wave of M and A going up and down. That's one where if you're adding professionals, you get incremental share and volume and we're continuing to invest. So it's all positive signs that we think we have bottomed. And at the minimum, hopefully this will not be a source of negative surprise. And hopefully we can have some upside going forward.
Okay. And Let me just ask, I mean, a bigger picture or somewhat bigger picture. I guess, I mean, you've resisted wanting to talk about profit margin in the past that and then I know you've pointed out more revenue at a lower margin still a good thing, but given your new guidance implies margins will be down again this year and despite all the headcount, the growth is really fairly modest at this point. I get you've got different segments with puts and takes, but can you I mean, does the thought of a March for the next year or 2 or some sort of medium term margin target. Do you have any thoughts on where you said I guess in balancing those factors?
Well, we've never resisted talking about what our margins are, but as you correctly point out, we've resisted saying, what is the perfect target margin for the overall company and for each segment. And I actually think the results of the quarter give a good example of of one of the reasons why we do resist that. Not that we don't think about it, not that we're not willing to talk about it in pieces. But so for example, in corporate finance, we've added heads at a dramatic amount. And because as Steve said, many of the investments that we've made over time have been so successful there.
Those heads, not only were immediately rushed to the front lines to the work, but they did it in a way that improved our operating leverage and further boosted the margins. So in FLC on the other hand, we also added the hedge, but because the revenue and the demand was not there, it degraded it Now so kind of on a rolling 3 year basis, if you have revenue sustained revenue growth, those headcounts both cases are part of structurally improving the margin and by giving us the benefit of operating leverage when we have adequate demand to put them to in a more profitable way. And if you look at our corp finance numbers, the cost per billable head is dropping revenue is going up. So it's working exactly as you want, but the margin is in some ways a little bit more volatile, because you have the costs. So we definitely are willing to talk about it, but it it will it's almost impossible on a quarterly or even an annual basis to nail a target margin when you're trying to build for a long term sustainably more profitable and on average higher margin business.
But I know Steve has views on this too. That's a good answer.
Does that answer your question, Tim, or start to answer your question?
Yes. That's all right. Thanks, guys. Thanks, Tim.
We'll go next to Tobey Sommer of SunTrust.
Within your headcount growth, is there a difference in the rates of year over year consulting growth if you look at it from a SMD and top level, mid level and kind of at the junior end?
For sure. There's a huge amount of variation across our segments depending on their starting place, Toby, but absolutely. Are we're up on all levels. Our SMD headcount is up as is across the board by level, but it's different by level. The percentage headcount growth in the SMD is the lowest because part of what we're trying to do is rebuild leverage that we didn't have.
I mean, we can't achieve the profitability targets that we think we deserve or the growth aspirations with the low leverage that we had allowed ourselves to get to for a while. So most of the headcount growth is not at the SMB level, but we have growth that at each level in the pyramid. Did that answer your question?
So without without specific percentages somewhat lower in the SMD level, maybe it's mid single digits rather than 8% or 9% like the aggregate. And then the low level is in the double digit somewhere.
Yes, I think that's about right. Again, it depends, but, yes, even low single digits on SMDs, depending on practice. Yes. I'm curious about
you've now been at the helm for several quarters. And you've seen variation in the company's forecasting versus actual results. Is anything, have you altered anything about your forecasting process is one question. And then I'm curious if the sharp focus on onboarding new talent is at all, maybe taking precedent over the financial forecasting? Thank you.
I'll answer the first one. I think actually we have since I joined and then since David joined, we've done a number of steps to upgrade our forecasting. I think
we could have just done
a better job of there's some inherent unforecastability about this which you'll never get rid of. And then there's some part where if we had been a little more probing in our questions and challenging challenging our data with historical analogs and so forth, we could have gotten rid of some less probability forecast. And that's just part of the continuous improvement. I would say we are now significantly better at forecasting than we were. But it's probably still work to do.
The second part of your question was, are we focusing on onboarding and is that distracting from our financial forecasting. I don't think those 2 are connected at all, actually.
We
do have a lot of focus on onboarding I think we have some conversation internally as to how much work we've put into make sure we're getting the right talent and to get the right talent sometimes means you have to have your senior most professionals involved in hiring and whether that has helped distract from the marketplace activity and contributed to some of the slowdown we're seeing in a couple of places and we're talking about that. But I have not seen any connect between that and the financial forecasting. David, would you agree?
No, no, it's completely different people for the most part. So yes, we've we've increased the frequency and the depth of the reforecasting exercise certainly since when I first started and on a segment by segment basis, we're improving the backlog. I guess you could call it interrogation tools, and But the inherently there's always going to be a portion of even a quarter's forecast for business that has to be acquired and you have greater or lesser amounts of confidence depending on how much of the expected business for the quarter is infirm backlog as opposed to how much to be acquired. Generally, the surprises in my now 15 month the company generally seem to come from matters winding up a little faster than expected that's usually when you get a dividend of expectation within the current quarter.
And my last question is on the economic practice. The slowdown in the top line did seem to occur more or less when the change in compensation occurred. At this point, do you see a linkage between the two or do
between the two, the that's I don't think there's a causal link between those two, if that's the question. There are market phenomena that are going on in all of these businesses. And whether we've lost or gained share in a subset our business is another factor we talk about internally, but
I don't see a connection between that and
the new compensation arrangements, Tobey.
Okay. Can I sneak one more in? In prior election cycles, there has been a kind of a a slowdown around government led investigations as kind of top regulators go back out into private employment and their custodian subordinates don't tend to launch as many new investigations, but rather just execute on the ones that are already on going. If you looked at that as a potential explanation for activity in the marketplace, is that anything you're
I'm sure that those discussions are going on in FLC right now. Actually a bit resisted those. I think the truth is that even though that could be a macro factor, my sense here, Toby, is we've we've been a little bit too willing to go to macro factors. Yes, that could be true. The truth is that we have great professionals who in even if there's market slowdown, will typically gain share.
And I think we need to not use that as an excuse if the market is a macro slowdown, we need to be figuring out how do we gain share so we can deploy the professionals that we've added and get this business back to growing. I think I don't think that we should be used. That might be true. And I'll be meeting with FLC tomorrow to go through the latest hypothesis we're going through. And I'll what they say about that.
But I want to be clear, I don't think we should be using that as an excuse. We have slowed down in some of the offices with most outstanding professionals. My experience is the outstanding professionals focused on the market can get their people back busy. The question is how long will it take, but I believe we can and need to get the folks back busy. Does that answer your question, Tobey?
We'll go next to David Bouda of Sidoti. Good morning, David.
Hi, good morning.
Just a
couple of questions. First, And the FLC side, just following up there, as we think about that business, do you think there are secular changes, there that maybe now we have to focus on a little more closely and therefore, maybe we should be going about that business in a different way?
Well, we'll be talking through all those hypotheses I have strategy conversations every 3 months with each of the segments and I have one tomorrow with FLC. So we talk about all of that stuff. At this point, I don't it's similar to the question with Toby. At this point, I don't there's enough of the secular change in that market that we should be changing direction. What we need to do is get our professionals back in the market and get the people busy.
And does that mean there aren't specific geographies and specific sub practices and so forth around the world? We're a very complicated business. There's always the truth to that. In sub practices and sub geographies. But as a whole, I don't think so, David, not that's not our conclusion.
Our conclusion is We've got to get back to work and get our people busy.
Okay. And then, broader question. As we think about what's going on over the last year, say, versus the strategic review process that went on when you initially joined. I guess two questions. First, at this point, your level of confidence in, that's strategic review process, say, and maybe the plans, the planned outcome there, given that we've run into some bumps on the road?
And then 2, is it time perhaps for a closer rereview maybe of all the business lines?
So,
forgive me if it's unfair. I'm just It's just
a perfect No, that's fine. Look, so in terms of rereview the business lines, we are look, you recognize that when you first start, you get a strategic review and you need to look at each of those businesses sequentially and make sure it holds. And we're doing that every quarter and we're doing deeper dives with different businesses or subparts of our businesses periodically. It is a part of our process. So I agree with that.
In terms of the business versus what I saw, there are surprises. But I would say, again, let me go back to my remark. The biggest is actually with one of our best businesses is econ where, we thought that where there's going to be a cost hit in 2014, but we would rapidly overcome that with growth. And that growth hasn't come. It doesn't make the business less of a great business, but that is a big gap in where we are today versus where I thought we would be today.
And mainly because it's such a great business, he said it was very given the trajectory, it was very easy to believe what I believe management believe, which was that with the cost hits would rapidly be overcome by growth. The cost hits have come haven't been rapidly overcome by growth. And that's a new reality and it's a key part of it. If you adjusted for that reality, the noise around all the rest of the businesses would even out. Corp Fin is outperforming where I thought we would be at this point.
FLC is below. Stratcom is is I think there was a lot of skepticism about Stratcom. Stratcom has done a terrific job of moving its thing. So there's clearly differences from where we were a year ago. I would say only one fundamental surprise and it's with one of our best businesses.
And I think we've got that understood at this point. And we do have an important set of questions with tech driven by the market and we have a look at that going on now. So does that help, David?
It does. It does. Okay. And then, just one last one. I know one of the key points has been making some investments and some broader bets that maybe plant the seeds of growth longer term.
Any of those bets that you can either talk about just yet or is it too early in part 2, at this point, do we back off some of that investment or do we keep that going?
Look, I think there's a lot of detail we could go into. I don't know whether we want to go into all that here. In every one of the businesses, we have investment in Stratcom, the key of the turnaround to Stratcom was to figure out sub parts of that business where we thought we could at the time we were disinvesting or slowing the growth in some other parts. And we've invested behind, as we've talked about, public affairs we have a very strong position in. We've invested behind our energy practice in the U.
S, our public affairs business in Brussels. And there terrific results there. I don't know if we are releasing numbers of headcount of our Brussels office, but it's I guess we're not. But I mean, there's substantial growth. And I think by many measures, we're the number one public affairs business in Brussels right now.
And so there's those sorts of stories in every business. We've talked about some of the investments we've made to drive businesses in our Corp Fin business, non distressed businesses in the U. S. Some businesses in Europe The businesses in Europe were a big loss drag in their 1st year of investment. This year, they're net positive by the end of this year.
And we expect good things going forward. And same thing for some of the U. S. Businesses there. So embedded and even in FLC, which is weak right now, there's some very strong successes.
Our construction solutions business that we've invested in is going extremely is growing very solidly. So I would say that we have not had too many investment failures, which we've had to pull the plug on. We've had a couple. The biggest investment, of course, though, is in the headcount And right now, you see the issue that happens if you add the heads and you don't get the revenue and you see that in FLC. And I think we're pretty resolved to get that improved by next year by getting the revenue in to employ those people.
So does that help?
We'll go next to Paul Genochio of Deutsche Bank.
Hi. Good morning. This is Ato on for Paul. Good morning.
Good morning Ato. So, just a couple
of questions on your healthcare business. First, can you size that this? And secondly, have you seen any change in or can you give us some thoughts on what you're seeing as far as the demand picture? Have you seen any slowdown or any pullback in demand as hospitals having better margins and better margins and that may be influencing some of your performance improvement projects. And the 3rd net of those and what you're seeing from demand picture Can you just remind me what you're whether or not that's changed your hiring plans for that group?
Okay. Healthcare is a relatively small part of the segment that we reported FLC. And we don't break that out specifically. I think we play in a care space and the dynamics we see are probably a little bit different than some of our competitors whose results you may have seen So we have a business there that is in kind of advisory and investigations, which really runs on its own dynamic the volumes there very much driven by our origination activity. And then we have a performance improvement business that again is not as oriented around the very large research institutions and is more in the region and then smaller space.
And again, there, I would be the we really while we certainly see what's going on in the larger healthcare base, typically our demand is driven by origination activities, which does tend to go in some cycles. So, I think the business is doing okay this year. It's roughly comparable to its performance last year. And which was down from a very good 2013, but it's not a particular drag or boost to our results this year. We're pleased with what we're doing.
All right. Great. And just one more. You mentioned across the number of that you've had some positive results driven by your exposure to the M and A cycle. So in our previously, as Sienna said that your overall revenue exposure to mergers and acquisitions was about 10% to 15%.
Do you think that that still holds true? And if not about what do you think that exposure is now?
Yeah, I'm not sure that, I haven't tallied that up in that way. Recently. I mean, I think the 2 well, we have 3 segments that have some well, we have 4 We have all of our segments have the participation in M And A as I think it through here. But the amount, how it varies is is rather dramatic and different. Our Corp Fin business has a growing transaction advisory service, particularly in Europe, but also in the U.
S. The that can obviously, but that plays in a different cycle than our say our antitrust business which will tend to not be on the diligence side, but on the support of the approval, our strategic communications business, obviously has some participation in M And A too. I would say the only two segments where generally you would call out M and as being a material driver of better or worse would be the economic segment and strategic communications, where and I think really the only one where you would say a large defined portion that can move materially as probably economics. So strategic communications, it's important, but it's kind of we're in ongoing dial log with these clients, much of it is retainer based. And when they do M and A, obviously, the business grows a lot, but it's not that it's kind of as big or episodic is the way it could be in economics.
So, and generally, we I don't think we would sign up for 10% to 15%, but the fact that it is not half our business or that we're not a M and A cycle dominated company we definitely would agree with.
Okay, great. Just one more I'd like to sneak in. Looking at some of the strength you've seen in North America on the trust work that you've been doing within corporate finance and restructuring. Is that primarily driven by pre filing work that you're doing with debtorside or is it more you guys are getting more engagements on the creditor side? Or if you can just price out those projects at all?
I think Historically, 10 years ago, this company was seen as a creditor side shop. And we have probably the leading creditor side practice in North America. But I think people don't realize that the debtor side work that we do is significantly more than half of our revenue in the core thin business. We've made a huge strides on that debtor side, particularly in specific industry verticals. We have a terrific tech vertical, we have a terrific retail vertical.
So you heard this past year about some of the places we were doing doing work in those. So it's a combination of of both actually. But I think if you look through some of our past statements, you'll you'll see a lot of debtor side work and that might be a little bit more surprising to people who knew us 10 years ago. Does that help?
Yes, that's great. Thank you very much.
We'll go next to Randy Reese of Avondale Partners.
I was just wondering if you were contemplating some changes in the investments that you've made in and let's say the selling side of the business if you could evaluate, what you've done in the effectiveness of what you've done to date in what the next step is?
Origination. Are you talking about origination side of the business? Yes. Well, that varies a lot by segment. I think there are 2 things we have done, one which I think we've done pretty well.
The other one, which I think we're starting it a little bit more aggressively. The one that I think we've done pretty well is continue to acquire talent from the outside. We're not doing acquisitions. But we've really ramped up the lateral hire program, selectively. I mean, obviously, we've been adding more junior staff than senior staff.
Consciously to increase leverage, but we have across all of our segments attracted a fair amount of talent laterally. Now usually more senior levels a little while for those people to get busy. Junior people, you hope that they get busy within 6 months or at worst 12 months, the more senior people it can take 12 or 18 months or even a little longer sometimes to get to the full run rate. We feel very good about those lateral hires. And I think that's a process that we're continuing to go through.
The other side is just commercial excellence. And I think we really have not historically had a lot of discussion internally about just what is the best program for leveraging this terrific set of relationships we have. We have such good professionals that the phone often rings. And, and like in many businesses like that, if the phone doesn't ring, it's a different set of skills than simply answering the phone and being great professionals. And we have had some conversation in here about the need to upgrade our discussions internally.
And we have this all SMD meeting coming up. That's gonna primary focus on it. So that's an area where we've started to work, but I think we've got a long way ahead. And that's a pure commercial excellence as well as some of the stuff we have piloted past year, which is around that some places where we've made some investments in some progress, but we're planning to turbocharge over the next 24 months. Does that help Randy?
At this time, we have no further questions. I would like to turn the call back over to our speakers for any additional or closing comments.
Thank you very much for your time, your support. We know that this is not the quarter that we typically like to deliver, but I hope you walk away from this and understanding that we've notwithstanding this quarter or the forecast for the rest of this year we believe that this company is headed in the right direction and will be. So many thanks for your support. Bye bye.
That does conclude our conference for today. We thank you for your participation