Good
day everyone and welcome to the FTI Consult First Quarter 20 15 Earnings Conference Call. As a reminder, today's call is being recorded. And now for opening remarks and introduction, I'll turn the call over to Molly Hawkes, Head of Investor Relations at STI Consulting. Please go ahead, ma'am.
Good morning. Welcome to the FTI Consulting Conference Call to discuss the company's first 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 to remind everyone that this conference call may include forward looking statements within the meaning Section 27A of the Securities Act of 1933 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 that may cause actual results or issued this morning, a copy of which is available on our website at www.fticonsulting.com.
As well as other disclosures under the heading of risk factors and forward looking information in our most recent Form 10 K and in our other filings filed with the SEC. Investors are cautioned not to place undue reliance on any forward looking statements, which speak only as of the date of this earnings call. And will not be updated. Adjusted segment EBITDA, total adjusted segment EBITDA, adjusted earnings per share and adjusted net income. 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 Lastly, 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 15 results. With these formalities out of the way, I'm joined today by Steve Dunby, our President and Chief Executive Officer and David Johnson, our Chief Financial Officer. At this time, I'll turn our call over to our President and Chief Executive Officer, Steve Gunby.
Thank you, Molly, and welcome everyone to today's call. I know many of you are interested in the detailed versions of our first quarter results, which David typically gives you. So I'll turn the call over to him in a moment, but maybe I could take a few moments front to frame the discussion. And then I'll come back with David afterwards to open the floor for questions. Our earnings of $0.57 a share in the first quarter is obviously a good number.
It outperformed our expectations and I expected outperformed the expectations of many of you. What I would like to do, however, is avoid expressing delight or excitement about that number. And on this perhaps see if I can direct our attention elsewhere. Everyone on this call knows how quarterly results in this industry can be affected by a lot of factors. One time charges or one time benefits, lumpiness in specific assignments, timing of certain expenditures, last quarter, I'm sure you'll recall, we were negatively affected by some of those factors.
This quarter, our results were positively affected by some one time benefits, and a slower ramp than we anticipated in investment spending, which doesn't mean we're not going to do the investment spending. It's timing issue. Just means that the investment is going to be backloaded. So the $0.57 is a good number, but I think it's not a number to get excited about. It overstates the underlying core strength of the business just like last quarter's number understated it.
I don't think the $0.57 a share by itself is a basis for excitement. To me, embedded in this quarter is news and activity that has both me and the professionals in our business excited. We have teams that are doing a huge amount in every segment TI. Now that's a more qualitative statement. And I think all of us on these calls like a little bit of numbers.
So let me do one statement about numbers and then come back to try the qualitative statement about the quarterly earnings because of the reasons I said. I do want to underscore there's certainly nothing in this quarter that makes me less confident about the annual guidance we have given you of earnings between $1.95 $2.20. And as David will talk about, we reaffirm that guidance for this year. And probably most important, nothing in this quarter makes me less confident of the aspiration that we have been talking about of 250 plus a share in 2016 and then turning FTI into a sustainable growth business. Any given quarter in the businesses to give the underlying businesses a sustainable growth trajectory then we are setting the foundation for the future.
And I believe within this quarter are signs that we are making that progress. Most visibly this quarter, you can see that in the numbers in Corporate Finance And Strategic Communications. So, let me focus my remarks, particularly there, but then I want to come back to some of the other segments because even though some of the efforts the teams are making, they are less visible in the numbers, I think they are important. And they're meaningful. In Corp.
Finance, as we as you know, we've talked a lot of in the past about our non distressed services. We are we are growing a substantial non distressed business and that is one of the thrusts we have. And I want to come back to This quarter showed progress not only there, but also in our distressed businesses. We showed a 1 third sequential increase in our distressed revenue. Some of that was due to market forces.
As we all know, this market is very depressed and it still is depressed. But in the first quarter, it did bounce a little bit from the lowest levels that I think many of us have seen in many years. So some of our progress is a reflection of the market. On the other hand, some of of the business. We have not stayed still in our businesses, not on the non distressed, but more on the distressed.
For example, as some of you know, we've invested heavily in retail. Bob Duffy, our segment leader, is also a very strong guy in retail. And we have behind that strength, behind that area where we have a right to win. And because we all attract terrific talent because of our current position, and we added that talent in our retail business. And I think it's not coincidental that in that business, we've been winning a higher share of the retail opportunities than I believe we have ever won in the past.
Assignments like radio shack, but a whole lot of other ones that we've talked about. And the sum of those activities was material during quarter. Similarly, a great business we have called creditor rights where we have a terrific competitive position. We knew we have a right to win there and we continue to invest and support that team. And even in the slow market, there's some business and the strength of our position in that has allowed us to win what I believe are the 2 large discreditor rights jobs awarded in recent while, Caesars Entertainment And Energy Futures.
The investments in Europe we're making continue on pace and we're continuing to make progress there. The financials in this quarter reflect the fact that those are on track that we still anticipate them being further ahead a year from now than they are now. But versus where they were a year ago, we're making major progress and that shows up in the numbers. So the net of all that in Corp Fin was that the adjusted EBITDA margin in this quarter went from a truly tough margin a year ago of under 12% to a 21% EBITDA adjusted EBITDA margin in this quarter. Now some of you know, we've had higher margins than that at other points in this past and we certainly have aspirations for that.
I mean, we have even Now we have many opportunities, both in North America to grow strong business, but also to address positions of weaknesses, which we've talked about like Australia. But this is the 1st quarter where we've reported adjusted EBITDA over 21% for something like a couple of years, I believe. And I think this is a sign that we are making real progress in that business. The other point I want to underscore team did this without cannibalizing our non distressed businesses. We are not in the non distressed businesses just as a marker waiting for the distressed to come back.
We have found places in non distressed where we have a right to win, where we want to grow those businesses, both when distressed businesses are good and distressed businesses are not good. And we are committed to that. We will flex some resources back and forth because that is doable across this business and enriches the the experience for our support the distressed businesses, and we didn't do that this quarter. So even while responding to some of the urgent demands of our distressed services businesses, were able to grow the non distressed services by double digit year over year. So I think we are making real progress in corporate finance.
We are not declaring free. We have so many opportunities ahead. We have some areas we have to fix, but we are making real progress. And I hope you take away from this quarter the sign that our professionals are engaged not just in talk, the sort of talk we shared at Investor Day, but they're engaged in real actions, actions, not all of which will work, but cumulatively are making a real difference. Strategic Communications is another business where we talked a lot about in Investor Day, and it's another business where the team is making real progress.
Again, we are far from declaring victory, but there was an impressive set of delivery on a number of initiatives over this last 12 months and in this quarter. Over the past year, our senior professionals in that business sat down, looked at what they had and said, I know some parts of the world don't believe in as much as we to the world. And they did a lot of work. They saw places where our brand was under leveraged, but where we have terrific people, we have places where we had terrific people, we were not supporting adequately and they committed to hiring behind those people. And they looked at places where it had excess costs and said, we need to figure out ways to fund the journey here and take costs out both in the segment and also pushing corporate where corporate costs were too high.
And on all these fronts, the team has made progress This morning we reported adjusted EBITDA of 13.7 percent in that segment. 13 point 7% is not an extraordinarily good number. It's not where we hope to have this business long term, but it is 700 basis points higher than a year ago. That's the definition of what What we're trying to do is to have our businesses look at where we're strong and reinvested behind those positions, look at where we're weak and figure out what to do with that and thereby make fundamental improvement haven't done that over the last year. I've highlighted those 2 segments because this is where the progress is most visible in the external numbers.
David will give you a little more detail on segments and others. But let me also state that even though the progress is most visible externally in those two segments, I believe our teams are engaged in you won't see a huge delta in the numbers versus last year. If you recall, in the first quarter, we had said some extraordinarily large assignments last year. We were basically sold out. Physicians to commit it to hiring, building up some other practices with a view that has the big jobs of the first half of twenty fourteen runoff going to create other engines to drive growth.
The view we have here is that we will probably not get a lot of growth out of LLC this year. But if we do the right things, we will be setting that business up for another contribution of growth going forward. And the teams there to work underway just creates confidence that in that position. Similarly, embedded in the FLC results is a subset of FLC, which is our Health Solutions business, which had a troubled 2014. Because of the strength of some of the underlying professionals, we looked at that business and we said, we shouldn't be cutting here, we should be continuing to support that business.
And instead, commit to major business development activity and have confidence in the team that if we invest behind them, they will create the next generation of growth. Those activities in 2014 have been rewarded by a rebound in the business in 2015. In econ and technology, it's a little harder to see the results of the investment in this quarter's results. Econ clearly has had a slow start for the year and a slow 4th quarter, but we also have great positions there. And so we are focused on building those positions.
We are making good investments in terms of attracting the right people and reinvesting behind positions of strengths. We obviously need to turn In technology, it's a complicated story. In some ways, this is our hardest business. As many of you know, it's an incredibly lumpy business. And we, in particular, because have high concentration ratios, because we are not involved in the general commodity side of the business, but some of the most fundamental pieces of work, the stuff you read about on the front page of the Wall Street Journal.
That means we sometimes have to put scores to help law typically we have found the next wave of work relatively quickly, but it can be months in between. This team, I've been if you look at the business, I've been surprised to find this team in the face of those forces has done a remarkable job of having stability of earning. But at some point, you're not going to have that. And that is clearly a risk for us over the next couple of quarters for this business. What is going on here is obviously not just an FTI story.
You can obviously see major impact for other competitors in the industry. And in the team markets are not going away. Those are the areas in which we are advantaged. The biggest most complicated global jobs is a good long term place to be, and we are committed to that position and to this business. And I wanted to underscore that I believe we have the best management team in the business, and we will continue even if we have a couple slow quarters to make bold bets behind them.
In this introductory remarks, what I've tried to do is take your tension away from the $0.50 a share $0.57 a share, which I think is a good number but overstates the underlying business. And I'm trying to encourage you not to take any number in any quarter and multiply it by 4. But I do want to underscore that we think this is a good number for different reasons because it reflects solid change initiatives that our professionals are driving. We know that not every initiative will work and not everyone will be in schedule, but to the extent that our professionals drive these change efforts and actually have success on a great number of them. It creates the foundation not only for the confidence we have in this year's numbers, the confidence we have in the 2016 aspirations and the confidence that we the
So turning to slide 4 in the deck that accompanies the call. Revenues for Q1 were 432 $300,000, that's up 1.6% from the prior year quarter. And that 1.6% increase is net of the negative impact of foreign up 4.2% year over year otherwise. Revenues were up sequentially from Q4 2014 by almost the same amount. They were up 1.7% and that's net of a 1.6% negative drag from FX translation in that 3 month period.
Fully diluted GAAP EPS were $0.57 compared to $0.45 in the prior year quarter and $0.02 in Q4. In this quarter, first quarter 2015, there's no difference between fully diluted GAAP EPS and adjusted EPS, which is also $0.57. And on an adjusted basis, $0.57 compared to $0.41 a year ago and $0.04 in Q4. Just as Steve did, I want to caution you that 57 dollars is not our new quarterly run rate for EPS. In particular, I'd like to highlight several items First, we spent very little on corporate investments in the first quarter, budget for investments, but arguably this lack spending benefited our first quarter results by at least $0.10.
We hope and expect to spend that $0.10 plus additional dime in later quarters. So that $0.10 is not upside for the year or an indication that we are now at a higher earnings run rate. It's just timing In addition to investment and that's not unusual in our business. Those benefits aggregated to about $0.11 in the first quarter. To give you a sense of the that's continuing a trend we saw last year.
Accordingly, we adjusted our estimated liability for medical claims in the quarter. We also made from the reconciliation of year end accruals to actual awards and payments made. To give you a specific example, we have a bonus plan that requires certain individuals to take part of their annual bonus in restricted stock. However, if you are retirement eligible at the time of that award, stock vest immediately as opposed to over the 3 year restricted period. Because of that, GAAP requires us to immediately expense 100% of the stock cost for retirement eligible employees rather than spread that cost over 3 years.
That 100% charge for folks who are retirement eligible has always been in our first quarter results in past years and in our budgets. This year, in order to reduce our use of stock for compensation, we offer their annual bonus. However, for technical reasons, the cash deferral option couldn't have a retirement feature. So if you took the new deferred cash option this year, you couldn't accelerate by retiring and under GAAP, we spread the cost over the 3 year deferral period as opposed to taking it all upfront in the first quarter. We didn't make this change in the program to benefit earnings, but it did have that effect.
As I said, all of these comp and benefit items aggregated to about $0.11 The benefit is spread across all our segments, mostly in the direct cost line. We did not anticipate these benefits when we articulated our EBITDA margin guidance by segment for the first quarter. And the benefits we saw in the first quarter shouldn't benefit segment EBITDA margins seeing a change in the quarterly run rate, just a one time benefit for the first quarter. So again, in rough summary, $0.20 plus should be adjusted. Half is investments we hope to make in the remainder of the year, that's no upside versus expectations, just timing.
The other half that's associated with comp and benefits is upside versus our expectations, but it's So in summary, with those adjustments, this was a $0.35 to $0.40 quarter, not a $0.55 to $0.60 quarter. Our guidance for the in the latter part of the year to meet that guidance. No change versus what we told you in February. Nonetheless, this is not the worst place for us be after 4 months. Finishing the slide, adjusted EBITDA for the quarter was 58 point $7,000,000 or 13.6 percent of revenues compared to adjusted EBITDA of $51,200,000 or 12 percent of revenues in first quarter 2014.
And adjusted EBITDA sequentially was $36,000,000 or 8.5 percent of revenues in Q4 2014. So good comparison there also. Turning to our segments on slide 5. As Steve said, in corp finance restructuring, had a good performance, but revenues increasing 13% year over year to 14.1% from Q4, as Steve said, higher demand for our distressed services in North America. We are delighted to have achieved this level of revenues in corporate finance restructuring so early in the year.
To provide our outlook We hope level in the second quarter and through the balance of the year. Adjusted segment EBITDA for the quarter was 22,500,000 at the margin of 21.2 percent of revenues compared to 11,000,000 and $9,900,000 or 10.6 percent of revenues in Q4. To refresh our outlook, this may be our high watermark for EBITDA margins for Corp Fin this year. Nonetheless, we currently see reaching high teens EBITDA margins in Q2 and also for the balance of the year. This is driven by higher utilization that we expect in both North America and Europe, Middle East Africa.
We currently see no barrier to a strong year in this segment. In February, we told you that corporate finance restructuring was off to a solid start driven by North America. And to elaborate on the drivers that Steve told you about, we saw a substantial increase in distressed activity in first quarter versus 4th quarter, and our results saw significant lift from several very large distressed engagements, including radio shack and Caesars Entertainment. Also interim management trees, as Steve said, such as energy and retail. A lot of things went right for us in Q1, and this quarter's results may have been a short term peak.
Our challenge this year will be One source of support for that which we are counting on to support the bottom line in the second half of the year in this segment. Transaction advisory for private equity and corporates is on track. And it's maintaining the pace we hoped for coming out of 2014. European tax advisory is probably a quarter behind our expectations for growth, but we continue to invest. We expect our hiring and investment there will bear fruit over the balance of the year.
This positive momentum in Corp Fin in the first quarter was partially offset by continued softness in Australia. We do not expect the Australian business and reduced Australia's expected contribution to the earnings guidance I've provided versus what we thought would be the case 3 months ago. We remain committed to all of our Australian businesses, Turning to Forensic And Litigation Consulting, or FLC, we again reported record revenue of 120 $3,000,000 this quarter. That's 1.5% compared to 121.4% in the prior year quarter and up 1.8% to refresh our outlook. We hope to see slow and steady sequential revenue growth comparable to the growth FLC's adjusted segment EBITDA was $22,100,000 producing a margin of 17.9 percent of segment revenue as compared to 26.5percentor21.8percentintheprioryearquarter On a sequential basis, the quarter's $22,100,000 adjusted EBITDA was up $2,100,000 from Q4, and our 17.9% EBITDA margin was a small improvement over the 16% margin we recorded in Q4.
The despite the slow start that we had in FLC in January, the business was able to rally in this quarter and deliver a sequential increase in EBITDA and in margins due to growth in our construction solutions, global risks and investigations and in our disputes practices. To refresh our outlook, we hope the balance of Both this quarter's results and our plans for 2015 reflect steady progress in replacing past revenues both from mortgage backed disputes that have been a strong contributor to results for several years in this segment and in the scheduled roll off of the newer large global investigations that supported 2014's record growth. As we told you in February, FLC is running hard in Health Solutions, where it should help support our outlook in this segment for the balance of the year. Unlike FLC, economic consulting did not recover from its slow start in the first quarter. 1st quarter revenues decreased point 7 percent to $106,000,000 compared to $106,900,000 in the prior year quarter.
Revenues were boosted year over year by $2,000,000 from the acquisition of Plattsparks, the group of Houston based petroleum engineers with evaluation expertise who joined us last November. Without that, organic revenues were roughly flat if you exclude the negative 1st quarter revenues were also mostly flat versus 4th quarter 2014. Adjusted segment EBITDA was 11,600,000 10.9 percent of revenues that compares to $13,000,000 or 12.2 percent of revenues in the prior year quarter and was up from 9,800,000 or 9.2% margin in Q4. The weakness was caused by lower demand for non M and A antitrust and finance litigation. That weakness was partially offset by a substantial increase in M and A related services substantial investments in that area.
But the M and A and international arbitration positives were enough to produce slow pace in North American non M and A litigation will likely continue into Q2. As a result, we consider ourselves fortunate if we can deliver Q2 revenue and econ that's flat with 2nd quarter revenue of last year. We hope to see a slow recovery in margins. We're targeting low teens margins in Q2 and hopefully will reach midteens EBITDA margins by the third quarter. Of course, we can always be surprised Our market position remains excellent the
first quarter
technology revenues decreased 9 percent to $54,700,000 compared to $60,000,000 in the prior year quarter and sequentially it fell 6 percent from $58,200,000 in Q4 2014. The decrease in revenues was primarily due to a slowdown Adjusted segment EBITDA for the quarter was $10,000,000 or 18.3 percent of segment revenues compared to $17,300,000 or 29 percent of segment revenues in the prior year quarter and $13,300,000 in Q4, was almost a 23% margin. Price realization on consulting and services given our mix of engagements as well as increased investment in software R and D Global Services delivery, marketing and business development. As discussed on our last two quarterly calls, we expect pressure on revenues in technology in 2015 and we noted our slow start in the first quarter. The roll off of large matters in this quarter was prior year period and more than doubled sequentially, which aligns
Our expectations
for which we believe is essential knowledge that technology can and will produce volatile results. In our updated outlook, we now expect full year segment EBITDA technology to be down versus 2014. Based on our current pipeline, we 2nd quarter revenues to return to the dollar levels we achieved We are looking for small positive year over year revenue comparisons, and we also expect margins to return to the low to mid-20s in the 2nd And Third Quarters of 2015. In strategic communications, Revenues decreased 2.5 percent to $42,100,000 in the quarter compared to $43,200,000 in the prior quarter. Now that included a 7% unfavorable impact from FX.
This is our segment that probably has the biggest FX impact. Excluding FX, revenues versus prior year were up 4.4% due to growth in project based revenues in Europe and the Asia Pacific region. On a sequential basis, revenues were 9% lower compared to $46,300,000 in Q4, and that again included a 3.8% unfavorable impact from FX. Adjusted segment EBITDA was $5,500,000 or 13.7 percent of revenues compared at last year and $7,400,000 or 16 percent margin in Q4. Things that Steve spoke about, improved mix of higher margin engagements, reduced headcount related costs, all resulting from saving activities and other initiatives that began in 2014.
Strategic Communications is off to a good start this year. The segment is executing well on their plan of focusing on profitable revenue, improved leverage and controlling costs. Accordingly, and as expected, we reported low single digit profitability. In fact, strategic communications reported stronger than expected revenues in the first quarter, at least our expectations. Historically, Stratcom's 1st quarter contribution to its total year results has always been smaller due to the impact of the 13.7 percent also outperformed our normal expectation for high single digit adjusted EBITDA margin this quarter.
To refresh down year over year in second quarter and then have flat comparisons in the last half of twenty fifteen. I won't spend a lot of time on the geographic breakdowns on slide 6. Spice it to say, North America remains our primary engine with corporate finance driving results in this quarter. Our investments in Europe continued to come online in Q1 with positive contributions from Corp Fin, strategic communications and economics. Asia remains weak, driven largely by Australia, and Latin America had mixed results with strength in FLC revenues offset by weakness elsewhere.
Turning to slide 7. Our cash and cash equivalents were $225,000,000 at quarter end. Compared to $77,000,000 with $20,000,000 of short term borrowings a year ago in March. Net cash used this quarter was $51,000,000 compared to net cash used by operating activities of $111,000,000 in the prior year. During the quarter, we did not make any acquisition related payments.
We will be discussing capital management opportunities with our board in compared to 106 prior year quarter and up 4 days from the end of the year. In summary, we were very pleased with the first quarter and our results are consistent with the risks and opportunities we identified at the beginning of the year. The risks, particularly in our economic technology performance overall was good, but not a blowout, and the $0.57 headline number reflects lifts from timing and non recurring benefits.
We still
closing remarks.
Thank you.
I'll go first to Paul Genoke of Deutsche Bank.
Thanks. David or Steve, I guess the question is that 10¢ or 11¢ you got in the 1st quarter from benefits. Does that basically offset any incremental FX? And that's why the guidance is unchanged?
No. FX didn't really cost us very much. It was about well, they'd had bigger revenue impact where we're pretty much naturally had So FX only probably cost us about $0.01 in the first quarter. The, now I think the benefit is it's that's just the point is that wasn't expected. It wasn't in our guidance nor will it be recurring in the second, third and 4th quarter.
So if you got $0.10 from the benefits, that you didn't expect, what's going to cost you an extra $0.10 that you didn't change your guidance or is that just too precise to think about?
I think that's too precise to think about the, it was it's definitely a positive. It makes us more comfortable that we will be able to liver within the guidance range, but we could easily see drags in that side unexpected in our operations over the balance of is a positive. It's not timing, but it's not recurring.
Great. And Steve, are you the delayed investment, are you having any trouble hiring people. It's a pretty, you know, labor market's pretty tight, particularly for for skilled people. Is that is that is that an issue or no?
Look, it was an issue last year, particularly because we weren't geared up to focus on it. During the course of last year, we have geared up a lot of activity. And I would say, particularly in our corp fin business, we hadn't been the hiring for a long time and we started to go after it. And lo and behold found to get the right people, the people who can actually be accretive to our business doesn't just fall off trees. You actually have to work.
And we hadn't done that sort of work for a while. And I think that there's to some extent we had that across our segments. I mean, we it hasn't been a for the last few years. I think we have made a lot of progress in that in the second half of the year. Holly, working with each of the segment heads.
And I won't say not an issue, but we have made material progress in attracting people over the last few months. So I think we're making good progress there.
My understanding is that this is the investment year and the payoff is in 2016. The fact that we're sort of maybe a little bit least a quarter behind on the investment that doesn't change any plans for 'sixteen? Or how should we think about that?
It doesn't. Look, I think to some extent we could have probably done even a better job of budgeting you know, the way that the investments flow in this company, it's kind of large always be backloaded partially because we don't have a great process to sort of launch the investments that we want to spend by January 1st the year. And then some of the things that we've done in the past are inherently fourth quarter activities like last we had an all SMB meeting, which is well done towards the end of the year. And so I think, I think, there's a couple of things in there that I wish we had gotten launched earlier, but I would also say none of us were born yesterday. You know there are going to be slippages in some of these things.
And you build that into your forecast for where you think you're going to take the business. So long way of saying yeah, we're going to move on that stuff. We're going to invest the money, but no, I'm not worried that the delays are going to compromise our aspirations for 16 beyond if I got your question right, Paul.
That's it. Thank you.
Yes. We'll go next to Toni Summer of SunTrust.
Good morning, Toby. Good morning.
I wanted to ask a question about the change in stock for cash that you outlined in detail. Is that a material change to the to the compensation from the revenue generating consultant standpoint, is that kind of material or was that kind of a technical issue, which you wanted to explain for EPS purposes, but not all that impactful from their vantage point? Thanks.
You're absolutely right. It's the latter. Yeah, I only highlighted it because it's an example of how technical, the things that benefited the $0.11 are and how you should look at those as reflecting fundamental improvement in our run rate. It's no change in the economics delivered, to the practitioners at all. It's just a change in form.
They and, which was positively received, it was a voluntary opportunity to do cash versus stock, but you have to wait around for the cash, just like you have to wait around for the stock. We did it as part of our larger program to make more efficient use of shares for employee benefits programs. And compensation, which is part of our overall governance improvement program. And So it was only material to explaining the $0.11, no impact on the economics delivered to our practitioners.
Thank you. Are there any other changes to the compensation program for practitioners that has already been unveiled internally that you could discuss. Yeah. Okay. I'm sorry, was that a yes
or no?
We're always continually tinkering, but the, no, this was a a limited number of people had this stock feature. We offered the option in the quarter, but it had a several sense benefit unexpected for technical reasons, but it's not material to the in any way to the economics people are getting.
Okay. And then I had
a question for you about M and A and second requests. The a couple of high profile deals have recently been presented some obstacles by regulators. And I'm wondering if a more kind of stringent interpretation of antitrust and a little more forceful regulator. What that might do for the parts of your business that it touches? Thanks.
Well, I mean, we obviously can never comment on particular matters. But I would say that anti trust engagement and by parties on either side, more discussion of I trust in more interest in sharpening pencils and increasing the rigor of analysis can only be good for us. That's where we are excellent. So, and we work, we don't just work for companies. We work for regulators some times too.
So, we don't see any hindrance to our practices, from increased focus on antitrust. In fact, probably be a positive.
My last question has to do with the global reach and positioning of your business in that regard. Are you as strong in the European market to help with issues in Brussels? And in other international geographies as you would like?
I think that may come surprised, but we are actually stronger than people realizing that. A few years ago, we did a very good acquisition of, of a company called LECG in Europe. There was a team of people there that we had seen as, very comparable in quality to we had quoted for years, and, were not able to get them to go over. They were very loyal. And then when LECG got into trouble, they came over.
And That has bolstered our practice in econ in Europe considerably. We have a terrific group. The we have the led by somebody who is in in in on the comps lexicon side by somebody who I think is seen as one of the leading economists in Europe, by the name of Jorge Badia, and, but he has a terrific team there and also a group of international arbitration people, some of whom are under our compass on brand and some of us under FTI. So we have a terrific position in Europe. We are, I believe, the leaders in Europe, patient space and in most places in Europe, not just on in the U.
K, but on the continent. We also, just for your information, have made major investment behind a very good business we have in public affairs in Brussels. And I think we have the leading or certainly, a leading public affairs business in at this point. And that's one of the areas in our Stratcom business that we've invested behind. So I think some of our businesses, we are really smaller than I would like by a long shot on the continent, these I'd like to grow, but we are very strong in those businesses.
And we look for and they're actually growing. Does that answer your question? It does. Thank you. Yes.
We'll go next to Tim McHugh from William Blair And Company.
1st,
the economics, I guess it's been a couple of quarters now. So what do you point? I mean, do you still point to just, I guess, normal volatility and engagements when as we talk about the economic business. And I guess specifically, obviously the non M and A antitrust. I guess how do you reconcile to the disconnect between the M and A part being strong?
And then I guess the non M and A antitrust being weak for a little while now, is it tough comps? Is there something with the the market that I don't understand or with the people, I guess, what's your view of what's going on there?
Well, I think it's I would say probably the larger part is ebb and flow and then the smaller part is kind of short term cyclical trends in volume. So we had a very good book of non M and A antitrust and finance litigation in past years. Some of those matters rolled off or decreased in volume last year. And particularly in the fourth quarter and has not picked back up again in volume sufficient to give us a positive comparison not because we don't have work in those areas and we don't have strong positions. But the particular portfolio we have is just down a bit.
That hard to speculate or to prognosticate they're dynamic. But there probably is some weakness in volume there, though, again, I'm I'm not expert on that. I have market statistics in front of me. But I think it's just a combination of our particular book and the market they're participating in not replacing what we had in past years, but we expect that our efforts there plus an amount of increase in volume in the overall market will benefit us. But that's down, sufficiently that it's not set by the up that we are in the, particularly in the M and A related to the international arbitration, that could easily have gone to a net increase with a little bit less drag in the 1 and even in a little bit more ups than the other.
So, unfortunate that they're net down, but we were we're trying to accurately provide in any way dismayed by our performance and our presence in that market.
Okay. As we think about the forensics and technology segments on kind of sequential basis across the next few quarters. You've talked about some large projects rolling off in late 2014. I guess is Q1 reflective of a lower level of work? In other words, do we still have risk there?
Are you fighting a headwind sequentially from big projects rolling off? Or did we already feel that in the kind of segment result as we look at Q1?
No, we're fighting that headwind all through 2015 on a year over year basis, because the 2014 quarters all benefited from a couple of very large matters. That's why second and third quarter last year were so good. So year over year, yeah, we're fighting that headwind every quarter. Sequentially, it's a little bit less. We know much of the water is already receded, so to speak, if you look at it sequentially.
So in terms of the day to day work that we're doing to replace that versus the book that we had 3 months before, it's still work, but it's not like the significant comparison drag you see if you look 12 months back.
Okay, great. Thank you.
We'll go next to David Gould
of
question when you've given a lot of detail to appreciate. Just curious, Steve or David, if you could speak a little bit more on, I guess, we're sort of the second period where the ramp up in investments and hiring was maybe bit slower than we'd expected. And just if you could speak a little bit towards what one can do to spur that a little bit to push it along a little, yeah, maybe as quickly as you were initially thinking.
Yes. Look, I'll say it. David, look, what we're doing here at this company is trying to take a great company to the next generation some of the processes that we're using though are not ones that have been employed. We have not been a company that's been historically that focused on organic growth. We've not been a company that historically been surfacing ideas to invest EBITDA, bubble them up, sort through them and then be willing to hurt our quarterly earnings in order to invest for 2016 2017.
It's not the sort of the reflex action. We have some other great strengths where we've historically been done a lot of acquisitions and then so forth. But where we're heading right now, some parts of where we're heading right now is different than what the organization is used to. And so, you put in place processes and you make progress. And some places people a year ago, people look skeptically and said, really, I can hire, even though I don't have my fourth quarter EBITDA guaranteed and some folks were a little slow at the management level to actually believe that that's where we're headed.
We've gotten beyond that, but then once you get beyond that, then you go into the market and then you find that if you haven't been recruiting for a while, you've lost, it takes you a while to get back in that. And so we're still working through all that And then even, even in our corporate processes, we probably could have anticipated the fact that, we're not probably never going to have equal spend quarter in, in the investment just because of the nature of some of the investments and some of these processes. And we probably didn't build that into our own guidance internally as well as we can. So I think we're learning here, David, but we're making progress. This company, if you look at the amount of activity going on in the number of our businesses and the amount hires in the first and second quarter.
And then the second half of last year versus the beginning, we're making real progress here. And I think the gap between aspirations and our reality is narrowing. Does that give you a sense?
It does. It does. I guess just part 2 though is when we think about folks who maybe weren't as big believers of the hiring or weren't as excited as we tried to get them. How do we change that view? How do we get them to actually go out and do the hiring and not be as nervous about it?
Sort of move along in line with your vision?
We've made progress on it, David. I mean, I think, how do you do that in any company? It's a combination of it's basically changing belief first of all, discussing things to make sure you have a right vision for the company, which was a lot of what we did last year and making sure we're aligned. And then in the course of that, bleeps change, and people feel more comfortable moving ahead. And I think we've done a fair amount of that.
And places, you end up changing people. We've done some of that. So, I think you know the answer. I think we're moving on all those fronts And I think, look, we are in a different place today than we were. And I've been here now 15 months or whatever.
We're a very different place than we were at 15 months, and we're moving. We all have moved on some of a bunch of things 3 months or 6 months earlier always. But you and I both know every change effort known to man, that's true. And what you do when you set targets for 3 year out targets for 2015 2016 is you anticipate that some of the things aren't going to move as If none of the things move as fast, you're in trouble. If some of the things don't move as fast and you just push on them a little harder and you've get there.
And that's what we've been trying to do, David. Does that make sense?
It sure does. It sure does. Perfect. I appreciate it.
We'll go next to Jerry Herman of Stifel.
Let me start if I can with sort of a high level elementary question because I really appreciate your commentary about the quarter and the influences on the quarter and the $0.57 and the notion that it's more like $0.35 to $0.40. I just want to ensure that if if that's true, then that actually puts you sort of operationally below the level of a year ago. And I just want to make sure that I'm not getting the wrong message there. With regard to the underlying core business?
No, I think, you know, yeah, if you've, I mean, to do some crude math, you know, if you said it's a $0.40 quarter and you multiply that by $4, you get to one point 60 and you look at the $0.10 of comp and benefits as permanent, that gets you to $1.70. So you would say, okay, That's not bad, but it's a little running in place versus last year. So they clearly need to continue the program of operational improvement. That they espoused when they gave their guidance in February in order to get to their $1.95 to $2.20 and a little bit of it remains back loaded. So yes, you're absolutely right.
1st quarter is, we think, in a number of fundamentals, better than last year's first quarter, but from an absolute earnings point of view, it's a little bit better, but not wildly better in order to get to our earnings guidance, we need to continue to improve through the balance of the year. I think we're on track for that.
Great. And then I know you guys have talked a lot about investments and I know that you've been asked in the past to quantify it. And I'll I'll try it again just in terms of how you think about quantifying the incremental investment from, say, the 2013 base to when it will normalize, either in dollars or percentage or any other formulaic way to understand what you guys are trying to do with investment that?
Well, versus the 2013 base that, so yes, we have to think about that. Let me try another way to not answer you So
what we talked about,
that we could have done a little bit better in budgeting in first quarter for the impact of investments. In hindsight, it's actually not surprising at all. We ended we are because all of our segments are investing. They were to invest. And frankly, the guidance we provided about their EBITDA margins throughout the year reflected a decent amount of investment and then we may further made provision for corporate investments and for also accommodating unbudgeted and unexpected in our guidance.
So it's not surprising that first quarter should have less unexpected or unanticipated or newly thought up investments because there's a lot of investment going on and a lot of hiring going on, but it's already inside the segments and it's already inside the guide and it's already inside their budgets. Then over the balance of the year, new ideas and corporate initiatives come on, and spend money. So again, that's kind of one of the reasons why we keep resisting quantifying it because we're really trying to this is a change in mindset to businesses to say your EBITDA margin should always reflect a portion of investment. And we want them to get away from thinking of that as something exceptional for a part of a Delta program versus the base. It's just investing for the next year's earnings and the year after that has got to just be part of job 1 and isn't really a separate investment budget.
It's just part of their ongoing EBITDA margin. I think we're close to that. And going forward in 2016, 2017, we'll probably need much less kind of corporate backstop for that. It really will all be in the segments and just in their margins.
And if I could sneak one more in for Steve, now that you're sort of almost halfway through the planning horizon with regard to the aspirational targets 2016. Can you talk about the segments and how they land relative to those aspirational targets above or below, even in concept, even qualitatively.
Well, yes, so, you might go back to the the investor day, if you remember the investor day, essentially, we had given out aspirational targets, that were to every segment, not only financial targets, but activities behind those targets that we believed were real stretch targets but achievable by every target of every company, every business if the things broke right. And, but they also were more than twice what was necessary or about twice what was necessary to actually hit our 2016 aspirational numbers. I guess the most important point is I still think we're on track for 2016. Now will the mix in 2016 be different than what you would have guessed at the Investor Day, I suspect it would be. It may be less mix and less surprising to some people than others.
I mean, I think there was real skepticism in by some at the Investor Day around corpVent and Stratcom, and I think Strat Thomas surprised some folks. I mean, I just think we have a team there that is focused and making a difference. And I think and I think Corp Fin has shown a bit more ability to control its own destiny than many assumed. And so I think we're clearly on track on those, right? And then.
Econ is, if you look at the numbers right now, it's further away from the aspirational targets you shared. But I think we we are still targeting those same numbers for 2016 for all the businesses I mean, we still have those discussions every quarter. I mean, I think our econ business is terrific. It's a matter of getting the next set of work in there and it's a matter of continuing to recruit the right people. So I'm not ready to handicap that and say particular businesses won't hit them.
We know we won't hit them on all of them. That just by statistics, we're not going to hit them on all of them, nor do we need to. But as of now, I'm we're still having positive conversations with every business. Does that help? Yep.
That helps. Thanks guys. I'll turn it over.
We'll go next to Randy Rice of Evindale Partners.
Morning. Not not Doing alright. Not that long ago, you put former some formal structure around the HR function. They probably hadn't been there in the past been a little more distributed. And I'm wondering how much progress you have made reorganizing the recruiting process if if there is any greater centralization involved Or if you're still kind of thinking through what might be the optimal structure for a company like this?
Yes.
There's a lot of work been done Randy, a huge amount of work. And I think we are we have a lot of work ahead of us, but there's been a major set of work, upgrading additions of talent, lots of conversations that never happened before between the center and the businesses It is a very different place. I would say it's still if Holly were here, I think she would say it's still very much a work in progress. But I'd say the amount of progress we have made in whatever 6 months since Holly has joined has been extraordinary. So, work in progress, but real progress made.
Does that help?
Yes. Do you see any changes in the, supply of talent or the competitiveness for talent since you've been in, in charge of FTA?
You know, there may be, but to be honest, it is a rounding error. Let me make sure this phone gets silenced there, if you can. I think it's a rounding error in terms of the quality of our efforts. I mean, we, yes, we have great people But there are great people out in the world. I mean, we just need to have the right, mechanisms to make sure we're identifying them and getting to know them when we when the talent out there in the world gets to know our professionals, we have a very high success rate in recruiting.
I mean, but I amount of our recruiting historically as dependent on that. Somebody worked with somebody at the SEC or at the Justice Department or work with them on a particular matter. And that's and they were so impressed with our people. They said, Jeez, I didn't know your company. What do you guys do?
And we recruit people. We can do better than that. So I'm not too worried about, whether the market's tightened out there. We what we need to do is upgrade our processes faster than the markets are tightening if they are. And I think we can do that.
Does that help?
Yes. And there is increasing discussion from management over time compared with the past, about your focus on revenue continuity in the handoff from project to project. And has there been any, real change or accomplish yet in your in how you manage that process?
Well, we have a number of initiatives underway, which I'm not willing to go into all of them in any detail, but a number of initiatives underway, both within segments and cross segments on that. I mean, one of the things we've never as a company is a key account management program. So we have no systematic process not only to ensure continuity and follow-up, but also to make sure that if we're incredibly well regarded in one geography, there's a systematic us to introduce ourselves to another geography or another segment. And we are not surprisingly experimenting with pilots to change that. So there's a lot of work underway on that, Randy.
And the thing I would say about that is those are fundamental changes I think are critical. And I talked a little bit about those in Investor Day, but I think those take a while to really translate into material profit dollars. So I see those tend to see those as major contributors to where we take the business between 16 21 and, and not we're not counting on huge tangible dollars from them, from now to 'sixteen. What we're trying to learn to do that effectively and show results so we can scale over time. Does
that help?
That is what I expect Thank you very much.
Thank you. Are we done, Molly? Thank you all for your attention and your support and your good questions. And, hope you found this conversation useful, and we look forward to staying in touch Thanks.
That does conclude today's conference. We thank you for your participation.