FTI Consulting Inc (FCN) 2005 Q4 法說會逐字稿

Good morning ladies and gentlemen and welcome to the FTI Consulting fourth-quarter and full-year results conference call. Following the opening remarks of FTI's management, there will be a brief question-and-answer session. (OPERATOR INSTRUCTIONS) I'd now like to turn the call over to Jessica Liddell with the Abernathy MacGregor Group. Please go ahead, Ms. Liddell.

Good morning and thank you for joining us to discuss FTI's fourth-quarter and full-year results. By now you should have a copy of the earnings press release which was issued yesterday. Before we begin, I'd like to remind everyone that this conference call may include forward-looking statements that involve uncertainties and risks. There can be no assurance that actual results will not differ from the Company's expectations.

The Company has experienced fluctuating revenues, operating income and cash flows in some prior periods and expect this may occur from time to time in the future. As a result of these possible fluctuations the Company's actual results (technical difficulty) may differ from our projections. Further preliminary (technical difficulty) normal year-end adjustments. Other factors that could cause these differences may include pace and timing of additional acquisitions; the Company's ability to realize cost savings and efficiencies; competitive and general economic conditions; retention of staff and clients; and other risks described in the Company's filings with the Securities and Exchange Commission.

I would now like to turn the call over to Jack Dunn, President and CEO of FTI.

Thank you very much and I'd like to think everyone for joining us this morning. If my remarks seem a little bit disjointed, you will have to forgive me but since about 9:30 this morning we had to write a different speech, given the rebound of the stock on what we think was very spectacular news for FTI.

With me today are Dennis Shaughnessy who is our Chairman of the Board; Dom DiNapoli who is our Chief Operating Officer; and Ted Pincus who is our Chief Financial Officer.

2005 was a great year for us. First we enjoyed record revenues, record EBITDA and cash flow levels reminiscent of the [Halcyon] days when Enron and WorldCom lost the world and ruled the headlines. Second, we solidified our position as a technology leader in our industry. Third, we established the emergence on the recognition of our platform in the marketplace as we had number one practices in all of our other business lines. Most importantly, however, this sets the strong performance for the year and for the quarter, have set the stage for 2006 and beyond especially for the success of our plan to be a highly profitable billion dollar Company in 2009.

In short we have never been more optimistic about the opportunities (technical difficulty) at FTI. The intellectual capital we can offer to bring to bear on behalf of our clients has never been better and is second to none. Our treasury of Ph.D.s, MBAs, CPAs, fraud examiners and former SEC professionals, not to mention our interim management professionals is the envy of our industry. We have always aspired to be number one or two in all of our business segments and we believe that we have made major strides and have achieved that this year.

Our performance this year was a tribute to our professionals and also to the business model that we established six years ago which provides a tremendous amount of stickiness for our clients. We work on the most complex and challenging assignments for the best clients in the world. In return they reward our success handsomely both in terms of financial but more importantly in terms of their trust and their repeat business.

2005 was another tremendous year of growth in our business and continued leadership in our segments with strong earnings growth across all of our businesses. Revenues for the quarter increased 51 -- excuse me 58.1% to $165.8 million including the previously announced $22.5 million success fee. For the full year, revenues were $539.5 million an increase of 26.3% over 2004.

For forensic accounting and financial investigation, the fourth quarter was really an exclamation point on what was a breakout year for them with an exceptionally strong performance related to continued activity in the insurance and hedge fund investigations areas. Merger and acquisition activity in the telecom industry and the litigation support and strategic (technical difficulty) in the energy sector continued to drive revenues in our economic consulting segment.

Before I get into a broader discussion about our business segments, I would like to point out that we made significant strides in strengthening our balance sheet and increasing value for our shareholders in 2005. The launch of our $350 million long-term debt offering was oversubscribed; our stock buyback program continued; we made significant investments in people. These initiatives are the kind of thing that will pay dividends far into the future.

Fourth quarter also symbolized the passing of an important benchmark for FTI. For the first time we now exceed 1000 billable professionals of revenue generating consultants (technical difficulty) currently stand at 1005 people. During the quarter we also announced that beginning with the first quarter of 2006, we will begin reporting technology as a separate business segment. We have been actively growing our technology business over the course of the past several years. It has reached a point in its evolution where it needs to be under one single dedicated management and we view it as an area of major investment and opportunity for us going forward.

To lead this charge we have appointed Barry Kaufman, who up to this point has been FTI's Chief Risk Management Officer where he was instrumental in the buildout of our technology practice over the last several years. As with technology, success fees will continue to be a growing part of our business. While we don't anticipate duplicating the $22.5 million success fee that we enjoyed in the fourth quarter, as Palladium Partners, our interim management practice grows and as investment banking becomes more important, we have the substantial opportunity to increase our revenue in this area and give some leverage to our normal time and materials model.

In Palladium Partners we have a unique market niche. If you ask around the industry, we're known as not people who fix balance sheets as everybody does that, we're known as the people that fix P&L. So we go into companies such as Eddie Bauer, recently and Intelsat and others where we actually go in and can make a difference executing the plan that brings financial rewards to the stakeholders in such operations.

We continue to make investments in the business to maintain and continue to attract the highest caliber professionals. During the quarter we added 40 revenue generating professionals. We also recently announced that John MacColl, former Vice Chairman and General Counsel of St. Paul Travelers has joined FTI and will assume Barry's role as Chief Risk Officer as Barry moves to an operating position.

We continue to expect the demand for forensic accounting and financial investigations to remain strong. As telecom companies adjust to new post mega merger world, we foresee activity in that sector to probably shift in strategic and litigation aspects. We expect the energy business to remain robust as large fuel price sensitive companies including producers and utilities adjust to a higher price environment.

We believe our roles in high-profile restructuring matters including the Sarco, Entergy, Northwest, Alpine, our continuing work with Delphi will positively impact our corporate financial restructuring practice as we go forward. It has been some time since we've heard names of that size and importance in 120-day period. I think that some of the impact of energy prices and other things are becoming (technical difficulty) coming home to roost especially the impact of the tremendous increase we've seen in financing activities by the bond markets and large institutions over the last 24 months. We would also expect to see continued success in our cross-selling and cross-utilization programs for the next year.

With regard to our segments, regulatory interventions continue at an unprecedented pace. Those worried that the impact of Sarbanes-Oxley will remain should be mindful of the adage in our business that typically regulations stand with each ensuing scandal to encompass every possible abuse, every possible abuse that is except the next one.

We continue to see this market grow at an unprecedented pace. Regulatory activity and active shareholder suits are making our clients needs more immediate and increasingly complex. This has provided us with the ability to leverage the different parts of our business to serve the whole cycle of a clients' needs. We believe, for example, that our forensic/litigation/technology offering is as differentiated in the market as we are the one that can provide the client services end to end.

Now let me talk about some of the dynamics in each of the segments. In forensic/litigation/technology, the driving force of tighter standards and reporting procedures, increased investigation activity, continued regulatory enforcement have continued to place our services in strong demand. On the potential business front, we have not yet seen tangible results of our efforts in investment to help victims of Hurricanes Katrina and Rita. Typically these efforts would bear fruit later on in the cycle of the disaster when clients began to look at such issues as business interruption, helping financial institutions get back online and also as we continue to assist or help certain governmental agencies to monitor and with the oversight of these matters.

Electronic evidence continues to be robust is on schedule with the success and EBIT powerhouse that we have told you it will be. Revenues for this business segment increased 41% to $63.2 million in the fourth quarter, and $44.8 million last year. For the full year revenues increased 23% to $220 million from $178.7 million in 2004.

Segment EBITDA for the quarter was $19.7 million, a 31% increase in revenues and increase at 66.9% from $11.8 million in the prior year, 26% of revenues. As I mentioned earlier, next quarter will mark the first quarter in which our technology business will be reported as a separate business segment.

In economic consulting, the fourth quarter marked a strong finish to 2005. Several large business opportunities that we announced during the third quarter had continued to contribute to growth. Economic consulting revenue is up 29.2% from last year and for the full year, revenue was up 26% to $108 million. 2006 we see an increased litigation activity in the energy sector as well as continued active regulatory environment. We also believe that the M&A market, which we haven't seen be as vibrant is beginning to pick up again probably in different areas from telecom.

In addition, during the first quarter of this year we added the company COMPASS to our family of companies and we now employ three of the top antitrust economists in the world. This group has every strong reputation among law firms and we refer most of their (technical difficulty) a lot of our SEC work is done in this area.

We believe that when we acquired Lexecon in 2003, we set forth a game plan that anticipated an increase in M&A activity and certainly an increase in Sarbanes-Oxley and regulatory related work. We believe that game plan is coming to fruition.

Corporate finance and restructuring, we are again pleased with our performance this quarter. Revenues for the quarter were $75.6 million including the previously announced $22.5 million success fee which is an increase of 92% from the fourth quarter of 2004. Segment adjusted EBITDA also grew to $29.3 million from the $11.9 million in the prior year. Full-year 2005 revenues for corporate finance restructuring were up 29.8% to $211 million.

We believe the activity in the restructuring market continues to be showing signs of promise. We believe that in our future projections we haven't projected any great increase in at marketplace but we think we've done a good job of both taking advantage of the work there because of our great reputation and also of adapting our business into the practices like interim management and creditor's rights. So we expect a strong performance from them next year which if the market turns would have much more potential.

The depth of our experience and our reputation in this area is unmatched (technical difficulty) have the largest practice measured by any of the lead tables in the United States. We have the national platform and we have unique specializations in such areas as interim management. When that market turns that will only add additional wind to our sails.

2006 we expect revenues to increase by between 19% to 24% after you take away the effects of the success fee in the fourth quarter (technical difficulty) so on an adjusted basis from a $517 million base for 2005. We expect our earnings per share to grow from a baseline of about somewhere near $1.30 this year if you eliminate the effects of the success fee to increase by a range of 12% to 19%. That is before any acquisitions. We do have about $85 million or so of cash on the balance sheet as we speak. Pipeline has never been more attractive.

And with that, we would like to open it up for your questions.

(OPERATOR INSTRUCTIONS) Josh Rosen with Credit Suisse.

Thanks. I just had a couple quick questions. First, just a tremendously strong performance again in the technology practice within FLC and now it is nice from a transparency standpoint that we're going to get to see that business largely on its on own going forward. Just curious if you could give a little bit more granularity as to where you are seeing the strength whether it's Ringtail that it's fairly broad-based -- I know you referenced electronic evidence on the call, Jack. Just a little more color there would be helpful.

Yes. The Ringtail and this doesn't hold true entirely, but in terms of concept or direction. Ringtail is an elephant. It is looking for mega cases where we host millions of pages of documents for people where we actually have an installed base with law firms and regulatory agencies around the world. And its progress has been exceptional and -- but we like to offer as an integrated package. So frankly one of the drivers of the business has been our electronic evidence practice where the increasing numbers of subpoenaes that have gone around with second requests on economic consulting. It is a leader in its field and typically the first worry on an adviser's or an attorney's mind is to get control of the documents. We've seen what happens when you don't do that. So I think the driver for that has been electronic evidence (technical difficulty) set the table for all of our other aspects of it, the big hosting jobs and the trial production jobs and all of the rest. So it has been fairly good but we've been extremely active on a SWAT team basis with our electronic evidence.

Okay. Secondly, just curious you referenced in the I believe it was the press release I know I came across it -- the impact that a lot of new hires as having on your bill rate. You guys have very successfully added to your headcount, very successfully utilized folks and we have seen a little bit of pressure at least relative to our expectations on the bill rate. It sounds like it's pretty natural relative to the mix of professionals you had. But just curious as to your overarching philosophy on that and then also if we are reading into that correctly?

Yes. For the first three quarters of the year we tried to explain that we were much happier over adding a couple of senior people because they tend to bring the work and the rain. I think we're seeing (technical difficulty) over the last couple of quarters as you've seen a larger impact in how many people we hire, we're hiring the people now to fill out the dance card, if you will. If you look at our company as a leverage model of six or seven to one, we are now adding the sixes and the sevens. You get that with the folks that come out of school in the fall and things like that. So what you're seeing is the impact as we put together some of the leverage teams that are now taking the work, what the rainmakers have brought, you will see that average rate come down a little bit because we have filled it out.

Okay. And then the last question I had was just around success fees. Obviously you referenced the 22.5 is a particularly large one. The nature of success fees are generally a little bit more difficult to predict. Could you offer a little bit of advice (technical difficulty) investment community about how we should think about success fees going forward and if they are going to grow actually now at this 22.5 -- if they are going to grow as a portion of your revenue given what you alluded to that's going on in the corporate finance world?

Let me talk about why that on was unusual. First it was related to a litigation case. And typically it was because we were a trustee or an adviser to an estate that was in a litigation. Typically in our litigation (technical difficulty) a disinterested third party, if you will, so we don't take success fees. Success fees and so that the success fees that we typically use in connection with our Palladium Partners, for example, is where we don't just go to naked and it is all or nothing on the contingency. We typically get a fair amount of our revenue as a retainer and then we get some additional advantage financially when there is a success.

While I wouldn't predict these success fees individually by themselves, we are not I think probably safe to say we won't have another $22.5 million on the radar screen right now. It is predictable in the context at our entire restructuring (technical difficulty) so I don't think it would be wise to break it out now. I think it is just enough -- it will grow, we now have as of today 12 professionals in Palladium Partners; we have a full dance card there in terms of jobs.

And we have Cambio that also is part of its performance improvement business gets success fees. I certainly wouldn't think it would be more than 10% of our business as it grows and its kind in working hand and glove. It won't stick out as a sore thumb if you will as a (technical difficulty).

That color is helpful. Thanks.

Tobey Sommer with SunTrust Robinson Humphrey.

Good morning, it's Mike sitting in for Toby this morning. I was just wondering if you could comment kind of on the corporate finance and restructuring side. Any kind of trend (technical difficulty) new bankruptcy laws that were put into place?

Why don't I turn this to Dom DiNapoli for that -- he is a major player in that business.

Good morning. There was a spike. Anybody that was considering filing a Chapter 11 around the changes in the law probably filed but we do see a slow growth in that business (technical difficulty) segment (technical difficulty) any if not most of the filings in that area. We are looking at a return to (technical difficulty) volume there but we haven't really planned for a significant increase in '06 (technical difficulty) slow growth (technical difficulty).

Okay. And then another question. I was looking at kind of the EBITDA margin and economic consulting looks like it was down a little bit in the quarter. Any explanation as to that? Is it related to the hirings?

Let me give that to Ted.

Actually it's quite a simple explanation. That economic consulting segment did fantastic during the year. At the end of the year they were rewarded handsomely for their results for the year. Most of the difference that you see are bonuses that the major quarterly reporting (technical difficulty) There's no long-term trend difference within margins whatsoever as you can see from our guidance.

Okay. And then one last question regarding kind of the productivity of the new employees that have come on board. Has that been kind of -- I know in the past, you have mentioned that you've been able to put them right to work. Is that trend continuing?

Yes. That has been our model for a long time. We don't hire in anticipation of market. We hire in response to market. One of the things that I meant to mention was we have because part of the position that we have with our clients, they want us to succeed because that means they are succeeding. So we have a pretty good window on what their needs are going to be. And typically the fourth quarter in terms of hiring and etc., has been a good measure of setting the table for what our expectations are for the next year.

We were fortunate to be able to beef up restructuring in 2002 before the landslide in that business, we were able to do the same thing with our SEC capability. We believe that we have a pretty good feel for what our clients are seeing out there. So that is how I would characterize our ability to put them to work so quickly.

Thank you very much.

Lionel Jolivot with Goldman Sachs.

Thank you very much and congratulations on the quarter. Going back to the economy consulting. When I look at -- the margins were a little bit lower in the fourth quarter and you explained why. But when I look at your guidance you're actually expecting a nice improvement in '06. Is it just the scale of the business or where does the margin improvement come from because it is still a nice improvement from '05 even if I exclude the bonuses in the fourth quarter.

As we mentioned before, the model for that business is being able to take the work of more and more of the sectional testifying (technical difficulty) and move it through our engine that does the economic consulting analysis. Both Lexecon during the year, as we mentioned a couple of times, have added significant new firepower in terms of economic experts and now with the advent of COMPASS which is another tremendous opportunity for us to gather more of the large respected testifying experts, we expect to be able to drive more and more put-through through that engine. So we're expecting our model there to expand the leverage again that we have there in our ability to get the work done. So we paid the testifying experts their revenues, but the rest is our business model (technical difficulty). Also COMPASS traditionally has had somewhat higher margins than has probably a lot of the competitors in the economic consultant field.

Okay. And then going into '06, you have -- I think your authorization to buyback shares is for roughly $15 million. How do you balance share buyback versus acquisition going into '06 and '07?

On a macro basis, we have a plan to be $1 billion in 2009. And we have a plant to be -- to take the cash on our balance sheet which is about, as I mentioned, 84, $85 million right now. That's our exceptional cash flow generating capability; we can use it for several things. Those include acquisitions, those include the investment in our people, and it includes buying back shares. Because at the end of the day, we understand that our number one commitment is to shareholder value after (technical difficulty).

So what we look at is any given time, we look at certainly the price of the stock; we look at what transactions are on the horizon and what the timing might be. We look at our forecast for what our internal cash generation is going to be. When we see either a buying opportunity (technical difficulty) or we see opportunity because of the cash we have, then we put it to work. We certainly wouldn't announce a formula price for that. So that we have a (indiscernible) at the company that looks at that and assesses those core things, and that's how we make our decision.

Okay. And then I believe you have actually have a relatively large number of employment contracts with your managing directors coming to maturity in '06. I think you had said in the past that you would probably use a portion of the success fee that you received in the fourth quarter to help these negotiations with the MDs. Where are you in terms of these contracts? Can you disclose a little bit how many of these contracts have already been renegotiated or renewed?

Dennis Shaughnessy; I'll answer that. We've made great progress in developing a program that we talked about of finalizing attempted contracts, (inaudible) individual conversations with key people that we wish to have extend their contracts with us, and have begun signing up those people. I wouldn't want to give you any absolute numbers because of (indiscernible) situation, but we're very optimistic that we will get (technical difficulty) program done -- and that is for the group whose contracts expired in August -- probably within the next quarter.

Okay, great. Thank you very much.

David Gold with Sidoti & Co.

Good morning. Sorry, Dom, you cut out at the end. Were you saying within four weeks you feel like you'd have something, or four months?

It was Dennis --

I'm sorry, Dennis.

-- and the answer is within this quarter, we expect to have (technical difficulty).

And then, Jack, just following up a little bit on that question. Presumably with some part of the success fee being used for retention purposes, so to speak, that's clear in the economic consulting practice from the margins, but just curious if there were other areas where some of that money might have went?

Some of the money -- actually, let me answer it this way. We don't comment on individual (technical difficulty). We use the money in all three segments plus in our new technology area to make sure people have warm and cozy feelings for FTI over the next three years. So I think I would use that money very wisely.

Okay. Also if I'm sort of getting to the bottom line correctly, it looks like you're forecasting a decent pickup in G&A in 2006. Just curious, presumably that's to build out the infrastructure a little bit as you look to build up the business, but curious in areas or sort of thinking there and if I'm right.

We are dead serious about being a billion dollar company by 2009(technical difficulty) increased our hurdle on ourselves by building up the company that can successfully and quickly do that. We have additions in people that you've noted throughout the year especially (technical difficulty) in our risk management area. David Bannister joined us in the area of we're professionally looking at our acquisition opportunities both here and abroad. We have as we do acquisitions there will be some continued amortization of those types of things.

So as we look forward we're trying to do in our guidance a fair shot that we're going to be spending some money to achieve great things. But once you do that you have to spend. We also will be continuing our investment in technology in the technology area. As we start to begin or not to begin but as we increase the number of large companies whose documents we host, they want not just warm backup, they want hot backup. So we're going to be making some significant investments in that. And you will see the affects of the amortization and depreciation (technical difficulty).

David, looking at we also (technical difficulty)

Sorry, Ted, you're cutting out a little bit. I'm not sure if it is just me.

We seem to have a poor phone connection here. We intend to continue to promote the institution of (technical difficulty) advertising and (technical difficulty) promotional activities, corporate lives and in our segments. Same (technical difficulty) SG&A as well.

Got you. Great. And just one other minor one for you, Ted, while I have you. Forecast on CapEx for the year?

Mostly because of the increase in our technology business as well as our general expansion, we incurred CapEx of about 18 to 19 million in 2005. We would expect 2006 to be either that or somewhat higher probably in the low 20s.

Very good. Thanks so much to everyone.

Bill Sutherland with Boenning & Scattergood.

Thank you, good morning. Just so you guys know, Dom and Ted at least on my line are breaking up a lot. I didn't catch Dom's answer for the restructuring question. So you might want to pull up your chairs or whatever.

So, Jack, on your discussion of the onetime gain and how it was sort of allocated. Did you have any flowthrough in terms of return of the reported earnings?

Yes, as we said about plus or minus $1.30 came in prior to the effect of the success fees. It is hard to do it exactly apples-to-apples. But we had -- our margin on the success fee was at or higher than our normal margin.

So it was around $1.30 before success fee?

Correct. In terms of looking at a base for models next year that is certainly what we are using.

Okay, good. The average bill rate as you all present it has been declining gradually over time. I just wanted to get an idea the main dynamic in that? I'm assuming it's more mix than anything else?

Yes, we added 349 people this year. Obviously when you do that your seeing a market that's stronger where you can have a little more leverage (technical difficulty) assignments and also larger assignments as witnessed by the last 120 days so that that necessarily (technical difficulty) means you're going to need some more folks who would be at a middle level as opposed to always a senior level. So that is just a function of that. It is not a function of anything that has happened to our pricing. In fact for next year we look at increases in pricing.

In what ranges?

I think our normal ranges which could be anywhere from 3 to 7%.

Okay. Jack, how would you characterize the appetite or activity level in acquisitions? I assume it is a focus now with Bannister there?

Well it is absolutely a very interesting marketplace right now. I think you have the good fortune to be on most people in our business who are looking to join someone are on a short list. I think we have had -- I don't think, for example, that anyone has acquired and been as successful in having people join them than we have. And we also -- Ringtails, and the COMPASSes and the Cambios in terms of the smaller (technical difficulty) we have been successful. People like what we do so we get a bite at that apple. And then with Dave we're able to process a lot more of that and we're able to take a lot more requests from our line people because after all the people in the industry are coming to join them not me. We've got a great engine going now for it to be able to assess and to consider the integratability of the acquisition and the compatibility and those kinds of things.

Technology we have a long list of things we're looking at and we would really love to expand our footprint geographically beyond our shores through an acquisition. To of the fastest-growing areas right now obviously are the economic consulting and with the addition of COMPASS and (indiscernible), who has a tremendous reputation overseas, we think we have a magnet there. And another fast-growing part of our business is the investigation business. And we're asked by our clients increasingly to go worldwide on that. So we would think that is another area where we might look to have some folks join us in the near future.

Okay. Then tell me or tell us if you would a bit more about how the restructuring market is for developing in this cycle? We all know about the high yield debt market the last two years. Is there any other factors at play here with the tone of the economy or anything?

I'm going to ask Dom to both repeat a little bit of what he said before since the reception was not good and also to take that question, Bill.

I appreciate that, Jack.

We don't see a huge avalanche of new cases in 2006. We see a steady pickup from the second half and the fourth quarter of 2005 continuing. We're not 2006 numbers. We assume an increase in activity over 2005 but we're not expecting a hockey stick return to the heydays (technical difficulty) past. Where the business is coming from is really pockets of industries that are collapsing. Right now we've been fortunate to be involved in many if not most of the automotive related bankruptcies and workouts. In addition, we just got hired in the Calpine bankruptcy which we're working on (technical difficulty) committee. Every once in awhile there is a large one and fortunately we usually get at least one shot at each case and our success rate has been pretty good -- knock wood. Again, we are not looking for a big return but we are poised to capitalize on it if the bankruptcy market picks up.

I guess the difference in a nutshell then is just the fact that it's more pocket related and also fewer of the large ones?

It is pocket, they are big pockets. The automotive area is a huge area of focus of ours. We have established an industry practice there we put in people that really understand that business and we've assigned two of our senior managing directors to just focus on that business. We think that business is going to be around for a long time and we see more opportunities there.

And then as the year goes on I'm sure there will be other issues that the economy is going to be wrestling with. I don't think we've really felt the full impact of higher energy petroleum related products that people are perhaps finally realizing that these prices are here to stay and they are going to have to change their business practices to deal with it.

Okay. And then, Ted, I just had one model question. I'm not sure if you can help us on this in terms of '06 or not. But on amortization, particularly in the intangible area, is there some sort of guidance there that we could work with?

We estimate the amortization of intangibles to be approximately (technical difficulty)

You said 10 for the year?

(technical difficulty)

Okay. Thanks a lot everybody.

Jim Wilson with JMP Securities.

Thanks. Great quarter. My questions are kind of tied to margins. I guess the first one is on the gross margin side should there be any change in the outlook for overall gross margins? Is there any difference in the relative level of margins with the acquisitions from '05 that might have any impact in '06?

Good morning, Jim. I'm going to ask Ted to take that. Ted?

Other than COMPASS which does have higher margins both gross and EBITDA than other portions of our business, we don't expect any significant changes in the gross margin. And as usual our goal for EBITDA margin is 25%. We've come pretty close this year. We expect to come pretty close next year.

Okay. So the mean difference then -- I mean your guidance suggests higher revenue growth in '06 than EPS growth and you had in '05 normalized. A little bit of leverage, a little better EPS growth than revenue growth and that's just building as you already talked about building up the SG&A for future expansion?

And also our interest expense will be for a full year in 2006 whereas the debt offering that we did this year was August 31st. You will feel the full-year effect of that this year.

Okay, great. And then just the final question is just looking at the breakdown in EBITDA margins Q4 versus all of '05. Could you -- you improved or stayed steady certainly in the litigation involved with corporate finance. The economic consulting margins in Q4 were lower than the trended debt for the year. Was there anything specific in there or --?

You may not have heard the answer to that question earlier because we had some bad communication. But it's primarily related to the successful year that economic had overall and they were very well rewarded for that success. A lot of that reward came in the fourth quarter as you can see from our guidance, there is obviously no effect on the long-term trends which are up on the margins in that business.

Okay, I did not hear that. All right, thanks a lot.

[Chuck Russ] with [Insight Investments].

Good morning. Congratulations and thank you for a very good quarter and year. You mentioned a couple times the goal to be a billion company in 2009. Why is that such an important goal?

From a strategic standpoint if you try to unite your company behind tangible, physical goals that is accomplishable but what not without hard work and I won't say a stretch but we've all got to be aligned hit on all cylinders. As we looked out our company and we looked at the opportunities around us, because of the business we're in and professional services (technical difficulty) but we also need to stretch ourselves and take advantage because the opportunities that have been given us by Sarbanes-Oxley and by that I don't mean the fact that there is an investigation here or there. What I mean by that is (technical difficulty) this intermediation of the entire consulting world. There are literally core companies who ten years ago had over $20 billion of revenues in areas that they are almost precluded from doing. That is an opportunity that we needed to avail ourselves.

As a $1 billion player, we clearly make the statement that we are a survivor. We need to be global, to serve our clients; our clients are now growing at record paces and they are not just growing within the confines of the United States. So we thought that that put tangibly in front of our people in front of our investment constituents, know what we are about over the next several years. We have people, we have the right professions, we have the right markets and we have a plan. So that is why we put it forth that way.

We wanted to make it crystal clear that we want great growth, manageable growth, we don't want it to be at the expense of profits for our shareholders.

A couple of numbers I'm hoping you can help me with. Deferred financing costs, what kind of amortization expense from that alone would we see in '06?

That's a little --

And is that part of the 10 million amortization --

No that 10 million I talked about earlier was the intangibles associated with acquisitions. The amortization of deferred costs are in our interest expense. And that is a level of detail that we wouldn't generally break out.

And the tax rate for '06?

We expect it to continue at 42%.

Okay. And are you all settled up with the investment banking firm for the accelerated buyback that you did back in August?

Yes we are as a matter-of-fact as of yesterday we were.

What amount -- is there a liability on the balance sheet for that -- for the 12/31 balance sheet?

There is a liability on the 12/31 balance sheet, that is correct. I don't think there is any secret to this, it was between 6 and $7 million, the final settlement.

Okay. That's all I had. Thanks again.

Arnold Ursaner from CJS Securities.

Good morning. Two mechanical questions. What was your end of quarter share count, please? Hello?

I'm searching for the number. Actual shares outstanding are approximately 39,900,000 or that 39,009. 39,009, but for purposes of our guidance we have assumed (technical difficulty) as the average outstanding this year.

So within that in theory, one would assume you are not building in post share repurchase?

That is not correct.

What we've said is that we want to in terms of options and other equity participations we want to at least keep that neutral. So that is our number one goal. And then beyond that we would repurchase and have an accretive affect. But the number one goal is to try to match what we anticipate putting out. With the anticipation for acquisitions and with COMPASS coming on board in the first quarter, that is where the increase would be.

Okay. In technology consulting which you are now creating as a new category, if you will, or segment, can you give us what would have been or what is the '05 number for that segment?

In the press release we described that the revenues for all of our technology businesses for 2005 were approximately 70 (technical difficulty) dollars. That includes as we say in the press release, our trial technology business which is not going to be part of the segment managed by Barry Kaufman because of its more natural affinity in marketing to the remainder of our forensic group.

We are not yet disclosing the operating results of that technology segment. You will see it compared on a quarter-by-quarter basis with actual results as we move forward in 2006.

I think clearly the implication would be technology consulting will be positive in its rate of growth in '06 over '05 ex the (indiscernible) item?

Absolutely.

And any sense of magnitude doubled, where within double digits it might be or --?

In excess of 20% is our expectation.

Okay. The only other question I had is I know one of the things you've done a pretty good job in keeping people is increasing compensation. I noticed quite a significant jump in the deferred comp line. Almost $300,000 per working employee. Are those fair numbers? And is there any unusual item in there?

If you are referring to the unearned compensation line in our stockholders equity?

I'm looking at accrued compensation expense at year end.

Accrued compensation?

Which is about -- a little over 300,000 per working employee.

Yes, that is a combination of many factors. Part of it is the fact that more and more of our bonuses are paid in the first quarter of the succeeding year. That is principally one of the reasons. Also you can see our pretty significant increase in our senior managing director headcount 2005 versus 2004, they request the most highly compensated people. And then lastly of course some of the bonuses associated with that onetime success fee are accrued at 12/31 and in fact are paid commensurate with our normal payment scheme in the first quarter of next year.

Just to fill in a couple of blanks, you're given the idea that interest expense will have the depth of the full year. Can you give us your view of interest expense in '06 and also your expectation on tax rate?

Tax rate as I mentioned a moment ago is expected to be 42%, same as 2005. We expect our net interest expense to be approximately $20 million or slightly larger.

Okay, thank you very much.

(OPERATOR INSTRUCTIONS) Bill Sutherland with Boenning and Scattergood.

Arnie had it. Thanks very much.

Thank you. Chuck Russ with Insight Investments.

Ted, one of the times earlier that you broke up and I missed a number that I think you gave -- your assumed number of shares, fully diluted number of shares in your '06 guidance?

40,500,000.

All right. Thanks and I apologize for asking you to repeat yourself.

Gentlemen, at this time we have no further questions. Please continue with any closing remarks you would like to make.

The only thing I'd like to say is to thank everyone for being on the call with us and we look forward to speaking with you very soon with results of our first quarter. Thank you.

Thank you. Ladies and gentlemen, this concludes the FTI Consulting fourth-quarter and full-year 2005 earnings conference call. If you would like to listen to a replay of today's conference please dial 1-800-405-2236 or 303-590-3000. And use access code 1105-1906 followed by the #. A webcast of the call will also be available on the Company's web site, www.fticonsulting.com for the next 90 days. We thank you for your participation in today's call.