FTI Consulting Inc (FCN) 2010 Q1 法說會逐字稿

Good day and welcome to the FTI Consulting conference call. As a reminder, today's call is being recorded. For opening remarks and introductions, I'd like to turn the call over to Eric Boyriven of FTI. Please go ahead, sir.

Good morning and welcome to the FTI Consulting conference call to discuss the Company's 2010 results which were reported earlier this morning. Management will begin with formal remarks, after which we will take your questions. Before we begin, I would like to remind everyone that this conference call may include forward-looking statements within the meaning of Section 21 of the Securities Exchange Act of 1934 that involve uncertainties and risks. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues, future results and performance expectations, plans or intentions, business trends and other information that is not historical, including statements regarding estimates of our future financial results. For a discussion of risks and other factors that may cause actual results or events to differ from those contemplated by forward-looking statements, investors should review the Safe Harbor Statement in the earnings press release we issued this morning, a copy of which is available on our website at www.FTIConsulting.com, as well as the disclosures under the heading Risk Factors and Forward-looking information in our most recent form 10-K and in our filings with the Securities and Exchange Commission. Investors are cautioned not to place undue reliance on any forward-looking statements which speak only as of the date of this earnings call. During the call we will discuss certain non-GAAP financial measures such as EBITDA. For a discussion of these non-GAAP financial measures as well as reconciliations to these non-GAAP financial measures to the most nearly comparable GAAP measures, investors should review the forms we submitted this morning. With these formalities out of the way, I'd like to turn it over to Jack Dunn, President and Chief Executive Officer. Jack, please go ahead.

Thank you, Eric. Good morning and thank you for joining us to discuss our first quarter 2010 results. These results were released first thing this morning and I hope you have had a chance to review them. If you have not, they are available on our website at www.fticonsulting.com.

With me on the call this morning are Dennis Shaughnessy, our Chairman, David Bannister, our Chief Financial Officer, Don DiNapoli, our Chief Operating Officer and Roger Carlile, our Chief Administrative Officer. I will review the quarter briefly and then we will be happy to answer your questions.

First, while I try not to do it often, in deference to your tedium, I would like to reiterate something that was said in the press release this morning. The first quarter of 2009 as we said at the time was going to be a monster to beat. The restructuring market was worrying and we were up to our elbows in two of the largest financial frauds of all time. And while I am a realist enough to know that perhaps no one heard, no one listened and perhaps even cares about that challenge, it should not be lost in assessing this quarter. We had a record year last year and in an economy and a market where many didn't, and it is a tribute to our game plan of diversified services and most of all to our great people that we are solidly off to another.

In the quarter, the evolution in the global economy that we discussed two months ago when reporting our year-end results continued to determine the narrative. First quarter GDP growth in the US slowed from the fourth quarter, sending mixed signals. The financial markets continued to improve, with the Dow up 500 points in the quarter and corporate earnings very strong. But revenue growth is still constrained and unemployment appears to be stuck at almost 10%. Globally, the headlines are "ash drowning the airways", "oil drowning the waterways" and "Greece drowning the Euro". Asia appears stronger, even to the point of capacity concerns, but a rising response for protectionism has caused some concerns about a bubble bursting in China. So our crystal ball as I'm sure, like that of many of you, misted in oil, ash and Greece remains cloudy.

Given that background, we believe the first quarter was a good test of our game plan to build a diversified platform of services to help our clients in all phases of the economic cycle. I am happy to say it's unfolded much as we anticipated. First, as you would expect, as a major participant in business restructuring and bankruptcy matters, we saw a slowing of new matters. During the first quarter, improving corporate earnings prospects, coupled with the strongest high yield market in history, allowed many financially unstable companies to refinance obligations or at least kick the can down the road effectively deferring the need for our services to some later date. Despite this, we expect 2010 to be a good year for the restructuring business. In fact, the second best in its history, just not quite up to the standards that were set in the record results of 2009.

Evidence of the return of economic stability and hints of an upturn were most evident in our economic consulting segment. This practice tends to see opportunities early relative to other practices because of its intimate involvement in the strategy, feasibility and planning of our clients. Be it investigating potential strategic mergers, consultation on complex damage claims or preparedness to respond to regulatory enforcement, our professionals tend to get the call first. New matter openings were up about 25% compared to the prior year, so the phones are definitely ringing.

The segment that is arguably most sensitive to corporate spending and management confidence, Strategic Communications, saw a second consecutive quarter of net annualized retainer increases pretending some return to normalcy as companies seek to address their ongoing communications needs. Still corporate budgets are tight and transaction works, M&A and IPO activity, continue at a much slower pace than in the 2005 to 2008 time frame. FLC and technology both had good quarters, especially in light of lapping a quarter that had the Madoff and Stanford matters at their heights, with revenues up nicely from the fourth quarter and as importantly, a number of engagements in new high-profile matters for major companies. As a result, consolidated revenues were up from last year and from the fourth quarter. Consolidated EBITDA margins were strong at 21.7% and adjusted EPS of $0.67 was up 12%.

Before I discuss the individual segments, I'd like to go over a couple of items that affect these results. As we discussed with you in our year-end call, we took a number of actions in the first quarter and as a result incurred a special charge totaling $30.2 million or $0.38 per share. The actions underlying this charge were carefully planned and are intended to eliminate a number of redundancies in people and real estate that resulted from the 20 acquisitions we had completed over the last several years. We also needed to realign our head count to existing demand and have reduced head count by approximately 150. This special charge will require the use of approximately $22 million in cash, with the balance comprised of non-cash items. While the benefits of the special charge are contemplated in our guidance, for information purposes, the annual savings are estimated to be in excess of $30 million.

In another move, as of January 1 of this year, we moved our Financial and Enterprise Data Analytics sub-practice known as FEDA from the technology segment to FLC. FEDA is a group of highly skilled consultants who use a variety of third party tools to analyze complex structured data. Logically it can fit into either segment, but new business generation and integrated staffing opportunities argue that it fits more closely with the FLC segment.

Now to our performance in the quarter. We reported revenues of $350 million compared to $347.8 million in the same period last year. Adjusted EBITDA, which excludes the special charge, increased to $75.9 million from $74 million a year ago. Adjusted earnings per share, excluding the special charge, were $0.67 compared to $0.60 last year. Our weighted shares outstanding in the quarter were 48.1 million versus 53 million in the same period last year, the reduction a result of our share repurchase.

Our Corporate Finance Restructuring segment had a decline in revenue in the first quarter compared to last year caused by record new issues in the high yield market, a more empathetic bank lending market, particularly for larger credits and improving corporate profitability prospects. Corporate Finance revenues of $117.5 million in the quarter were down about 8% from the 2009 first quarter and in line with our expectations. While business has slowed compared to the record levels achieved in 2009, we believe demand for restructuring will continue to be better than average for at least the next year or two.

Corporate Finance results are heavily influenced by our core US restructuring activities, but also include several practices that, while smaller, tell a different story. Revenue in our CM&E practice, Communication, Media and Entertainment, was up 39% in the quarter as this highly respected industry focused team found a variety of ways to serve clients. Our Corporate Finance revenue outside the US was up 60% as we continue to pursue growth and assist clients around the world, and our TAS business, the Transaction Advisory Services group, saw new matters increasing. Adjusted EBITDA and Corp Fin were $34.7 million or 29.6% of the segment's revenues compared to adjusted EBITDA of $40.7 million or 31.9% of revenue reported a year ago. This 29.6% margin is more typical of this segment over time.

As part of the actions underlying the special charge, we reduced head count and corporate finance by about 70 people and will continue to monitor demand as the year progresses. The Economic Consulting segment continues to build on the momentum that began in the third quarter of last year. Revenues increased 23% to $67.3 million with all of this growth being organic and it represented another record quarter, I believe the fifth in a row. Demand was derived from an improved environment for dispute related engagements, notably those emanating from securities valuations work arising from the credit crisis and the recession. Our new offices in London, New York and the West Coast were also important contributors to the revenue growth.

This segment also continued to grow into its more normalized margins as investments over the last year began to pay off. Adjusted EBITDA for Econ in the quarter was $13.5 million, approximately 20% of revenues, up from $10.3 million or 18.8% in the prior year. The Technology segment also performed well in the quarter. Their strong position in the market enabled them to be chosen for several new very large investigation litigation and bankruptcy cases. Revenues were $43.4 million compared to $44.3 million in the prior year. The key demand drivers for our Technology segment continue to be complex cross-border litigation, multi-district jurisdiction products liability litigation, government enforcement, regulatory investigations and large contested merger activity. All of these demand drivers were still relatively slow, although picking up, and a return to significant growth for technology will likely be dependent on improvements in these drivers.

Reduced overhead expense contributed to the segment having exceptional margins in the quarter. Also most encouragingly, the segment's continuing efforts in pricing strategy and value engineering produced an increase in unit volumes in the hosting and processing businesses that more than offset the continuing price pressure that affects any technology business. For example, production pages were up 28% and hosting volumes were up 43% in the quarter.

First quarter adjusted EBITDA increased 31.8% to $17.3 million from $13.1 million a year ago. The segment's adjusted EBITDA margin of 39.8% was well above the 29.5% of a year ago and was near the top end of our range of expectations for the business. Importantly, though we continue to invest in the business and R&D expense, but for the quarter remained unchanged from a year-ago period of $5.4 million.

As we mentioned on our last call, during the quarter, we launched Acuity, our integrated e-discovery and automated document review offering. Acuity allows us to help clients improve results and save money in the document review portion of the e-discovery continuum. Document review is the largest cost driver in the process, perhaps on a magnitude of $6 of every $7 spent, and a service offering that here to for we had not addressed. Obviously this opens up great potential for us.

The dynamics affecting our Forensics and Litigation Consulting segment in the quarter were relatively unchanged from recent periods. FLC's first quarter revenues of $78.7 million compared to $78.4 million in the year-ago period. As mentioned, the year-ago period benefited from several large financial fraud cases that, while continuing, have substantially scaled down in size, so all this revenue had to be replaced. The litigation market continues to have below average demand, but the segment benefit interested growth and practices focused on construction and international investigations. Adjusted EBITDA of $19.8 million in the quarter declined slightly from $21.9 million a year ago as a result of slightly lower utilization. The adjusted EBITDA margin was 25.1% and a very nice improvement from the fourth quarter.

As we look at and plan for FLC, it has many of the same characteristics of our Economics segment last year. You will note that we've added significant head count compared to last year, notably in professionals who address SEC and other investigatory actions and our international business is also expanding. So we are hopeful that our growth opportunities in FLC in some sense parallel the economic pattern of the last 12 months.

The Strategic Communications segment have revenues of $43.2 million compared to $42.8 million a year ago and adjusted EBITDA was $5.7 million, also flat with a year ago, as were adjusted EBITDA margins of 13.3%. While corporate budget constraints are still very tight for the second consecutive quarter, the segment of an increased in annualized retained revenues, a sign of growing market share and an indication that markets are returning to normal.

There were also some anecdotal successes in the quarter. Our Communications segment was again the global leader in M&A communications for the quarter. They are habitually the volume leader, but in this quarter, they also led the table for total deal value. In addition, they managed the communications around the largest IPO year to date in the US and FD in the US was named by the Holmes report as the financial communications agency of the year.

From a financial standpoint, during the quarter, we experienced our normal pattern of using cash and operations as we pay for our annual incentive compensation to our employees and fund the majority of our contingent acquisition payments. We had another good quarter for receivable collections and ended the quarter with $81 million in cash. Our financial position is strong and we have $171 million of availability under our credit facility.

Our clients have challenges and opportunities in both good and bad times. The nature of those challenges may change from the downside of the cycle to the upside, but even the good challenges associated with expansion carry risks to the enterprise and require astute counsel. They face risks and opportunities in making acquisitions and entering new geographical regions and markets and contending with errant employees and losing competitive advantage to others. And as we leave the worst recession in a generation, there is also pronounced pressure from the public, from governments and from regulators to find out who inflicted the damages during the downturn, how much damage was incurred and punish the wrongdoers and prevent it from happening again. The destruction of value was profound and it appears likely the resulting level of regulatory activity will be significant. We are seeing the beginning of stages of that right now. We are extremely well positioned to advise on the ample challenges based on the diversity of our business across industries, practices and geographies and the outstanding quality of our professionals. The distinctive knowledge, the thought leadership that our professionals offer our clients truly allows us to provide critical thinking at the critical time. With that, I'd now like to open it up for your questions.

Operator, I believe we were' ready for questions.

Sorry about that. Thank you. (Operator Instructions) Our first question comes from Tim McHugh with William Blair & Company.

Good morning, guys.

Good morning, Tim.

I first want to ask about the restructuring business, if you could just give a little more color there. You mentioned that the pace of new activity is obviously down, which I think most people have heard about. But can you just give us some more color on how that offsets against engagements that are ending and are you seeing the normal pale on engagements that last a couple of quarters or are you just seeing enough middle market type of cases that are replacing those rolling off? Just those dynamics, any more color there would be helpful.

Sure. I think the best person to address that would be Dom DiNapoli.

We haven't seen a slowdown particularly in the larger cases. New case openings are down from the same period last year, but we are seeing still a significant number of middle market cases, which are smaller in size, therefore, the fees aren't as high. But we are seeing health care starting to pick up a little bit. Last year we had some turnaround cases that are slower to get started this year. On the consulting side in health care, we've got more pursuits now than we've had for a long time and I think the leader of that practice will say he doesn't believe he's even had that many pursuits in the hopper since he's been with us and that's been five, six, seven years. So we are cautiously optimistic on the health care side.

The real estate, as everyone's been predicting, the corporate real estate seems to be picking up. We've won two cases last week and we pitched another big one yesterday, we haven't heard yet, but we put together a cross practice team that is comprised of the Corporate Finance, our SMG, our SMG real estate practice, our Forensic and Litigation people that have the construction team housed within it and our Financial Dynamics practice that helps us in the communications. So we've got a true team, we put it together on a global basis and we think that's going to give us a competitive edge as more and more of the commercial real estate opportunities surface.

We've also got some great results in the international side, particularly the practice that we have in Canada, which works in Canada and in other places like South America, as well as we had good results in our European restructuring practice. So all in all, the practice is performing well, it's performing pretty much as expected with the US slowing down because that's a tough act to follow as Jack mentioned, the first quarter of 2009, it was just a tremendous period, one that is unprecedented as far as volume. But it is a struggle to keep replacing the large cases when they burn off because for a large case that burns off, you probably have to replace it with two or three middle market cases. So that's the challenge, but we're prepared for when the large cases resurface.

Other things that we're looking at, we closed on a group grab in Spain and once that team gets through their noncompete period, that will hopefully be a pickup in our international restructuring practice and, as I said, we think we have a lot of opportunities outside the United States and who knows what's going to happen with the state municipalities. We're taking a look at how we can play best in that. We've got experience from prior years we worked in the Orange County bankruptcy in California several years back, so we've got a team in place ready to jump on those opportunities, also.

If I could just -- oh, go ahead.

It's Dennis. I was just going to add that obviously we are involved in some of the sovereign state debt issues already in the Europe and unfortunately as you look at the news this morning, it doesn't appear that there is a quick fix there, so we would anticipate that with our expanded European practice and some of the trauma facing either on a nationalistic basis or on a private commercial basis that some of the countries we go through, we anticipate we would be busy on that this year.

Is there any point this year where some of the very large cases from last year start to all slow down together or have you already seen that or should we look forward to that middle of this year, late this year?

It's really a case-by-case. We have seen the slow down because many of those large cases began earlier last year, so there has been a wind down in many of those cases and oftentimes they'll now go into the litigation phase in large cases like Lehman Brothers, for instance. Another area that we're focused in, to grow and replace some of the US cases is in Asia. We acquired a firm called Baker Tilly that's going to help us not only on the restructuring side, but also in the forensic and in the foreign practice opportunities in Asia, they're primarily located in Hong Kong and China.

I mean nobody should take away from this that the cases aren't burning off and new cases are dead. We're opening lots of new cases. We have large cases burn off all the time and we're doing a good job as filling the larder, as Dom says, it just happens to be more in middle market cases, so again, we're off to our second best year in our history in this division.

One quick question, if I could, the Technology segment now with the reclassification, how much consulting revenue is left in there or is that almost purely software driven revenue at this point?

Consulting revenue, everything that got transferred over for the most part into FLC/FEDA was consulting revenue. It will probably be easier for you to call David offline and get more detail.

There's still a small piece in there, they do e-discovery in the Technology practice yet.

But it is becoming more and more pure Technology division.

Okay. Thank you.

Our next question comes from Jim Janesky with Stifel Nicolaus.

Good morning, Jim.

Yeah, good morning, guys. Thank you. When you look at number of new large cases you talked about that last quarter. Either in Tech or in FLC, my question what it comes down to is we saw some large cases, as you started last quarter, and some of them were even outside of the securities or financial services industry. Obviously we've seen some very high profile cases filed. Since those high profile cases have been filed, have you received new larger cases or has the activity at least gone up significantly? I just want to get an idea of how you expect that to build as 2010 progresses.

Well, the answer to the question is yes, we have and as you know in all of these cases, Jim it's hard when you first get in to them, it tends to be very intense and it's very hard initially to predict the legs because some of them, the inclination would be to settle versus to fight and a lot of it will be determined by either the plaintiff's resolve or in the case of others, the government. But the answer to your question is, yes, we have gotten new ones related to a lot of the activity you've been reading about.

Okay.

There is definitely a different feel in terms of the phone ringing and in terms of the opportunities that are out there and I think we've never been better organized on a cross segment basis to put together the teams that Dom mentioned. So you'll see much more of a focus this year from us on industry specialization because that really is the key. We have financial industry experts, we have products liability experts, we have a bunch of capabilities health care insurance across our company that we think will give us an edge in these matters and that's the way they're going to be done in the future as opposed to just generalists.

Okay. Switching gears a bit to margins. We know that the first quarter margins are always impacted by payroll resets and such, especially in the head count driven areas, but, Jack specifically to your comment in the Corporate Finance and restructuring area that the 29.6% margins are, quote, more normalized, I mean I would expect that those margins would go up through 2010 just because of the actions that you've taken on head count reductions. Is there something else in the segment I need to consider?

Jim, it's Dave Bannister, good to hear from you. Your point on the FICA reset and so forth is correct, we typically have about a 200 to 250 basis point drag in the first quarter and that was true again this year, so that point was well taken. The point as to the Corporate Finance margins throughout the year, it's going to be largely dependent on volume. The first quarter was a good solid quarter with good pricing and pretty good, although not great utilization. The head count reductions are designed to improve utilization and we'll see how that goes as new case openings occur.

And there's a small part of it that could be mix, also, to the extent the transaction advisory business really picks up and the restructuring business continues to slow down a bit, the margins on the transaction advisory business is not quite as high as the core restructuring.

Okay. And then as a follow-up within Technology, obviously, very high EBITDA margins, you folks have spent time stressing over time that these are going to fluctuate depending upon volume, but with the overhead reductions, have we set a new floor at least and they will vary based upon volume or has pricing become more competitive and we shouldn't expect that?

Jim, it's Dennis. Jack, I think, tried to illustrate that we are, obviously, seeing pricing pressure as, I think, everyone in this business is seeing at least this segment and have been able to offset it with fairly significant increases in volume. You know, this still is an area that they get huge assignments and the assignments tend to be very, very intense and very high stakes, and so it is one of the areas that maybe you keep resetting to a certain extent, but there's still a significant EBITDA influence by the intensity, these big assignments when they come in and then as you know, they tend to level out at a more steady state, which means less processing, less utilization on an ASP basis, the technology things like that.

Okay. All right. Thank you.

Our next question comes from David Gold with Sidoti.

Hi, good morning.

Welcome back.

Thank you. It's just a quick hop. Let's see. Just wanted to get a little more color on the pricing environment. Last year was a tough year for everyone, for you and all your competitors as far as pushing through price and the first quarter numbers look promising as do some commentary across the board. So I was just curious if you could speak a little bit to the environment for passing through price increases this year versus last and are very experiencing the success that it looks like we are and how do we feel about that?

I'll start, David, it's Dennis. You know, I think you've got to look at it on a sector basis. I mean right now, obviously, Econ is speaking for itself. It's playing out pretty much the way our economists predicted the market would, I think as these especially high stakes litigation that is either initiated by governmental investigation or in conjunction with it on a civil basis, I think the rising increases that we've put in there will not be an issue and if anything you might even see it expanded down the road depending on demand. I think in FLC it's a competitive marketplace. We compete against people who that is their only business and primary business. We tend to get, as you're well aware of, the biggest accounts, but then they tend to be maybe very price competitive as they try to compete in more of the smaller accounts.

I think in Technology, we've said before we're dealing with Moore's law, the price and cost of storage and processing declines every year with the expansion of your process faster and the way you offset that is with volume and I think we're effectively doing that. I think clearly the big jobs that we have there the first quarter and some of the new ones that have just recently come in, price does not seem to be that much of a consideration given the severity of issues that we're dealing with with some of them or the importance of success in the case of putting complex mergers together.

I think in Restructuring, we're not seeing a degeneration of the pricing. As Dom said before, if anything, pricing is up. It's just we're seeing a shift in our mix to smaller. Smaller engagements are more of a challenge to efficiently man and the big ones, obviously, it's easy to locate teams in one place, you're not having them travel as much, it's much more efficient the way you're doing it, so you get a margin benefit from the efficiency of the jobs, the size. A lot of the big jobs have success fees associated with them, so as they end on a milestone basis there also could be a margin enhancement. But I think it's so far so good on pricing. We certainly see the competitiveness in Tech and we see it still in FLC.

Jim, it's Dave. I'd like to add one other thing on that. As you look at the Technology segment, the introduction of Acuity is designed specifically to save clients money. So from a pricing standpoint, that's designed to be a price leader in the market, it's designed to dramatically improve efficiency in the review process and drive down client costs. For us it will be incremental revenue because we haven't participated in that segment before. But make no mistake, that's designed to save clients money and reduce their costs.

David, this is one of those times I know we all like to get granular and analyze the rates and all of that, but this is one time where really the answer was a macro one and not so much a micro one. Over the last ten years, the in-house general counsels and the other people have become experts in being sophisticated buyers of our services. We always used to joke and there's no even reason to joke anymore that anybody that asked about our rate per hour was asking the wrong question. These people are sophisticated, there's a lot of data out there, they're analyzing jobs.

Last year, budgets were shut down. This year we're seeing expansion in budgets, we're seeing risk taking, we're seeing a lot different attitude. They're not cavalier consumers, but we are seeing that people are willing to spend some dollars to accomplish some very important and significant tasks and I think that's the major see change that we're starting to see break through. You'll never come back from the fact that they became very efficient last year, but you will see them spending on more different things.

I was at a supplier conference about a month and a half ago and it's one of our major clients who said they are happy to give us more work, they are happy to expand and use all of our services, but they want to know how they can pay a little bit less per unit and give us a lot more units. That's exactly what you're seeing in Technology. In our Econ, we're seeing that the people that are looking at feasibility and strategy discussions are opening the pocketbooks because there's so much at stake right now.

So I think over the year, as opposed to it being buried in whether we get $10 increase in our rate per hour or whatever it's going to be in a different philosophy. If you are an intelligent consumer, you want to find somebody that can play that game on the other side and we have been that person for a long time. So I'm very optimistic on that score.

Sure. I mean I guess I'm trying to think about it layered over the fact to your point, or everyone's point, last year was a real tough year from a price standpoint, not just for you, but for the law firms if we any about FLC and of late, they not only have higher expectations for rates this year, but they actually have been been increasing rates and successfully from what we're hearing pushing through.

David, it really was not as much about can you lower your rate, it was about we're not going to do that project. That's what I'm trying to say is the difference this year.

Oh, I see, I see. Then one other just quick one, can you speak about areas, aside from economics or including economics where you're still looking to add folks or bulk up?

Well, I think without a doubt geographically we've -- as Dom said, we've just added a group in Spain, that will be coming on very soon. They're sort of in the midst of their gardening leave over there. We acquired Baker Tilly in Hong Kong, bringing some great professionals to our already existing strong operations in Hong Kong. We are looking at several external growth opportunities in Asia and are fairly far down the road in discussion with some people, again to add more critical mass to a market that again I think we all know is going to have a great demand for services.

Latin America, we're looking at beefing up, we're hiring there and we're looking at some acquisitions down there. In London, David, we continue to grow. London is now our second largest operation. In FLC, we are looking to hire more and more industry experts with the emphasis on experts, so as we said, we started about two, two and a half years ago to change that practice from one a very strong generalist to people that had significant industry domain expertise. Dom?

I think the critical area that you mentioned, Dennis, was international and Asia in particular, I think we're doing it in a very careful way. This management team has had two or three trips over the last six months meeting with people, understanding the best approach to build out our practices there and I think we've got a game plan that we should be successful with.

Given that we understand who the audience is for these calls, I'd like to be very clear, there's no area where we aren't interested in adding people. Our sweet spot is those great practitioners who have practices and who in bad markets their clients stick to them like glue and there is always room for them and we are aggressively hiring those types of people across our company.

Perfect. Thank you all.

Our next question comes from Joseph Foresi with Janney Montgomery Scott.

Good morning, guys.

Good morning. How are you doing?

I wonder if you could first talk about just a general sense you got in the first quarter? Would you say that it's tracked in line with your original assumptions when you kind of talked to us on the last quarter call, and if it hasn't, maybe you could talk about particular changes you saw?

Joe, it's Dave Bannister. That was a good question and one that we've looked at very hard. I would say the first quarter is very close to our original assumptions. The fall off in the core Corporate Finance Restructuring perhaps was a little more troubling than we would have liked, but not outside the bands of what we were looking at. On the other hand, I think some of the strength in Econ was gratifying. We thought it was coming, we saw certainly at the end of the year the number of conflict checks we were doing and believed those would turn into revenue and in fact they did turn into revenue. So I would say the first quarter tracked very well with our expectations.

So it would be fair to assume that it's in line with what the assumptions were when you gave the original guidance?

Yes.

Okay. And then just secondly, we're already I guess 25% into the year. You know, last year there was a lot of focus on the restructuring practice and that being sort of a potential catalyst. As we set up for sort of the back half of this year, maybe you could talk about any particular catalyst that you're seeing that could potentially drive the results and what gives you maybe some visibility and if it was there at the beginning of the year or you were expecting it?

Let me start off and have everybody jump in. I think there's probably three or four things. One is these very large engagements. As we have become engaged in some of the things you're reading about or watching on TV, depending on how they play out, how the clients decide to utilize us and in a lot of these large ones, we have really gone to the client with broad-based solutions which track across all of our segments, Communications, Forensics and Technology. So I think they represent very large upside opportunities, but in all honesty, they're very new. They're as fresh as you're watching them and so we really have to get a feel for how they're going to play out, but they certainly could have upside at the latter part of the year that we didn't bake in.

I think that clearly something is going to happen in commercial real estate that there are just too many projects that don't work and I think there's too few dollars and I think the banks really do need to address that and we're seeing it's not just a problem that's peculiar to the US, we're seeing it in certainly Europe as well as the Middle East and I think that that area could heat up at the end of the year and really on the front end of the business. We have the best team of structuring real estate experts and they would be the ones involved as new liquidity starts to flush into these where you get a capitulation pricing possibly in a lot of geographies at the end of the year, in the second half.

You'll see new money move in to start to refinance these projects and as it does, that's where our SMG group really shines they would be in the front, in the forefront of a lot of that and we have a lot of clients that are literally sitting back waiting and studying what they're going to do. So I would say two areas clearly are the big assignments that we're getting could really take off and mature into significant and complex assignments for us with relatively high billing and then I expect the real estate group to really start to get busy in the second half. David?

Joe, one way to think about it, and it is interesting because it goes to how we think about planning for the future is, on an absolute basis, we would expect Corporate Finance to still have above average demand throughout the year, as Jeff mentioned, the second best year ever in most instances. We probably suspect that the rest of our business will have slightly below average demand through the year, but the momentum we think will be improving in our other business and slowing in Corporate Finance. That's kind of how we are thinking about the year. So as the year progresses, we expect to see stronger results in our more cyclical businesses.

Right. And, as Dennis said the big opportunities really can drive the needle. We've got the large M&A deals that have been announced. I mean that drives our financial dynamics and our economic consulting practices. You know, two, three of those large deals and things start looking up again. You've got the government investigations that we've been reading about. Now we've been predicting when the investigations were going to start picking up. You know, it could be that that time is now. But that certainly would drive both Econ and our Forensic practices results.

And Technology.

Oh, and Technology, absolutely. And then you've got disasters like the oil spill. We play big in deals like that when there's large pools of data that needs to be scrubbed, organized, presented pursuant to subpoenas and any other regulatory requests for information and in addition to that, we also have our forensic practice along with our Econ practice that will go to the defense of some of the businesses that are getting challenged. In addition, we'll help quantify the cost of clean up or correcting any other particular crisis.

And probably the first practice that gets involved in any of those transactions or deals is our Crisis Communications practice and as Jack said, outside of the United States, we're the largest and one of the most respected and the US is an up and coming practice that we've got a lot of confidence in that they are going to play a big role in situations that occur like the recent oil spill or product liability suits that require companies to properly communicate to all the constituents what's going on to maintain some order to the chaos that the companies need to wrestle with.

I'm sorry to bring it back to the macro again, but the number for all of this is the incredible populous vilification of Wall Street and corporations and the enforcement in Econ. They're bringing more cases, they're looking at mergers harder, they're not necessarily stopping them, but playing poker and trading things, divestitures and things like that. Our individual cases as I mentioned, the budgets are much larger. You know, the fact that there's a sentiment against large corporations which you see in the oil spill stuff and all that is not lost on plaintiff's lawyer. This is a very good time for them to be very active. There was an article yesterday about the plane loads of people who braved the ashes to fly into Shreveport to be able to file their lawsuits. So I think we're in possibly an arena where the forensic litigation and Technology businesses as well as Econ and really all of our businesses will be very, very busy towards the back half of the year.

Okay. And just one last question. I think as you look at the legal environment going through the first quarter, maybe if you could just talk about how it compares to last year and have we reached, I guess, a new normal for lack of a better term or do you expect it to continue to improve and maybe what sways you one way or another?

I think it will continue to improve because, except when you have those situations like a Madoff or whatever, it was fairly frozen. People are not being silly about it and not being cavalier about it, but on the litigation and defending yourself and your intellectual property and in fact one of the things that's one of the best indicators for the economy is the number of IP filings. Our IP people are off the charts in terms of their utilization. So I think you're seeing a return to normalcy that I think will grow. Not to say business won't be done a different way and the good news for us is we've always been one of the leaders in being able to find new ways to work with the major clients to do what they want more efficiently. You're seeing less early settlements of litigation, of smaller litigations and another indicator of that is our trial services people are very busy, which means things aren't settling, they're going to trial. So I think it's definitely a different feel in the air from what it was a year ago.

Okay. Thank you.

Our next question comes from T C Robillard with Signal Hill Capital Group.

Thanks for taking my questions. Just two quick questions. First, on the increase in the head count in your FLC segment, is that a direct result of an increase in your pipeline as far as matters or is that more of a predictive metric on your end based on just historical trends or what you're seeing in the marketplace? I'm just trying to get a sense as to what's driving that.

Well, the increase quarter versus 2009 was really two big areas. One, we had 29 new hires in our Latin American practice. We opened up an office in Columbia and if you recall, we also acquired a practice in Boston. That was around 22 people. So right there that accounts for a large number of the increase that you'll see quarter to quarter.

Somebody asked a question earlier, we are gearing up for what we think will be a major year in terms of specialized practices like SEC, like construction, like our health care, so we are definitely in the market to build that on a strategic basis through head count.

Yeah, the Boston was predominantly an SEC practice and again I think the macro drivers that were there are obvious. The Latin American practice and the growth you're seeing in Asia is directly derivative of capital flows that are intensifying into those areas because a lot of that work gets done again in front of the capital placement and the continuum there and that business both in Latin America and in Asia has really picked up.

Okay. Great. And then just want to get a sense, could you put a little bit of numerical meat on the bone with respect to your TAS segment, whether you want to talk about kind of growth rates, new matters? I know you put some qualitative comments in your prepared remarks. Any more numeric numbers you could throw on that would be helpful, thank you.

We don't have a lot more in the way of numerical numbers. A lot of the transactions that we were anticipating would occur that would require our people to do due diligence on work really hasn't panned out as we expected because the kick in the can just refinancing with the existing lenders for a lot of the deals that, under normal circumstances would have gone to work out and may have found new lenders that required diligence. So to the extent that we've got these extend and pretends or whatever you want to call them, they're less likely to require much, if any, outside advisers to deal with the collateral and analyze the deal and the covenants because the lenders are very familiar with the company and it's just a matter of hoping that the EBITDA is going to increase to a level where something more constructive could occur.

Yeah. In the private equity world, the large deals, as you know, structured finance is available and we would expect to see an increased activity as you move from sort of the contemplation of a deal, now knowing that you have financing, to actually trying to make the bids, make the offers and work through the diligence on those and obviously that's what these guys do. The smaller, mid-market is still not there yet. The structured finance is really not available to those the private equity guys would have to over-equitize those deals to a certain extent and again in that marketplace if you're an investor, we still get a sense that the private equity firms are still very portfolio centric, they're still looking at their investments and keeping their powder dry for what they already have on the books. We would say we would anticipate the higher end of the market to drive more business for us in the latter half of the year as, again, a lot of sort of the looking at deals is replaced with the hard offers and the diligence that would go along with it.

Great. Thanks for the commentary. It was helpful.

Next up is Paul Ginocchio with Deutsche Bank.

Hi, this is (inaudible) for Paul. Can you just quickly update us on your talks regarding the remaining share repurchase authorization?

We have a remaining $250 million authorized under our program. The program was announced in November and was designed as a two-year program. We have not executed any additional repurchases since the ones that was announced in November and completed in January of 250 million. Again, we have 250 million left to go and about a year and a half left to execute that.

Okay, and just quickly on the Corporate Restructure financing practice, is it fair to assume that the magnitude of of decline you saw in the first quarter would sort of continue through the year?

The (multiple speakers) in the first quarter was about 8% across the entire practice. Obviously as Jack mentioned in the call, there were a number of sub practices that were up and the core US practice was down more than that. At this point in time we don't tend to give guidance by individual segments, but I don't think that's a bad indicator of kind of what we think.

Great. And just last quarter you said that all other practices, you expect them to grow in the low to mid-double digits. Is that still what you're expecting?

Yes.

Great. Thank you.

Our next question is from Bill Sutherland with Boenning & Scattergood.

Hey, thanks for taking the question. Just a couple of quick ones. David, the success fees in the quarter, were they pretty typical?

Yes, success fees as you know are not a big number for us, but nothing unusual in the first quarter.

And when you look at your book of business, are they looking like the typical mix going forward?

Yes.

Okay. I know you think of these very small group hire acquisitions as hires, but is there an organic growth number that is a little different than the reported or is it pretty much in line?

Yeah, there was no real acquisition Bill that influenced anything. It's in the eye of the beholder. If we liquefy somebody's whip or something, we call it an acquisition, when in fact we're really hiring the people. So it's pretty much in the broad definition of organic. No big corporate acquisitions influenced it.

Right. That's what I thought. And then, Dennis, on that line of thinking, what's in the pipeline? I know you want to hire focused experts for the most part. Does that characterize what's in the acquisition pipeline, the smaller ones?

Yeah. I mean I think we're looking at a lot of interesting opportunities. I think the big change we've seen that would probably, again, be derivative of the change in psychology and the economy is that where people had very good companies that did have some size and some scale, they didn't bring them to market or we just sort of had cursory conversations because they didn't have the confidence in their own outlooks going forward and they didn't want to bring their companies out where they might have to bet a lot on the come because of the valuations in the marketplace last year.

Markets firmed up a little bit and certainly their confidence in their outlook has changed dramatically. So we're now seeing people much more interested in having serious conversations about affiliating with us and these would be companies that have 50 to 70 type of people. Some of them are geographic expansions, as we talked about, we're clearly looking at some out in Asia and we're looking at expanding our domain expertise in certain areas with particular interest in some companies in Europe that not only bring a broader representation of what we do in Europe, but also a deeper domain expertise in certain areas. So we're looking at a lot of stuff, some farther down the road than others, but it would be still predominantly along the lines of muscling up the geography and adding on to a group of services, even more services and then as David always like to say, expanding our domain expertise going forward. David, anything else on that?

Before we go to the next question, I did want to get back on a little more granularity on the transaction support business. Quarter-to-quarter, we're up about 14% to 15% in new matters that we took this year versus last year and that's as Dom described, that's actually with probably a little less of doing the due diligence per lender's activity, that was up marginally, so that gives you an order of magnitude of how we see the business growing this year. That should get better and better.

One more for me. Thanks, Jack. Curious in the Technology area, you presented pricing strategy. Maybe I didn't quite follow your color on that. If you could maybe hit that again.

David mentioned it in particular in conjunction with Acuity. Acuity is meant to be a significant cost reducer for the people that license the technology and so obviously it is priced per trial and it also is priced to give people a significant cost benefit. Now, it is also priced in our opinion to give us a very good margin on it as it gets installed. So I think that's one color in the Technology pricing and then, again, I think the pricing for hosting in the marketplace, the pricing for certain processing, which tend to be storage driven, is clearly something that declines every year and you have to offset it with volumes and we've been very fortunate to be able to do that this year.

Thanks, Dennis. And one last one, David. On SG&A, which was well under control in Q1, what directionally would you say on that for the rest of the year? Thanks.

In the corporate SG&A, which is the one I suspect you're referring to, Bill?

Uh-huh.

The first quarter was a very controlled performance. We will spend more most likely in the second and third quarter, particularly in marketing events that are scheduled. But we'd would see some modest increases there. Other than that, I don't think there are significant changes that we would expect. There's a little bit of some compensation things and stuff we would kick around after we get over our year-end reviews and stuff, but between the savings from some of the items affecting the special charge, I think those will pretty much wash out. The real difference would be more of a marketing spend in the second and third quarter.

Great. Thanks again, everybody.

Next up we have Scott Schneeberger with Oppenheimer.

Thanks, good morning. Following up on that last question, the restructuring that occurred in the first quarter and then obviously the subdued corporate expense in the first quarter, should we be thinking about higher margins this year overall as a result of this action? I know you had mentioned the normal Q1 to Q2 seasonal uptick, but any color on the seasonality of the margins going forward would be appreciated.

Scott, we manage the company, our target is of 25% cash EBITDA margin. We've got 200 to 250 basis points of stock-based compensation expense depending on how it falls and depending on variable accounting for some of the consultants. We think that's a margin that is very healthy for this business from the point of view of being able to continue to invest in our people, being able to continue to grow the business and at the same time deliver a margin that we think is more than acceptable for our investors. So you're looking at a 22.5 to 23.5 range on a GAAP basis, not counting obviously the special charge and so I think we're around a margin that we feel very comfortable long term is what we should be managing to and I think we would pick the opportunity where you see maybe some short-term margin expansion blips to make different investments in order to build longer term value.

Okay. Thanks. Appreciate that. And then with, obviously, the SEC activity in the news with Goldman Sachs and then there was some talk of maybe some increased SEC activity with regard to insider information, going back a few months, could you guys just take us a little bit more granularly on, we've been touching on it throughout the call, but do you think that there's going to be--the comment, I think, that was mentioned was the phones ringing is a different feel. Could you just elaborate on that a little bit more?

Well, I think I'll start. Look, you've got -- you've got an activist administration that is now filled a lot of its hiring requirements in key departments. You've got a health care bill that just got passed that one of the key elements of cost reduction is investigation of fraud and coding abuses and so I think everything from antitrust, as Jack said, to, competition investigations, to the obvious SEC actions we're seeing to what we anticipate will be a significant increase in health care investigations is causing the phone to ring. I think clients are either responding to direct inquiry from different touch points in the government or they're trying on a prophylactic basis to understand what they need to do to probably respond to them as they come forward in the balance of the year. So there is no doubt that we have an administration here and at least indirectly the governments abroad are wrestling with a lot of crisis, so they're having to be invasive just on a crisis solving basis, but there's a significant feeling of we need to find out who the bad guys were, we need to find out who has the money to rectify some of the abuses that happened and we need to make sure that it doesn't happen again. So I think there's a lot of activity.

You have anger, embarrassment and transparency and that's a pretty good formula for a lot of activity. You have boards are under the microscope and it can't be worked out CEO to CEO. You're going to have a lot of people, there's a lot of stuff in the air, the New York Times each day basically files a complaint or lays one out and I think people are going to have to act on that. They're going have to investigate it, they're going to have to take action when it's warranted and I think that's just an unbelievable kind of atmosphere potentially for a lot of activity.

Great, thanks.

It's just not government enforcement, it's what follows that after complaints are filed and whether it's big corporations who need to protect themselves and their image or whether it's strike through lawyers who have had these complaints laid out for them, and certainly you have potential juries that have been acclimatized by either losing their jobs or seeing some of the things they perceive happening around them being a ripe opportunity for plaintiff's lawyers.

Thank you.

The next question comes from Tobey Sommer from SunTrust Robinson Humphrey.

Thank you, I had a question for you, I know you're not predicting currencies, but maybe you could tell us what the expected currency impact could be or maybe what you embedded within your guidance for 2010? Thanks.

Tobey, that's a good question. Our board asked us that the other day as well. Our view is we're not in the currency predicting business. So our guidance and our budgets contemplate (inaudible) that currency would stay the same as where it is. It appears that that is an assumption that at least thus far is working about right through the year. Our biggest exposure, as you know, is to the British pound, followed by the Euro, followed interestingly enough by the Canadian dollar and the Australian dollar. So there's been some movement there, but not enough to dramatically effect what we're looking at.

Thank you. So I guess we could assume levels around the time that you originally gave the guidance would be something in a band that you had built into the guidance?

Yes,.

And I had a question for you about just recalling the way, I think I remember the business in terms of the flexibility of your labor staff. I used to think of the bottom third in terms of experience of consultants as being ones that had skills that could be applied to different segments. Is that still something that is part of the business in a way that you can manage ebbs and flows in demand among the segments?

Yes and that's particularly true between our two largest segments, Corporate Finance and FLC. You know, but that's really true when you've got a megaproject that you've got to get large teams very quickly on the field. We try to manage by segment, so each of the segments has a level of specialty and they train their young staff in particular to ultimately become the senior professionals. So in a day in and day out, there is some cross-pollination between the teams, but the flexibility is really for the megacases where we can be considered to go up against some of the largest consulting firms in the world because we can move a big team on very short notice just about anywhere in the world.

Even though we took some head count out because of organizational redundancies and in some instances we took them out of the segments because of right sizing the team compared to the demand, we have surge capacity. So if we get surprised in one area, if all of a sudden all hell breaks loose because of Europe or something and restructuring happens, we can surge. Believe me, we've felt very comfortable in what we did and one of the challenges that we in management here sort of tested the segment heads on is, if we're wrong in some of these trend assumptions, can you handle increased demand and so I think everybody has tested that.

Thank you. And then I had a question about strategic and financial communications. Over the last couple of years, there was some kind of, I guess, pricing pressure on the classic core retainer business. I was wondering what your thoughts are on the ability to restore some of that pricing or is this something that maybe the marketplace is going to have to live with for some time?

You know better than we do, the capital markets are still choppy, but they exist versus a year ago when they hardly existed. People have a reason to spend money whereas before a lot of people were throwing up their hands and saying I'm going to sell relative to a market downturn anyway, I'm not going to spend any money on it. So there was lot of pressure on retainers. The retainers have certainly stabilized, Tobey, as Jack said, we've had a net gain of them over the last two quarters. I think people are willing to start to spend. There's been a capacity reduction in the marketplace, some of the firms some of the smaller boutique firms did not fare well the last two years, so that would argue that as the spend levels start to increase, you might see even some more pricing relief on pressures in the retainers. People are now starting to, as Jack said, allocate budgets, open the wallets and they're not looking to return right away to 2006 to 2008 pricing levels where everybody was in a fairly euphoric marketplace. So I think the long-term trends look very good there as far as our increased position in market share, the fact that the wallets are finally being opened, but we have to be realistic that I think you're not going to see until we get a much frothier capital marketplace a lot of expansion in pricing.

Thank you. Last question is a little bit of a longer term question. Are you still comfortable with the outlook at this size to be able to grow head count at kind of a high single digit rate, get a little bit of pricing and have the top line grow over an extended period of time in the low double digits?

Yeah, I mean I think -- it's driven by a bunch of factors. Number one, the platform is maturing for us and as it matures, it becomes very attractive to groups of people that operate in the indigenous markets that we're looking at. So instead of sort of being the new guy on the street and have to populate an office, maybe, with experts coming in, now you have scale, the brand has reached, we're doing work and now we're seeing teams of people that are very interested in coming over because they see it as sort of the emerging guy in a lot of these markets, it's credible, it has scale, it has clients, it has a lot of inbound business given our reach, so we're talking to a bunch of potential acquisitions where their main interest is the fact that we, in fact, can produce inbound business in their market because of our global clientele. So I'm very optimistic that certainly on a geography basis, as you know, in a lot of these geographies, while we're represented and we make money, we're small, so it's not going to be very difficult to add people. It's going to be like anything else, the quality of anything that will be the Governor on it and then I think that we represent a great place on a stability basis, on a scale basis, on a strength of balance sheet basis and given our position at the high end of the market for experts who want to practice their trade and I think we won't take a back seat to anyone, anywhere in making that statement and so, therefore, I think that we're going to be top of line when people want to make moves and want to come with us. So I think -- I think we all feel pretty comfortable that even though we've grown a lot and our size is bigger, we're very small in our opinion versus the opportunity globally and have a lot of room to grow there.

I mean it's in our DNA. Every segment leader right now is out there trying to figure out who the best in the market are, how they can convince them to come to FTI. So we're by no means in a retrenchment phase, in any kind of other outlook but bright and people striving to make this a place that's built to last.

Thank you very much.

We now have a question from Arnold Ursaner with CJS Securities.

Hi, good morning.

Good morning, Arnie.

Wanted to focus on your economic consulting and communications area. We probably had the best quarter in years in terms of merger and acquisition activity, transactions, second requests, so could you comment on in q1, in those two segments, your revenue trends that were episodic versus retainer and what your outlook is for the balance of the year for margins relative to the Q1 actual which may have had some unusually good activity?

Yes, Arnie, Dennis. I think we would temper the comments that this was one of the best M&A transaction quarters ever. I think if we go back and probably look at the numbers, it would be hard to beat a lot of the stuff that happened in 2007, 2008. It certainly is the beginning of a return to a much more frothier market. Look, we've been saying for three or four quarters that our people sensed that the dial was moving in their direction as far as these M&A transactions and most importantly the difficulty of getting them through. So I think as Jack said earlier, a lot of it is maybe that the numbers are gradually creeping up, so we won't debate that with you, but I think the complexity of them is what is going to drive a lot of our volume in that area.

I think the other area is complex securities litigation. We have some of the foremost experts, acknowledged experts in the country. Some have written the legal textbooks in it and have developed some of the present day theories on securities liability, litigation and they are getting extremely busy. So the drivers there we would say certainly an increase in deals, but it's more the complexity of them and the government's possible invasiveness in it and then finally, the complex securities litigation people are really getting busy. I think that's certainly going to have some legs on it for a while.

And in corporate communication they work predominantly in M&A transaction where there is either an unfriendly that gets involved or it's an unfriendly transaction or where there is a large constituency, be it a government or a union or a trade group that is going to oppose it. So it wouldn't be a one-to-one correspondence that if we see a lot of M&A activity, that they're going to benefit one-to-one. They benefit simply because as a percentage of an increase in activity, you're going to have some unfriendlies, you're going to have the government being more invasive and you're going to have the need to articulate more clearly to the public or the constituencies the benefits of the merger, the benefits of the strategy rather than sort of have it, just go through on a routine basis.

I think, Arnie, our collective view is that there was nothing abnormal or abnormally high in the first quarter in terms of M&A. We're hoping that that's the floor, not the ceiling, so we're looking forward to a more vibrant marketplace because as you know, we placed a lot of bets with our economic consulting folks last year and we're determined to see that business really grow. That's one of our star performers we predict for this year.

Would it be fair to say as you increase utilization and have these more complex cases, the margin you had in Q1 should be exceeded in the balance of the year? Is that a fair way to look at this?

I hate to predict it, but I think as I tried to say, I think it's growing into its margin, so I would be disappointed if it weren't better.

You are in the forefront frequently with head line news. Can you comment on the opportunities you see from the sovereign debt crisis, specifically as it would relate to communications? There was press the other day about Greece targeting the need to get better communications out there to the investment world and mentioned firms like yourself as candidates to do some of this work. What opportunities are you seeing in the crisis and again specifically on communications, but also possibly on the restructuring side?

Well, you saw the same article you did in Blumberg and it did mention us and we are not going to talk specifically about assignments, especially ones that are so sensitive in some of these sovereign areas. But we are involved in some of these areas, we would anticipate that that would pick up and if you looked at the news this morning, there certainly needs to be a different approach to communications of what has to happen in some of those areas because whatever they're doing doesn't appear to be working right now.

We have a large history of working for sovereign governments, so that's not in that capacity thankfully for them, but we're naturally somebody that would be on a short list for those situations, so we would expect that we would get our fair share of that representation as we go along.

My final question, you didn't formally reiterate guidance, but in response to a previous question, it sure sounded like you reiterated most of the components embedded in your guidance. Is there any more you'd care to add about just sort of the mechanical part of not reiterating your previous guidance?

Arnie, as you know, our custom has been to formally readdress guidance after the second quarter when we have sufficient data points to do a top down and a bottom up rebuild. We will continue to that practice. I think that's the best practice and we, as we said, first quarter came in as planned, so take that for that we're satisfied with it.

Thank you very much.

Next up we have Kevin McVeigh with Macquarie.

Great, thank you. All the consultants that were shifted from Technology as a result of the reclassification, were they all moved up into FLC or were there any that were part of the restructuring?

They were all moved to FLC.

There were a couple --

There were a couple of people. They took the opportunity to obviously accelerate some possible planned exits, just because of the timing, but they didn't have many that came out of that group. In fact, I think the number is two.

They were unrelated decisions.

And they have, in fact, been hiring since. This' going to be a very -- that's going to be a very -- you can imagine, they particularly shine in terms of investigative work and helping clients respond to documents and things like that. They are going to be very busy this year.

That's a practice that we're also increasing our hiring overseas, particularly in Europe. Great, that's helpful. And then as you think of use of capital, I know we didn't buy back any stock in the quarter, but as we think about the second half of the year, buy back versus strategic acquisitions and any percentage on an allocation basis relative to free cash flow, could you help us think about that?

There certainly more deals available to us. I think you have to be cognizant of what represents long-term growth opportunity. I think clearly as we've said before we think the stock is cheap. We are watching it. We're trying to understand the market. We're trying to understand what would be the most effective technique if we wanted to buy back stack. As David said, we have time with the $250 million and I think we're trying to understand as any investor would, because that's what we're doing, where is the market going, where is the world going and on a timing basis what would be good timing, but I think the biggest change from this time last year is seeing much more attractive external growth opportunities where we would allocate capital to build long value.

I know you're a little bit newer to following us, but certainly what we've shared with people in the past is we view share repurchases as a use of capital that is attractive to our shareholders and we evaluate any other use of capital against that as an opportunity. So as we think about potential acquisitions or other growth opportunities, our first sanity check is, would we be better off just buying the stock? So that's not giving you guidance as to percentages because it will depend upon the facts and circumstances at the time, but that's sort of our view on cost of capital. We like our company and we think it's a very attractive investment for us and so we look at dilution and the possible benefits of growth would drive from the acquisition, the value we place on an acquisition, versus buying our stock.

Great. Thank you.

Our final question is a follow-up question from Jim Janesky with Stifel Nicolaus.

David, just a quick question on interest income, surprised it went up sequentially. What are the expectations for the rest of the year?

That had two components to it, Jim. It had interest income and it also had some FX gains in it. So I think it's a little bit of a false indicator. I'll give you the break out of that offline.

Okay. Great. Thank you.

That does conclude our question-and-answer session. I'd like it turn the conference back over to our speakers.

Okay. Thank you very much and thanks to all of you for joining us this morning and I'm sure we'll be talking to many of you in the next couple of days about any other questions you have. So we'll talk to you next time.

And that does conclude our conference. We appreciate your participation.