FTI Consulting Inc (FCN) 2010 Q2 法說會逐字稿

Good day, and welcome to the FTI Consulting second-quarter 2010 conference call. As a reminder, today's call is being recorded. For opening remarks and introductions, I would like to turn the call over to Eric Boyriven of FD. Please go ahead.

Good morning, and welcome to the FTI Consulting conference call to discuss the Company's 2010 second-quarter 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 disclosures under the heading "Risk Factors and Forward-Looking Information" and 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 to discuss certain non-GAAP financial measures such as EBITDA. For a discussion of these non-GAAP financial measures as well as reconciliations to the -- of these non-GAAP financial measures to the most nearly comparable GAAP measures, investors should review the press release we issued this morning.

With these formalities out of the way, I would like to turn the call over to Jack Dunn, President and Chief Executive Officer. Jack, please go ahead.

Thank you. Good morning and thank you for joining us. With me on the call are Dennis Shaughnessy, our Chairman; David Bannister, our Chief Financial Officer; Dom DiNapoli, our Chief Operating Officer; and Roger Carlile, our Chief Administrative Officer.

Our results were released first thing this morning, and I hope you have had a chance to review them. If not, they're available on our website at www.FTIConsulting.com. Since we last spoke, the business climate and our view have not changed. It is our goal on this call to briefly recap our second-quarter performance, talk about the new acquisition we announced last evening in a separate press release, and then open it up for your questions.

As discussed on our previous call, as a general matter, our pro-cyclical businesses continued to follow the trajectory of the improving economy while a hungry high yield market and at least temporarily sympathetic creditors continue to impact the restructuring side of our business. In short, our pro-cyclical businesses have not improved as fast as we thought and our restructuring business has declined faster. Ironically, we had anticipated that the same factors that would drive one would drive the other and they have, just closer to the fulcrum of balance as opposed to the wider and more volatile ends of the spectrum that usually mean good markets for us.

A good example affecting all our businesses is the tepid pace of recovery in the M&A markets. Despite corporate financial positions that have materially strengthened over the past few years, strong corporate liquidity and the debt markets I spoke of, the capital remains on the sidelines waiting to be invested. The uncertainty about regulation, taxation, and where valuation might be headed have quite correctly caused decision-makers to exercise caution and delay pulling the trigger.

As I said, this dynamic has cut across virtually all our segments in the quarter, impeding the amount of antitrust work done by our competition economists; the volume of antitrust second requests processed by our Technology segment; the number of transactions handled by our Strategic Communications segment; and the amount of due diligence work performed by our transaction advisory group within Corporate Finance.

With this backdrop, let's look at our results, which are consistent with our prerelease. Revenues were $349 million, earnings per share were $0.52 and adjusted EBITDA was $65 million or 18.8% of revenue.

We generated $49 million in operating cash for the quarter with continued strong cash collections on stronger DSOs than during the same period last year. And we exited the quarter with approximately $123 million in cash. Cash generation has continued strong, and currently, we have about $130 million on the balance sheet after buying back $336,000 of our shares during July.

With respect to the segments, revenues and corporate finance restructuring were $111 million, down from $134 million in the corresponding quarter a year ago. This reflects a lower overall demand for restructuring and bankruptcy services due to the factors that I mentioned.

Adjusted EBITDA in the quarter was $26 million or 23.4% of segment revenues, and we have taken steps to bring headcount into line with the current demand and incurred about $2 million of severance expense, or almost $0.025 during the quarter.

We have experienced some signs of stability of demand in the business over the past few months, so we are cautiously optimistic that our revenue levels in the segments have flattened on a run rate basis. This stability is encouraging to us as it facilitates our ability to manage the business in order to return margins to acceptable levels.

Our Forensic and Litigation Consulting segment is still operating in a climate where corporate in-house counsels are aggressively managing their legal spending. But at the same time, the regulatory environment continues to be encouraging for us due to the increased pace of actions by the government agencies.

Against this backdrop, FLC's revenue increased nearly 6% over last year's second quarter. This was a remarkable performance, especially compared against a period last year when two large investigations were at full blast, driving activity, utilization, revenues and margins.

The revenue growth in the recent quarter was attributable to the expansion of the segment into new markets such as Boston and Europe, and again, to the outstanding performance of our specialty practices such as intellectual property, insurance, healthcare, financial services, and pharmaceuticals, and excellent performance in Trial Services and our Asian investigations.

Adjusted EBITDA for FLC was $19.3 million, equal to 24% of the segment's revenues. This compares to a margin of over 27% a year ago, which benefited from those large investigations.

Economic Consulting also had a good quarter. Despite the aforementioned softness in antitrust M&A assignments, revenues increased 13% over last year, driven by strong growth in Financial Economics and Network Industries, more modest year-over-year growth in the antitrust practice, as well as continued expansion of our international arbitration practice. Financial Economics remains very busy in the securities litigation area, and Network remains busy in both the railroad and telecom sectors. Adjusted EBITDA for recon in the quarter was $11.5 million or 17.7% of revenues.

Our Technology segment reported revenue of $43 million and adjusted EBITDA of $16 million for a margin of 37%. Revenues declined versus last year due to significantly less antitrust second request work.

On the pricing front, we believe our measures to address increased competition are working, and our volumes are increasing. In addition, we continue to be more than encouraged by the introduction of our new Acuity document review offering. Early results are showing that we can dramatically lower our clients' costs and increase their document review efficiency by a factor of as much as 4X or 5X. As you know, this is a huge sector of the electronics evidence chain, perhaps as much as $6 out of every $7 that's spent on electronic evidence. Previously, this was untapped by us and a huge opportunity for us and for our Company.

The Strategic Communications segment continued to show improved results, even within this mixed environment. Revenues increased by about 12% year over year to $50 million, which represents the highest quarterly revenue since 2008. While capital markets activity remains soft, the segment registered its third consecutive quarter of annualized retainer growth. Growth was led by a strong performance in the US, which has benefited from increased project work, most notably the public affairs communications for Transocean and the Gulf of Mexico, as well as development of several large retained clients. In addition, Asia-Pacific revenues showed strong growth in the quarter as compared to the prior-year period.

Adjusted EBITDA in the quarter was $8.6 million. This was over 17% of revenues, marking the highest level of profit earned and the highest margin percent since 2008.

Now I'd like to talk a little bit about the acquisition we announced last evening. As we have discussed several times, Asia is a major initiative for us this year. For several years, we have had the great advantage of excellent groups and investigations in Strategic Communications in that part of the world.

Recently, with the addition of great professionals like Steve [Hugie], Rob Morris, and Mark Smith, and the acquisition of Baker Tilly earlier this year, and now FS Asia Advisory, we're building a real critical mass and filling in our range of full capabilities housed in region. FS Asia brings us 130 professionals and strengthens our list of blue-chip clients who can avail themselves of all our services.

Rod Sutton and his team joined Steve Vickers, David Holloway, Stuart Witchell, Ross Thornton and Jim Kelly in giving us a real presence where we can offer investigations, strategic communications, forensic litigation, restructuring, corporate finance, construction, and real estate services from professionals located in the region.

In addition to Corporate Finance, restructuring, turnaround, and corporate recovery, FS Asia's specialties are formal liquidation assignments. These typically encompass restructuring and litigation forensic components. Typically, they are long-lived matters spanning several years and arise not just from financial distress, but from corporate fraud. Rod and his team have an excellent reputation and should be both an excellent source of referrals to our other practices and a complement to those practices giving us broad credentials when competing for international assignments within Asian components. They operate in Hong Kong, Shanghai, Singapore, and Manila, with annual revenues of approximately $35 million. They are a great addition to our team.

Before I conclude, I will again review the revised guidance we provided a month ago. Our guidance is predicated on an outlook that is, admittedly, cloudy. As we said in our July call, assuming no change in market conditions, we expect our full-year results to be at the low end of guidance range. If business confidence improves and discretionary spending on litigation and M&A rebounds, we would look for improved results and a move up into the middle or higher end of the range.

Placing this in some perspective, unlike many companies, we are lapping two record years, not to mention record quarters. Two of our segments had double-digit growth in revenues and adjusted segment EBITDA, and a third had impressive growth which, given this market, must mean an increase in market share.

As we outlined in our last call, it is not a question of if but when the forces that are building up that impact all our markets burst, and our goal, in the meantime, is to closely manage our discretionary expenses and headcount without damaging the franchise that we've built over the last 10 years that will so ably handle these issues when they arise. With that, we would now like to turn it over to your questions.

(Operator Instructions). Tim McHugh, William Blair.

Thank you. Can you just give us a little more color on the cost of service line overall, and then within some of the segments? You mentioned the severance expense, but generally with flat revenue, that line was up a fair amount this quarter. So, just a little more color on what were the factors driving that?

Tim, in which segment?

Overall. We don't have the Q yet, so we don't know what the cost of service was in each segment. Will you maybe call out any specifics in the segments that were high?

The two things that may be different than you would be thinking would be that the cost of service in Corporate Finance was basically flat quarter over quarter. And that was driven by really two phenomena. One would be the additional severance cost in the second quarter; the fact that a number of the severance activities that took place in the first quarter, we still incur expense with respect to people as they worked out their notice periods or finished up engagements or what have you. So we didn't get the full benefit of the first-quarter reduction in force in the second quarter.

And then I would say normal salary reviews and call it inflationary costs would have taken the costs up since our salary reviews are conducted at the end of the first quarter. So that would be the thing that might be a little bit different than you had modeled.

The other factor would be in Technology, the costs are probably a little bit higher than you might have modeled. The good news there is volumes are up very dramatically. Pricing, as we've discussed before, has been a bit of a challenge, so you do have a bit of a fixed cost element to that business, and with the Technology backbone and the servers and so forth. So that may be a little bit higher. I think the other segments would be pretty much in line with what you expect.

Okay. And then, on the acquisition, can you give us a little more background on the firm? I know it was part of, obviously, a boutique over in Asia before, but it seems like you're just acquiring part of that business. Had it separated previously from the rest of the business? Or is there a reason that you are only acquiring a piece of it and not really the Australia operations?

This is Dom DiNapoli. The Feria practice that we acquired is now called NFS because they had separated from Feria Australia, which is basically a -- they just had a relationship where they paid them a fee to use the name. So we bought the entire partnership that was headquartered in Hong Kong. So it was really not a split from the Feria -- it was actually a separate group from Feria, so we didn't piecemeal the acquisition. We bought Feria Hong Kong, which included their Shanghai and their Philippines practice.

Okay. And then the demand for that in Asia, can you talk -- did they see a similar increase that you saw in the last two years and maybe a little slower environment lately? Or have the demand trends for that type of business been steadier?

Well, they've seen it a little slower this year versus last year. They didn't have the bubble that we had last year, where we had a significant uptick in activity. They're big game hunters like we are. Their practice last year benefited from several very large insolvency practices or cases. That's where they make a lot of their money. But, they are a very scrappy bunch. They are very similar to the practice that we have in the US, and in Canada and in the UK. So their approach to client service is very similar, and we think that they're a great fit culturally with the rest of our Corporate Finance practices throughout the world.

Tim, Dennis. The forensic talent that they have resident in the group will fit very, very well with our ambitions out there and where we see the demand curve moving and will help us address some of the client requests that we've had that would generate inbound work not only coming out of Europe, but also coming out of the states here. So I think while they certainly developed a reputation over the years as the premier insolvency firm, restructuring firm, about 40% of their business was forensics. And we expect that will grow significantly over the next four or five years as we link it to the rest of our business.

One of the challenges we've had out there, Tim, is we've had -- as Jack likes to say, a $10 billion client list but with a very limited ability to serve those clients. Steve Vickers and the international risk operations really have a Who's Who set of relationships with the major financial institutions, the law firms, the international firms that have operations there, and had some very important services that those firms would care about, but it really didn't allow them to move deeply into helping clients with significant problems out there.

Okay. That's helpful. Is it fair to assume close to 1X revenue or something like that, for the purchase price?

I would say the purchase price is in line with what we normally pay, Tim, which is a bit higher than that.

Okay, thank you.

Tobey Sommer, SunTrust.

Thank you. A quick follow-up on your acquisition. Is it fair to assume that you worked with the firm in other engagements where you needed some sort of last mile execution that wasn't within the breadth of your former infrastructure?

Tobey, yes. In fact, we've actually already had some joint pitches with them that have gone very well. We had a pitch for a major US company that was doing some work over there that -- where their folks and our folks sort of seamlessly integrated on the pitch and so forth. So I think it is fair to say that we know them well. Again, Steve Vickers and the folks in Hong Kong know them very well. It's surprising that Hong Kong is a pretty small town when it comes to these sorts of people, and there's a good level of knowledge and experience you got to --

We've certainly known them well over the last two years, where we have had different chats with them at different times, and have -- know their presence in the marketplace very, very well. So it's like most of our transactions where you say it's a fairly homogeneous type of marketplace, so we know them very well.

The other factor where we would know them well would be through the major financial institutions. So for example, DeLain Gray, who runs Corporate Finance for us, was out in Hong Kong for a couple weeks meeting with the HSBCs and standard charters and then the major law firms, the clipper chances and what have you, where we have deep and rich relationships as do they. And so there was a pretty high level of an ability to get comfortable that we would all work well together.

Thank you. And I had a question for you about the bill rates. We read and heard a lot from some law firms that they've been under some stress and I guess pressure on bill rates and if I look back over -- during the expansion, at least the previous one, bill rate increases at law firms were pretty high. And I was just wondering, in an environment where that aspect, the legal aspect of professional services may not see a lot of price inflation, how you think that may impact the consulting side that FTI operates in?

Tobey, it's Dennis. I'll try -- I did -- there's no nice homogeneous answer. I think it's the M&A activity that we know the interest is there. We've been retained on a lot of things. They're just -- people are holding back. If that really accelerates, that is very agnostic to bill rate, as you can imagine. And I think the corporate law firms experience that same thing. People want to get deals done. They're complex deals. They have a lot at risk. They either don't go through or there's issues with them; you know, much more active as the Justice Department and Commission look at these things when they do mature. So I think in that area, I don't think neither we nor the law firms would experience a lot of pressure on bill rate.

I think in restructuring, as you move down market, I think we've always said we think there's more price pressure, and we would probably hear the same thing from our cohorts in the restructuring group in the law firm.

I think on Technology, without a doubt, there is price competition there. We've said that. We've been extremely successful in actually picking up significant assignments, generating a lot of volume, and holding pretty close to our margin. We've lost some margin points, but I think we're still up around the 37% area.

I think the one area where we still are seeing a hole back in budgets or a delay in spending money is still, in general, corporate litigation. Obviously, you're going to see a lot of money spent surrounding the Gulf. And again, there's an awful lot of risk there corporately. I think these general counsels obviously want to control their spend, but they also have to manage the risk. So I would say you might get a mixed report from law firms. Some of the law firms probably are having no problem with doing in those areas; others might be. So I would say it's a mixed bag. Econ -- we don't expect to see it; and FLC, there's still people really holding the line on budgets.

Well it would be one of our big drives across the firm, but particularly in FLC, where you would most likely see those sorts of pressures given their direct relationship with the law firms, is to move increasingly toward having true specialists -- you know, folks who are almost one-of-a-kind in their ability to deal with client issues, and move away from having generalists.

I think the price pressure tends to be when you can be commoditized and they can say well I can pick from this firm or that firm and solve the issue. So in Economics, but increasingly in FLC, we have folks who are really sought after because they bring unique expertise to the problem. And there's often -- there's less price pressure when you have that ability.

Thank you very much.

David Gold, Sidoti.

Good morning. I wanted to follow up a touch if we can just on restructuring. Pleased to hear that that's stabilizing, but just curious if you could flesh out two things for me.

One, when we say stabilizing, is that with say the last month of the period? Or is that to think about it as stabilized for basically the quarterly run rate? What's -- basically how should we model that or think about it based on what you're seeing right now?

David, on a revenue basis, the quarterly run rate is pretty stable from the prior quarter.

Okay. And I guess, I think when we spoke about it last, it was that it had tailed off the first couple of months in the quarter and then stabilized that last month. Was that right?

Yes. I would say chargeable hours have been relatively flat from the end of May through the end of July.

I see; I see. Okay. And then, one other, Dave, on the G&A side, it was lower than we had expected. And just curious if that's a new good run rate, and if there was an incentive comp contribution to that of maybe a pullback?

There was an incentive contribution. Obviously, with these results, our executive incentive comp will be significantly lower than we would have hoped it would have been. In terms of a run rate, it's -- it's --

Was it -- there was giveback there for the first quarter?

Yes.

Okay, so then --?

I would say in terms of a run rate, you're not -- it's probably a little -- I think you need to be a little higher than that for a run rate for the back half of the year. The third quarter we have some significant marketing events that have gone on and you obviously have a reversal in that quarter for the comp, so you would need to normalize that.

So, can you give a sense for order of magnitude, how much more significant it could be? Or maybe what the giveback was?

I'll tell you what, David, call me off-line on that because I just need to work the numbers out. But I think that the number for the year ought to be -- around that $70 million level.

Around 70 --?

$70 million.

Okay. Got you.

A little less than that.

On G&A?

Yes; on corporate G&A.

Got you. Okay. All right, I'm (multiple speakers)

It was $16 million for the quarter. So 4 times that is $64 million. I think it will be closer to $70 million for the year.

Okay, all right. Got you. And then just one last one. Looks like a decent share buyback in the month of July; presumably some blackout there. Once life reopens, how are we thinking about share buybacks here?

I think we're -- we feel the stock -- we feel for anyone this is a great entry-level to buy the stock from our perspective as long-term holders. Obviously, some of us are buying it ourselves. I think you will see the Company be active at these levels buying stock. We're fortunate to have great liquidity and generating great liquidity.

We structured this acquisition to allow us to preserve that liquidity. So, that won't be a large cash drain. And, I think you will see us very active, David.

We have a $250 million remaining authorization, of which we have consumed about $11 million or so in the quarter. So we've got a lot of work left to do to get that done.

Perfect. Thank you, all.

Arnie Ursaner, CJS Securities.

Good morning. Normally, in terms of your updating your guidance, you tend to do it only midyear. You don't tend to do it after Q1 or after Q3. So what I thought you might try to do for us is perhaps update your views on the back half of the year for each year segments, for both revenue and EBITDA margins, particularly given the cost adjustments you are making and the fact that you are in this transition period, where some of your businesses are continuing to slow. Some are getting better at different rates. Again, normally you use the midyear call to update your view. Perhaps you could do that.

I'll start out. In general, I think in restructuring, if we have found the floor then I think you would see some degree of margin stability. We have taken costs out, particularly in the US, to align the personnel complement, what we see as demand. So that should stabilize. We would not view it as expanding. But we could be wrong.

I mean I think David said that there appears to be a stabilization over the last couple of months in the amount of hours billed there, but, things can burn off if they don't get replaced. And so, I would put a big caveat on that.

I think in FLC, they are operating at about where we would expect them to be. The specialty parts of the business are doing extremely well. They are in the running to get several large pieces of business that are related to a lot of the things you read about in the papers. If they've got those, their utilization would expand, and I would think you could see a little margin improvement there. But again, I think we would expect them to operate around margin they are on right now.

Econ has a big backup of business and competition, which -- the good news is, we're in all the deals. The bad news, Arnie, is they're just not moving very well. If they would move, then again I think you would see utilization increase.

On the litigation support side, our Econ guys are extremely busy, and that's one of the better margin sides of the business, so they have the potential to increase slightly. FLC is increasing slightly every quarter as they return back to a more historic margin. But again, the rate of trajectory there, while it is up and it's good comps, remember that they are comping off of a bad year last year because of the capital markets. So the real sequential rate of growth doesn't allow you to have dramatic margin expansion.

And if you remember that business, their highest margin business is on the transaction side, especially M&A and some IPO work, but especially the M&A side. And again, that still is in the doldrums. They're doing very well [finding] new clients. They're doing very well building their retained business up, but there just simply aren't many deals out there, transactions.

Tech, I think a lot of it will depend on -- the reception of Acuity is very exciting. That could move the margin. I wouldn't expect it to move it dramatically for the second half. We could start to feel it as there's more uptake on that product in the fourth quarter. And again, if these M&A deals start to break their second request business, which was down significantly year over year in the second quarter, would clearly move that margin up because the second request business, as you know, is very intense. It's very short-term driven. High billing rates; high-value added, not a lot of concern about pricing; and that would help that margin significantly.

Arnie, the only other thing I'd like to add is we are still investing for the long term here, and as is evident by our recent acquisition, our core Fin. is expanding in Spain. They are expanding in Germany -- all those investments that we've planted at the end of last year and the beginning of this year. FLC is continuing to grow in South America and in Asia. And we think there's great synergies between our new acquisition with -- just between FLC and our core Fin. practice. So we're taking this opportunity to invest, and we do have a long-term horizon on growing these businesses.

Thank you. Again, maybe the perhaps simpler question, at the beginning of the year you had talked about restructuring being negative in terms of revenue growth. But all of your other businesses you had expected double-digit growth. As we sit here midyear, how would you update that previous forecast?

I would say clearly we don't expect that and I think that's driven really by the fact, Arnie, the economy is not returning at a pace that I think most of the people were predicting in the beginning of the year. And the capital markets are certainly not returning. While the debt market has been very liberal, the equity markets have not been. And where we gaining a big backlog of cases in the fourth quarter, in the first quarter, in M&A, it really seemed to hit a wall in the third quarter. A lot of those cases are still there. People are still looking at the targets, talking to targets, but it's just slowed down dramatically for a think a wide variety of reasons.

And we fact-checked this with the major i-banks, M&A divisions, and they've experienced a similar slowdown in that again starting about the end of the first quarter. And we've also talked to the major corporate law firms, who, again, confirm the same thing. So it's really I think a lot macro driven.

The growth was there. We would not expect double digits in all of the groups; clearly, some of them. Econ will probably have double-digit growth. FLC most likely won't because of the great year they lapped, and you just don't have the overall demand. Tech would not because of pricing. So there is pricing pressure there that is probably greater than we anticipated. But the good news is we think we've expanded our market share and are making it up in volume.

Maybe a polite way to try to wrap it up one more way is, all-in consolidated, do you expect organic growth in revenue this year?

No, because of the dramatic decline in restructuring.

Arnie, the low end of our guidance is $1.4 billion. We're saying if everything stays the same, that's all hit, and that's what we had last year.

Right.

There's no acquisition -- there's no significant acquisition affecting any of that.

Jack Dunn, look forward to seeing you at our conference. Thank you very much.

Joseph Foresi, Janney Montgomery Scott.

I wonder if I could ask first, just about Europe. Maybe you could give us an update. I know that things had come to sort of a halt in that particular region based on the last call that we had. Maybe you have any updates on sort of what's taken place there and what's built into guidance for the rest of the year?

I'm sorry, what region?

Europe.

What I would -- I'd say a couple things. Europe clearly has slowed dramatically in our Corporate Finance business. It's down probably 20% to 25% year over year. And as I -- I think as, again, what we keep repeating is, our guidance assumes no change in the current operating environment. So we don't have any assumption that it's going to improve dramatically there in the back half of the year, the low end of our guidance. If it does start to improve, that's how we -- where we start moving into the mid to higher end of the range of our guidance.

Strategic Communications has picked up somewhat. I would say that the larger pickup in Strategic Communications has actually been in the US, but they are seeing net retainer wins in Europe for the last three consecutive quarters, which is very good news.

Capital markets activity continues to be very slow there. So there's not an IPO calendar. There's not an M&A calendar. But notwithstanding that, their business has picked up some.

The Economics business is a new business for us there, so that is doing quite well and growing nicely. But it's still -- it does not have a significant earnings contribution to it yet. It's a fledgling operation. It's a startup.

I think the -- as we mentioned last time, the election and the budget issues there had kind of a disquieting effect. And I think that as people get back to work and recover, I think that will mean some increased work for our Economic Consulting group, and I think it will also mean increased activity for us in our communications for our governmental affairs. So I remain hopeful about Europe being better towards the back part of the year.

But based on the last call, you haven't seen any change there, it sounds like.

We really -- it's been a month and we really haven't seen anything much different from where we were a month ago.

Of course. And I was just wondering, in this present guidance, it sounds like you're not including any potential acquisitions, and are you pretty much done with the headcount cuts?

Yes, the acquisition -- because of the new accounting for acquisitions, obviously, the one we just made really will be offset. We should now expense all of your acquisition expense, so the impact to earnings would be almost de minimis on a net basis. Next year, it definitely will be accretive. And we haven't made any other acquisitions this year of any size that would move the dial. We are talking to people. We are engaged in conversations from other acquisitions, but again, it's just the timing as you move into the third quarter and then the fourth quarter if you have close the deal it would have very little impact on this year.

And the headcount cuts are pretty much done? It's just --

Yes; you know, with the caveat that, again, we feel that we have found a floor in the Corporate Finance group. But, I think we felt we had a floor in the first quarter. So, if this continues to hold at these hourly -- aggregate hours billed per quarter, then I think you will see it stabilize.

Okay. And then I wonder, could you guys give us a general sense of what you think your visibility is on that lower end of guidance, if you could put a percentage on it?

Again, the lower end of guidance assumes that things continue as they are now. We don't have any reason to believe that they won't continue as they are now or would get lower than that. We don't see trajectories going down in any of our businesses relative to current run rates.

Okay. I'm sorry; that's fair. I understand. And then just lastly, it seems like litigation has slowed and maybe you could talk about, is there a backlog growing versus maybe a change in the litigation industry permanently going forward? Maybe you can just give us your opinion on just sort of how you see that playing out over the next year or two?

In the specialty areas, we're doing very well. In IP, in insurance, pharma, construction. So I think in those areas, they're significantly up. FLC had an up quarter, and it was lapping a first half where it had made off in Stanford roaring as we started both those investigations last year. So, I know everybody else was saying litigation is down. For us, it's up. It may not be up as much as we expected given that we thought there would be more of a catalyst to litigation with the government. And I think some of the large issues that you've read about, some of which we have been involved in are settling so that they're not moving into a litigation phase, even though we may have been involved in defense investigation work for people or even discovery.

So, I think that we view it as a good first half for that group given what they had to lap the prior year. And, at least what we are seeing is litigation is up. Now, maybe it's only up in a lot of these specialties, but our Econ litigation support group, which does all this complex securities work and does a lot of complex damage model building is extremely busy. So I think if you look at those two barometers, we're seeing litigation up.

Now how much of it is classic civil litigation, one group suing another over a dispute or how much of it is driven by governmental action? I think there you might -- if you got more granular you might still say civil litigation isn't up that much, but without a doubt, we are experiencing increased demand.

Yes, and remember too, I personally believe that the general commercial litigation is still slow because that tends to be a little bit more of a discretionary expense. But, if you think about our Economic Consulting, a lot of people who would be our competitors that would be reporting litigation will be reporting purely an FLC type situation. But if you look at the results where we had impressive growth in Econ, that growth was driven by litigation, by big-ticket securities litigation, class-action securities litigation.

So I think, back to your original premise, I think because of our specialty practices, it's pretty impressive, and I think, yes, there is a backlog that's going to get even better. I think we are seeing the cases pile up. You're out of the recent phenomenon, whether it's the municipal debt issues, whether it's out of the Gulf of Mexico, whether it's any number of things, I think you are going to see more litigation, again, towards the back half of the year.

You also have different pockets of strength depending upon the US Attorney's office and how active they are. New York, in particular, is very, very busy.

Okay. Thank you.

T.C. Robillard, Signal Hill.

Yes, good morning. Thank you. Just wanted to get a little more color on what's driving the strength in Strategic Communications in the US? And is that to be viewed as a precursor to some demand in some of your other segments?

Strategic Communications is extremely involved in matters in the Gulf oil spill. So they have been very involved in that. That has helped. They have some very increased mandates from large corporate clients, Fortune 100 size clients, that are working on certain issues that require increased help from us in that area. And, they're increasing their retainer, so they're winning net new companies. Like a lot of companies probably have been analyzing the last year how they're going to spend their money when they start respending it, and so they've started making changes. Normally, those changes are made after the first quarter, after you get through if you're a calendar year company or if you're reporting your shareholders meetings, your annual reports and things like that. And so we've been fortunate to win a bunch of new business, so on a project basis as well as gaining new clients.

But you know, I think we've used some of the period during last year when it was a little quieter to work on that practice. We have a dynamic leader there in Ed Reilly, who took over about a year or so ago. He and his leadership team have really done a great job of really going after the big corporate business and have made the most of their opportunities. During a time like this, you see a lot of kind of changeover and clients as they kind of lower their level of activity, and he's been there and his team to capitalize on that. And we have dramatically new big clients that will be built to last. So, yes, I think you are seeing a sea change there. We believe that market has bottomed and we have a great future in it.

And do you feel that that can open doors or give you a better platform for cross-selling, particularly since F.C. historically has been much more focused in Europe?

Yes, it already dramatically has.

Okay. And then just real quick, David, on the SG&A line, a little bit of a step-down there. You are sub 24% in terms of percent of revenue. Is that sustainable? Was there anything that may be just kind of got shoved into the early part of July so it didn't show up in June? I'm just trying to get a sense of how we should be thinking about that line item for the next couple quarters?

Not the latter, T.C. The one thing I pointed out which was mentioned earlier in the call was the reversal of some bonuses in the quarter. So the run rate would be somewhat lower than -- or the stated rate would be somewhat lower than the run rate.

Okay. Perfect. Thank you.

Scott Schneeberger, Oppenheimer.

Thanks. Good morning. With regard to the acquisition, I think some questions earlier touched around it, but, did you say that it would be roughly EPS neutral in '10 and accretive in '11? And then on top of that, to what magnitude -- what type of margin are you buying this that? And I think you had mentioned it was consistent with past multiples. Could you just give us a little elaboration on what past multiples paid for such a business were? Thanks.

As Dennis said, the -- because we have to expense deal costs now, we would not and end -- it's only five months left in the year. We wouldn't expect it to have any material contribution one way or the other in terms of earnings this year. Next year, it's probably -- depending on activity level and so forth, it's probably somewhere around $0.10 to $0.15 accretive.

Okay, thanks. Dave, any commentary on the margin at which you -- that it was putting off?

It's a very good margin business. It would be comparable to the margins in our corporate finance business when it's running well. So I would say it's a -- again, we haven't worked through all the purchase accounting and so forth and so on yet, but it's a 30-ish percent margin business.

Okay, thanks. And any further commentary on multiple paid, or you have given as much as you care to give?

You know, again, we will -- what we need to still flesh out to be able to answer the question fully is the new purchase accounting for earn-outs. This will have a -- this does have a contingent payment element to it, and we haven't worked with our outside valuation firm to finalize that number yet. So I'd just as soon defer on that until the end of the quarter when we report those numbers correctly. But it's a multiple consistent with other things we bought, so --.

Okay, thanks so much. On Tech consulting, a solid margin for the quarter. What is your -- do you continue to think maybe low 30%? Or might we see something higher going forward on expense management? And then on a follow-up on that, any consideration on the spinoff on that segment? Thanks.

They're doing a great job of expense management already. So I wouldn't expect to see any gains from expense management there. They are in the running for some extremely big jobs they could get in the second half. Because of the fact that they would be probably time sensitive jobs, you could see the margin impact just because of the scale and the billing on those jobs.

The -- I would not -- I don't think there's any interest right now of any spinoff of Tech. We are launching this new technology. We've spent, collectively, probably over $40 million in the last two years just on the development of this new technology. The initial results are extremely exciting to us.

As Jack said, this puts us in an area where you've never been. Its huge spend and it's being used in one enormous job right now for clients, and I think they are amazed at the response they are getting from it.

So I think we want this to play out. We want this technology to get a broader reception and trial. And we have several doc releases that will be following it into the market which we think -- if there was going to be a spin-out, it would be a much more exciting company after this technology is more fully absorbed by the marketplace.

Thanks. One more if I could. In FLC, I noticed headcount higher sequentially and year over year. Does that have to do with just targeted hires and focus on specialists as opposed to generalists? If you could just maybe take us a level deeper there. Thanks.

The -- well, that would be the segment where we would include the Baker Tilly acquisition we did earlier in the year, which was not that large. It was about 15 people or so. We've been adding in the construction area, particularly we've added a few folks out in Asia in the construction area, and in Europe. I'm looking at Roger. I think those were the two big changes in that segment. And then a continuing rotation of headcount into more specialists. So we've had some very, very good hires in the area.

But they've also been adding actuarial capabilities into our insurance specialty business that was mentioned earlier as well.

All right. Thanks very much.

Paul Ginocchio, Deutsche Bank.

Thanks for taking my question. Just on the second-half revenues for FS Asia, should we think about that similarly to what -- half of what you -- the $35 million run rate? Or can you give us any color what it looks like in the back half?

Less than half. We won't have it for a full half of the year. We're hopeful that we will close it such that we will have a good five months of operations, 4.5 to five months.

Any -- can you give us any kind of range of growth year on year?

I think two things -- the numbers we reported in the press release would be consistent with what we would expect it to do for this year.

Okay. Thank you. And then just, on the share repurchase, were you restricted because of this acquisition in July to buy back shares?

No.

No. We bought -- in terms of a philosophy on that, we -- obviously the stock traded very weakly with a lot of volume. We were restricted for the first week or so until the prerelease was into the market. So we weren't able to compete aggressively when the stock had high volumes trading in the $32 to $33 range. Our view is we do want to buy in that remaining $250 million of stock prudently. We don't want to be competing with other bidders. We don't think we're in the business of trading securities, so we're going to get that done, but we're not going to be aggressive in any given day trying to move the market.

The other challenge we have, given the nature of just standard share repurchase is, we can only represent so much of the volume during a given day or what have you. And didn't have -- we had some pretty low-volume days when we were in the market.

We did shut the window, again, around this release, so about a week ago, we shut it down again, and we will keep it shut for a few days here. That was probably conservative on our part because there's not a lot of new information in this release, but we just, again, want to be careful about not doing share repurchase when there's information that needs to get into the market.

I appreciate that color. Thanks very much.

Kevin McVeigh, Macquarie.

Great. Just a follow-up on that, not to belabor the share buyback, but as you think about capital allocation acquisition versus buyback, given kind of where the stock is today, do you see more emphasis on the buyback as opposed to acquisitions?

No; I mean, I think we're looking at it equal. We test all the acquisitions against the impact of buying our stock back. So I think as we analyze the impact going forward, the acquisitions really have to demonstrate to us a profitability and a growth perspective, either directly or indirectly that would offset the use of capital to buy back shares.

I think the capital markets on the debt side are very favorable right now. We could clearly get anything financed that we wanted. I think we have almost every major i-bank banging down our doors trying to refinance our bonds and do a much bigger placement at these low rates. So, I really think we're in a position to execute the buyback plans we have on a sensible basis. And I don't see it being prohibitive to any acquisition discussions that we are having.

Great. And I know the hires in Forensic and Litigation Consulting, were they primarily more senior or junior level, the mix on that, or pretty consistent with what the Company has done historically?

I think in the specialty practices, they tend to be more senior. As Roger said, we're bringing actuarial talent into the insurance practices because they are growing so much. The Baker Tilly people would have been a mix of senior and junior people out in Hong Kong. And, I think, again, as we move to a more specialist model there, logic dictates that the people that can have the most impact tend to be more senior.

Yes, the people that I mentioned earlier that we hired in Asia are all senior people who were brought in to really run practices as opposed to just do one-off client services.

Great. Thank you.

Bill Sutherland, Boenning & Scattergood.

Thanks. Good morning. Most have been asked, of course. A couple of numbers for you, Dave. Did you give the DSO?

We did not. I'll get that for you, Bill. I've got (multiple speakers)

Okay. Looking into the back half --

It was slightly improved.

From -- the prior quarter?

From the prior quarter or the prior year.

Okay. Looking into the back half as far as cash, CapEx is going to run about the same level?

CapEx for the year should be $34 million to $40 million, so it will be slightly higher in the back half of the year. We've got some larger expenses in the Technology segment in the back half of the year.

Okay. And then, if you look at acquisition payments aside from FS that you need to do in the back half?

There was one earn-out payment in the back half of the year that if my memory is -- I think it's around $9 million or $10 million, Bill, that will go out in October -- the October timeframe.

Okay. And then, any additional severance, Dave, at this point for Q3?

No.

Okay. And then last, on Acuity, that $40 million number kind of made me sit up that you've invested. What has been the split there between capitalized and current spending?

Most of it is current. We don't capitalize much of the R&D at all, and that's a cumulative number over two years since we've bought at 10X.

But obviously we've made a big investment in these new products, and I think we are only now beginning to start to see the traction. So we're very optimistic that that investment is going to pay large dividends for us.

Sure. And then, Dennis, I was -- when you described the one placement you have, is that kind of like a commercial beta that you are running with a client? And (multiple speakers)

No, no, we're out of beta. We ran the beta last year with a big client, and got extremely good results out of it and, obviously a great testimonial. No, this is a very large assignment for, again, a corporate 500 size company, and no, it's a real deal.

But, you're --

Those DSOs are 73 versus 75 last quarter.

Thank you very much. Well, just to end on this, Dennis, so, we should expect kind of what kind of rollout plan for Acuity, just in a real general sense?

It's hard to say. What you need now is trial, so, you will have -- you have a beta testimony. You have this testimony that's clearly in the works. There's a lot of law firms that are involved in this deal where it's being used. A lot of law firms are looking at it. The client, obviously, is very pleased so far with the results that we are giving them.

And so I think it really is going to boil down to how we introduce these results into the marketplace. I mean it's not, as you know, a marketplace that -- I'm not trying to say the users are technological-phobes or anything, but it's not the earliest (technical difficulty) in the marketplace. It's takes some trial and it takes some getting used to. It is a different way of doing it. It's not dramatic disintermediation. But it certainly is different.

So with all different approaches in this area where you are talking about litigation or you are talking about document production for M&A, it's different. And so I think you would see us emphasize trial and introduction over the balance of the year and really start to get the benefit from the uptick next year.

I think the dot releases, some of them will be released by the end of the year, and they would add the new capability, new features to it. Maybe a little steroidal effect to the speed after people get a little more familiar with using the product.

Bill, the important thing on Acuity, and we have got a number of our key folks in the segment working on it, is that it really is -- the scale of the problem of e-discovery is only growing. So while demand in any given quarter may be higher or lower due to second request volumes or litigation volumes or what have you, the scale of data that needs to be dealt with is really -- is growing very dramatically.

And what we are excited about is this is really an opportunity for us to, in a very material way, help clients deal with a significant cost problem. So while it should be a very good and profitable business for us and one that can grow quickly for us, as importantly, it can dramatically change the game for how clients deal with the issues and the kind of cost structure they are looking at. We're talking about 4 to 5 times efficacy right now with the product as it exists. And we hope to keep improving on that. So this is a game changer if we continue to have the success we hope to have with it.

Thank you for all your color. Take care.

John Emrich, Ironworks Capital.

My questions were answered. Thanks.

That concludes the question-and-answer session today. At this time, I'd like to turn the conference back over to management for any additional or closing remarks.

Thank you very much, again, everybody, for joining us. And we will look forward to speaking with you after the third quarter. Thank you.

Once again, ladies and gentlemen, that does conclude today's conference. Thank you for your participation.