FTI Consulting Inc (FCN) 2010 Q4 法說會逐字稿

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

Good morning, and welcome to the FTI Consulting conference call to discuss the Company's 2010 fourth 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. The 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 in our most recent Form 10-K and in our filings with the Securities & 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 of these non-GAAP financial measures to the most recently -- 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, Eric, and thanks to everyone for joining us this morning. 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've had a chance to review them. If you have not, they are available on our website at www.fticonsulting.com. In the fourth quarter we continued the momentum we began to see in the third quarter. Revenues were $356 million, up almost 4% from $342.9 million a year ago, and up from $346 million in the prior quarter. In aggregate, four of our five segments reported average year-over-year revenue growth of almost 13%, which more than offset the decline in Corporate Finance restructuring from the prior year's historic levels. This complimentary relationship continued to validate our business model, although it will still take time for our procyclical businesses for the most part to grow into the margins enjoyed by core restructuring at its height.

The investments we have made in growing our business in markets outside the United States continue to pay off. Non-US revenues grew approximately 13% as compared to the prior-year quarter, reflecting both organic growth and the contributions from the acquisitions we made during the year in Asia. Revenue outside of the United States accounted for 21% of our total revenue, compared to 19% in the same quarter last year. Our markets in Asia-Pacific, and Latin America showed outstanding growth. Asia-Pacific revenue grew in the quarter by 63%, relative to last year. Our recent acquisition of FS Asia Advisory is off to a strong start. Latin America was also robust, increasing 27% in the quarter year-over-year. As we have said before we see very attractive opportunities to build our full platform in the global markets and we expect our non-US business to be a key driver of our future growth.

Our adjusted EBITDA in the quarter was $69.3 million or 19.5% of revenue. This was down from $80.8 million a year ago on a smaller contribution from Corporate Finance, but it was still a good performance up from the margins of 18.8% in the second and third quarters of this year. Most of our segments reported margins that were flat or up compared to a year ago, and recent quarters, and Corporate Finance even though down from the last year is still one of our most profitable segments.

As we announced in January, we decided to unify substantially all of our operations under a consolidated FTI Consulting brand. We recorded approximately $22 million in net special charges in the quarter, most of which related to the write-off of trade names from certain acquired businesses and assets. I will discuss this initiative in more depth later on in the call. We reported GAAP earnings per share in the quarter of $0.23, which included a special charge impacting EPS by $0.33. Excluding the special charge adjusted earnings per share were $0.56 compared to $0.71 a year ago, and up from $0.54 in the prior quarter.

The share count in the quarter was 46.7 million, down 4.7 million shares or about 9% from a year ago, due to the shares repurchased under our current authorization. It was, again, a strong period for cash generation. Cash flow from operations was about $99 million in the quarter, the second-best quarterly result in our history, and we exited the year with approximately $385 million in cash and equivalents up from $331 million at the end of the third quarter, and as we speak today we stand at over $425 million in cash and cash equivalents. We used about $14.5 million of our cash to repurchase 416,000 shares in the quarter, under our $500 million repurchase authorization. We have about $209 million remaining under that authorization.

For the full year our cash flow from operations was almost $195 million, compared to adjusted net income of $109 million, so as you can see, we continue to be an exceptional converter of net income into cash flow, a trademark of FTI for a long time, and hopefully for a long time to come. This internal cash generation combined with the funds we raised in the third quarter through our debt offering, provide us with robust resources to invest in our people and our businesses, to expand our capabilities and geographical presence and take advantage of opportunities that are presented to us.

Now I'll talk about the performance of the segments. Revenues in our Corporate Finance and restructuring segment in the quarter were $113.2 million, a decline of $12 million or 9% from a year ago, but an increase from the $110 million we reported in the third quarter. Our fourth quarter revenues compare against a period that was just past the peak of the restructuring cycle in the middle of 2009, and the market is clearly less robust than it was in 2009. Nevertheless we did see stronger demand compared to the third quarter, and we are encouraged that the transaction advisory practice, under its new leadership, has begun to see an upturn in activity since around midyear as M&A activity begins to return.

Our developing businesses outside of the US continue to perform well, Europe had a strong quarter, and FS Asia Advisory maintained strong momentum since they joined us in August. While there is of course some seasonal impact, given the fourth quarter and the fact that companies tend to look at their futures during that period, it is noteworthy that in the fourth quarter new case openings in bankruptcy matters, non-bankruptcy restructurings and transaction support were significantly stronger than in the third quarter especially with regard to matters in the financial institutions and services sector and retail.

Adjusted segment EBITDA for Corporate Finance was $28. million in the quarter, equal to 25.5% of revenues. Margins were not as high as the extraordinary levels we enjoyed last year, generated at the height of the restructuring cycle, but 25.5% margin is still a very respectable figure. We continue to manage the restructuring and bankruptcy side of the business through the down cycle and benefited from the actions we took early in the year to bring our resources into line with the new reality of the market.

The forensic and litigation consulting segment had an excellent quarter. Revenues increased more than 14% compared to a year ago to $81 million from $71 million. While two large cases remain important contributors to the segment, they are beginning to tail off to lower rates of activity compared to the peak levels, so the fact that we were able to not only replace those revenues but actually grow meaningfully is a very good indicator of perhaps a strengthening market as well as our relative strength in that market.

There was a solid increase in the overall level of litigation activity. Our core litigation practice in the US grew almost 20%. Regulated industries maintain their strong performance, especially the healthcare practice, and trial services sustained their improved results, while the Asian investigations practice continued to recover from the slower periods during the credit crisis and really is getting stride

Adjusted segment EBITDA in forensic litigation was $18.9 million, equal to 23.4% of revenues, up from $16.6 million a year ago. Adjusted segment EBITDA margins were flat compared to a year ago, and consistent with recent quarters.

The economic consulting segment rebounded from a slow summer as the momentum in anti-trust and strategic M&A that we saw in September continued through the quarter. As a result segment revenues increased to $64.4 million from $63.2 million a year ago, and $59.4 million in the third. Our European practice continues to gain momentum and had far and away its best revenue quarter ever with revenue increasing 44% over a year ago. Adjusted segment EBITDA for econ was $12.9 million or 20% of revenue about the same as last year. Adjusted EBITDA margins in the quarter were consistent with our performance over the course of the year and are impacted by investments we're making and continue to make in our European and Canadian practices to make advantage of market opportunities that we see there.

Technology had another excellent result in the fourth quarter. Revenues increased almost 24% to $47.7 million driven by increased litigation, investigations and bankruptcy activity, strong direct licensing revenues and continued success of our new Acuity(TM) document review service offering. All of these served to offset lower M&A second request activity. Adjusted segment EBITDA in the quarter increased 32% to $17.9 million, and the adjusted segment EBITDA margin in the quarter was an excellent 37.4% due to the strong revenue. We have aggressively managed expenses to maintain margins in the face of the continued pricing environment for our hosting business.

Strategic communications had a solid result in the quarter, revenues increased 10% to $50 million driven by a strong performance in the US and Asia-Pacific from strategic advice on the one hand and natural resources trend on the other. They recorded the fifth consecutive quarter of net annualized retainer wins but growth was restrained by weak demand for capital markets work. Adjusted segment EBITDA margin was 14.9% in the fourth quarter, flat with last year due to a higher proportion of pass-through revenues which can carry relatively little margin.

We have constantly sought to build the premier practices in their perspective fields, and we're very pleased that their stature has been recognized continually by their peers and industry followers. For example, our Corporate Finance restructuring practice remains the largest global crisis management firm by a wide margin according to The Deal magazine. Global Competition Review magazine ranked our economic consulting team again number one amongst competition specialists, and this segment's international arbitration practice was named the leader in expert witness research category by Who's Who Legal. Finally our strategic communications practice continues to be a leader in its industry. It was recently ranked by Merger Market as at the top of the M&A lead tables by transaction volume and was named PR Firm of the Year by the Financial Times Mergermarket for both Europe and Asia. In Europe it has been the leader on the elite tables for a record tenth time.

We look forward to even greater success for our practices as we unite them many for the first time under the common brand FTI Consulting. We have made over 25 acquisitions over the past five years and have taken great pains to seamlessly integrate these outstanding firms into the FTI infrastructure while retaining their key professionals and brand equity. With much of the behind the scenes now completed, the final step is to pull these entities into one organization from an external perspective and harness the power of more than 3500 employees in 26 countries under one mantle. This will be an important initiative for us in 2011.

Going to market under one brand will enable us to better provide comprehensive solutions to our clients from our exceptional range of skills and capabilities. It will also enhance our ability to gain traction in regions where we are relatively new and do not have the broad set of relations and long history of success that we do in markets where FTI is more established. We intend to do this in a deliberate fashion, leveraging the rebranding to inform our clients and prospects of the integrated capabilities of our FTI professionals. We expect to have all our practices migrated into FTI Consulting by November of this year.

Let me now turn to our guidance for 2011. This will be a year of improvement and a year of investment. By way of context for our guidance, we are basing our outlook on the assumption that the current environment for our markets continues through 2011, and that the dynamics affecting our businesses do not change significantly. In terms of the drivers of our business, as most of you know, the keys are bankruptcy and restructuring, capital markets activity, investigations and litigations. If there is one driver that could probably effect our segments across the board more than any other it would be a return to robust M&A activity, and we think we're beginning to see the signs of that. We expect the climate for bankruptcy and restructuring work will continue to be challenged by an improving economy and readily accessible debt markets that will contribute to lower default rates.

Recently the leading agencies have reduced default rates almost by half to below 2% by the end of this year. While this will create similar headwinds for us in 2011 that we experienced in 2010, it should begin to be a tail wind for our other procyclical businesses and, again, when you saw their growth rates over the fourth quarter, we begin we're believing to see that. Capital markets activity should be a net positive factor this year across our segments. The M&A environment has obviously improved, as has the calendar for IPOs, and we are seeing a backlog of opportunities to pitch for new work, and certainly people are predicating their 2011 budgets et cetera on the fact -- our clients are on the market that there will be M&A activity. Although neither are back to their frothy pre-crisis levels, we are encouraged by the direction the market is going. Because it's tough to make a bet on the capital markets we are assuming some modest push in this area, but it could be a great source of positive upside for us.

On the investigation side, we expect to see (inaudible) from the Department of Justice and the SEC, as well as interesting to look at the financial services authority in the UK and their new mandate. We also expect to see greater demand for litigation services. These activities are clearly picking up, as I mentioned, as we look at our core business in the US, and we expect to participate in more than our fair share of the cases. The trajectory will likely diverge from previous experience as corporations and law firms look for new ways to do business, but FTI has always been at the forefront of designing those new ways and we look forward to again working with our clients to solve that puzzle.

As I said earlier, we will look to markets outside of the US for a significant portion of our growth this year. The practices we have launched in those markets are seeing good traction and solid prospects. It is also a priority for us to look for further opportunities to invest our capital,similar to what we have done in Asia in the second half of 2010. As a result we would expect the proportion of our revenue coming from outside the U.S. to continue to increase both as a positive number and as a percentage of our results.

Summing all of that up, we are projecting total revenues of between $1.43 billionand $1.49 billion for the year, an increase of about 5%, and resulting adjusted earnings per share of between $2 and $2.20. This includes significant continuing discretionary investment, in our people, our infrastructure, particularly in response to demands of our growing international and regional expansion, and as we talked before our brand. You should note that these figures do not assume any acquisitions or additional share repurchases, and I would like to remind you what we said in our third quarter conference call namely that we are carrying a $0.04 per share quarterly or $0.16 per share annual handicap from the disparity between the interest earned on the capital raised in our debt financing versus the higher interest rates we are paying on that capital.

It is certainly not our intention to just sit on the cash but since the timing and contribution from anything we would do with the capital is not certain, we are not incorporating any such actions in our guidance. If we do something that is material and warrants an upside revision, we'll be happy to do so.

In conclusion, the successful execution of our strategy to date allowed us to successfully mitigate a meaningful decline in our largest segment during 2010, as we replace the loss revenues through growth in our other segments. We exited the year in excellent financial shape and our success in building out the breadth of our skills and enabling us to serve clients on a global basis is becoming an ever-more important competitive factor. We look forward to the opportunities during 2011 to extend and solidify our leadership in each of our practices. The outlook for our markets is excellent. Only the timing remains unclear.

Against this backdrop, we will continue to extend our leadership position as we invest to enhance the durability of our long-term business model. We are pleased with the progress we are making in that regard, and we look forward to continued success, but more importantly for the results and dividends from those efforts.

With that, I would like to turn it over for your questions.

Thank you. The question-and-answer session will be conducted electronically. (Operator Instructions). And we'll take our first question come from Tim McHugh with William Blair and Company.

Yes, hi, guys. First I wanted to ask a little bit on the discretionary spending you are talking about for next year. Can you give us more color or some more specifics on each of the three items you mentioned, that being kind of branding, I guess, international expansion, or I guess the structure for international, and then the compensation?

Yes, Tim, it's Dennis. I'll try to give you a little color. I think Jack already said we're coming out of the gate with a $0.16 penalty due to the increased interest. We have got about $430 million in cash as we sit, which clearly we're not baking that into these numbers how we apply it. Plus as you know, we'll generate at least net after CapEx about $150 million more this year if we simply hit the lower end of these results, so we would offset the $0.16 clearly with the application of the cash in the form of external growth and share repurchases.

We'll spend about $0.10 a share, and it will be in three categories. We're finishing the rollout globally of our CRM system which has been a major investment for us in the last two years, in the design and testing. It actually will be rolled out this year. That's about $0.03.5 cents. We are building an Asian network operating service center. We'll quickly be over $100 million in revenues in Asia, we could hit that this year if we're lucky, and we need to have the support center in that time zone to be able to support that level of business and the number of people. We are building a larger knock and service center in Europe, as well as recruiting some new top management over there, which has been baked in to these numbers, that will be about another $0.03.5. So all told you will have about $0.16 in interest, which will be on an apples-to-apples basis, not in last year's numbers, you would have about $0.11, which I would be in CRM Asia service center and Europe expanded service center and increased new management recruiting and acquisition costs. We'll spend about -- now those are ongoing expenses. So the interest isn't going to go away; it has to be offset by the application of obviously the large cash build-up that we have.

The network operating centers will be there but obviously it does not grow incrementally like the penalty to this year's interest. Once you have it in place it grows at a much slower rate and should be offset -- more than offset by revenue growth in the future. And then we are going to spend between $0.04 and $0.05 on brand integration this year. Some of that is at corporate, some of that is down into the brands themselves. That will be spent predominantly in the first three quarters, as we roll these brands up in to FTI, obviously it's a celebration for us, not a penalty. I think everybody is really looking forward to the long-term benefits of it.

But we have budgeted on a onetime basis significantly more dollars to be applied to not only the nuts and bolts of brand integration; everything as mundane as signage to websites to letterheads and things like that, but obviously the more celebratory advertising, both media as well as sponsorship to talk about the brand. So overall you are at about a $0.31 penalty versus last year to put in either new infrastructure/management, and pay for the debt and then pay for the brand integration, of which I would say -- and it doesn't mean we won't continue to spend marketing in 2012 at that level, but the marketing can be componentized into something that could fall off, and the rest of it is scale and contribution, and finally we all know we have offset the negative arbitrage on the interest with he application of cash.

How do you feel, or where is your international infrastructure going to be after these investments? It's obviously a big focus of yours to grow the international piece. Is there a risk that we're at a point where after multiple years of having to increase the investment and build out that infrastructure, or are these types of investments enough that they set you up to significantly grow that for a couple of years now going forward?

Let me answer it generally, and then I would like to ask Roger Carlisle to give you specifics since he's been charged with building a lot of it out. I think we'll add a billion dollars in revenue over the next four years through growth and through acquisitions. I think the vast bulk of that will be Europe, Asia Latin America. I think Europe is already north of $200 million, and could make a significant jump there through acquisitions this year. And we just had to make sure we prepared to support that kind of infrastructure given that kind of volume because it's growing very rapidly. I think Asia we have gone from nothing practically to about a $75 million run rate there. Which I think very soon we'll be over $100 million.

We did not have the infrastructure out there. So I think you have to spend to support the quality of the offerings. But clearly once you put this in, you know, first, it slows down dramatically, and we have made a sizable investment globally in leadership and leadership development, which we think is now going to pay off significantly in cooperation, cross selling and increasing the rapid growth of these geographies. It's the predicate and the foundation that is allowing us to do this brand integration, you know, in a very seamless way. Roger do you have any more color on that?

Yes, It's Roger Carlile. As Dennis mentioned, I think Asia is probably the best example of this. But it is happening in Latin America, and Europe, Middle East and Africa as well. These are foundational spends, so we're putting in place the capacity for example in our information technology and our data centers that has in the case of Asia, about a $3 million annual increase to the spend, but that provides us capacity such that each office we add is then -- comes at a much cheaper cost than it would have otherwise as we go forward, and that each revenue dollar as we grow will bury lesser costs than it would have otherwise. So it's really foundational spend, that we're adding capacity, and the burden on the revenue will tail off as we add revenue and grow in those locations.

Tim this is Jack. To follow down, I guess it's collateral to your question, but obviously not only the focus of your community but our community is on our margins. And we've drilled down very carefully. We don't believe with the exception of what is going on, that we have clearly told you about with the pricing in our hosting business that there is a systemic change in our industry regarding pricing. We believe that it's strictly a matter of our markets getting stronger. You know, we are a company that for 2011 is very much a positioning year. There is so much pent-up capital. There is so much pent-up demand. There is so much activity in terms of the private equity firms, there is so much, frankly, litigation from the populism and the credit crisis that we are betting very big on an increase in volume over the next several years. We can't ring the bell, but that -- we have drilled down with each of our leaders, and Dom you might talk a minute about the ability for our margins to increase when we get over the break-even point.

As Jack and Dennis have mentioned, we have built -- I don't believe we have ever been in a stronger position to grow incremental hours based upon the headcounts that we have. In each of our practices over the year, particularly Corporate Finance, we right-sized the staff for the current economic conditions in each of the respective markets we're facing. I think when you look at our utilization rates in the 70s, we can easily go into the high 70s, and we can spike in the 80s. We have got plenty of capacity to run through a lot more volume. I think the quality of our people has never been higher, as I said. We're still in the market recruiting senior people with books of business. So I think after we have all of these investments in place, particularly Asia, that Roger mentioned, because we do -- we are betting a lot on Asia being a big contributor in the future that we have got the infrastructure in place to more profitably handle the incremental revenue that we believe we're going to be seeing.

Tim I think the other thing we tried to do too that would go right to margin as you know we have definitely been the beneficiary of some monster assignments over the last two years. They are still going on. I think our guys have tried to be realistic in forecasting the runway in this year on those assignments, some of which --you've read about people speculating what we will or what we won't make on some of these. I think if we're conservative there, and we have asked our David in particular -- can speak for himself -- he has asked our people to be conservative on the runway, then clearly these numbers are going to lift, because your incremental business that you come in won't have to offset one to one of declining revenue trend from these large assignments that burn off. And I think it's a difficult year to forecast that in. They are still all moving. They are still all here. They are still all billing at a significant rate.

But the question is, is it a Q1 beginning wind-down, a Q2, a Q3, or Q4, or will it even have a tail to next year. I think it's very tough to forecast except to know none of them are going away right now. But I think none of our people want to turn around and say that we would experience the same type of billing year in those big assignments this year as we did last year. So if the runway increases on those, then, clearly you could see that influence margin on the upside.

Okay. Thanks. The one other question I would have is how do you think about the balance between repurchases and acquisitions as you seek to deploy that capital right now? Do you still hope to deploy or to finish that share repurchase authorization by the end of the year?

Tim, it's Dave Bannister, our announced intention on the last couple of calls is we had a $5 million share repurchase authorization in November of 2009. We have completed roughly 300 million of that, and it's our intention to complete that in accordance with that authorization. We have said repeatedly we're not going to comment on our trading strategy around that, but that is currently our intention. As Jack mentioned we have about $430 million in cash today we'll generate somewhere around $150 million this year. So we -- that gives us plenty of resources to complete that authorization and pursue acquisitions or other growth initiatives. As our custom always is, we evaluate every acquisition on a cost of capital basis versus buying our own stock in. That's sort of our core threshold rate. So when we buy something our belief is that it's return on investmentwill be greater than our return on buying shares in.

Okay. Thanks, guys.

And we'll take our next question from David Gold with Sidoti.

Hi, good morning.

David.

So first question is just wanted to drill down a little bit more if we can on the revenue-guidance side. Essentially from what we know and see the M&A environment is improving, litigation environment is improving, and your technology numbers are coming up. Just curious if you can give a little more color as to the fairly modest top line expectation. I realize restructuring will offset some of the growth, but what else are we thinking there or are we just taking a conservative stance?

I think we're modest folks with that regard. We do have -- I mentioned some of the positive signs we're seeing in the restructuring marketplace, and I think we're very happy with our transaction support business, and under its new leadership it has a great opportunity. I think we just -- as we have said for the last couple of quarters, we haven't seen the external factor that's going to -- or factors that are going to trigger when the growth that we all know is going to come is going to come. When we start to see that we can be much more aggressive, because we know we as through the crisis, have gotten our fair share or more than our fair share of work. Dennis and I were talking the other day, it seems like a modest growth, but it's our delta in growth this year will be the size of several of our competitors. So I think we want to be cautious, and as we were when restructuring was going the other way, we hesitated to ring the bell until we were really certain. And I think we'll just continue that mode. Butwe'll be the first to let you know when we see a change.

Yeah, David, I think the predicate is no change in the macro operating environment that we have experienced in the last six months.

Yes.

So that includes a decline -- continued decline in defaults, and therefore, restructuring, bottoming out, at sort of a new normal level, but certainly not picking up any large jobs, and then that's also tempered with the fact that not only in restructuring where some of the big restructuring assignments are clearly burning off in forensic and technology and in strategic communications, we have some jumbo assignments that while they are all continuing into this year, it's difficult to forecast. We think there's more than enough wind behind the sails of those groups to replace them. FLC had a spectacular quarter in the fourth quarter when you figure that they are replacing very large jobs number 1, still showing growth and fourth quarter is traditionally their slow period, because in obviously, at least in the states the courts pretty much shut down around the holidays. So you only have a two-week billing period in December.

But I think it's really two factors. One is simply we don't see the macro changes coming right now. We hope they are there. There's signs that they may changeBut as Jack said, you can't turn around and say we're off to the races in capital markets and M&A. I think we're cautiously optimistic. But then also we have to be realistic that we're the beneficiary of these very big accounts. We certainly will replace them; that's why we're not budgeting a down year. But I think that's the play in the numbers, if the macro environment changes towards the upside or significantly to the downside, we'll be very conservative in our new business assumptions, and if we have more runway from these three or four mega assignments that we have than we're initially budgeting, again, our numbers will be conservative.

Got you. And I guess the other side of that is certainly as surprised as, presumably the other folks were with the magnitude of the investment spend just now, and so just, if you can -- the other piece is if the macro signs aren't there yet, what is pushing the timing of the investment just now? Is it -- just -- you want to be prepared for when it comes, or is there something more to it that maybe we're not seeing in the numbers?

First of all, I think we're constantly investing. Obviously we have taken our marketing spend up over the last three or four years dramatically. I think what we tried to illustrate, is CRM we have been working on for two or three years, but this is an implementation year, so whenever you do an implementation year, you're going to spend a lot of money. And then we didn't have a $100 million revenue potential in Asia for a while, so we could service it differently, but as you well know, you can't do it vicariously through all of these time zones, you have to be out there.

And then in Europe, it's just getting much bigger, so I think these are step functions. It's not going to happen every year. But, again, David, I go back to -- our plan is to add about a billion in revenue over the next three or four years, and you can't do that on a infrastructure that is not there to support it overseas, so you have to have that and have the management group there to be able to handle it. So I don't think we see it as much of a magnitude, and obviously when you add up all of the mass, even though at the margin it's significant pennies, when you look at $1.45 billionto $1.5 billion revenue base and the spend associated with it,it's not a lot of dollars.

David (inaudible) one thing we are keenly aware of in growing these businesses, and growing them in multiple geographies around the world, is the need for really good tight control. So in Latin America and in Asia, we have added pretty senior-level CFO-type people and we're adding systems and capabilities so we don't suffer from loss of control in those areas. We certainly have seen a number of competitors who have lost control of their businesses with very dire consequences. We intend to stay ahead of those issues and be safe hands if you will for these businesses to grow exponentially

David, if I could add just a little bit of a different perspective in looking at it also. It's not the incremental investment we're going to make this year, which is significant, but it is also what we have invested to get to this point. We have tried to be clear that for the last three quarters, that has been a predictable run rate where we are. If nothing dramatically happens with our market that gives us a little bit of a tail wind, that's an expense level we have and our guidance is consistent with the results of those three quarters. What our tough decision is, and it really wasn't when you look at the prospects that are in front of us, is do we want to tear down any of that. We had 18.8%, 19% margins. That's pretty darn good for a company. It's not traditional FTI stuff, but it's acceptableif you are taking those dollars and investing for things that can give you exponential returns in the future. We don't believe --We could go chop a bunch of stuff and produce an FTI margin this year. I would rather do that by having all the bets we've placed in place and do that by when the revenues come which they surely will. I can't ring the bell for you. And really be in a position to establish our company.

We're not a casual company anymore. We're a company that I think is built to last and be a major competitor. As Dennis likes to say, a little bit we're like the dog that caught the fire truck because our competition has changed from some relatively parochial US domestic competition to the big four and the big companies, and we're geared up now to play on that field, and I think the returns can be spectacular. But our tough decision this year was whether to bite the bullet and make those investments and continue those investments or whether it was to retrench, and I think we did a great job as Dom mentioned of right sizing a lot of the businesses, and I think we're in this for the long term. And I think these -- the bets we made in the last year and the bets we're making this year aregoing to pay off dramatically for our people, as we enter this kind of new level of playing field.

Got you. Okay. Thank you all.

We'll take our next question from Tobey Sommer with SunTrust.

Hi, this is Frank in for Tobey. I wanted to ask about technology consulting performed pretty well. What are you seeing in terms of the competitive environment and pricing in that area?

I think -- it's Dennis, Frank. I think there is continued price pressure in our on-demand storage business. It's just a factor of the market, storage costs are going to go down every year in the market, and you offset that by significant volumes, we have been able to do that. But it's certainly there. There are a lot of new entrants in the market that continue to come in. There are a lot of entrants that have been in the market that are really marketing for mind share not necessarily profitability. And that has influenced their pricing, to get trial. And there's a shake-out in the market. There are a lot of players that are in the market that are not doing very well, that I'm not sure will be there in 12 to 24 months.

So I think whenever you have that kind of change in the market, there is some pricing pressure. I think we're getting very good on some of our new offerings, as the offerings now are coming out and getting well received and well rated by the industry analysts, I think we have some margin improvement operation -- opportunities in the new offerings, but overall in storage and in some of the more mature areas, there's significant price competition.

Okay. Great. And in your guidance, you also highlighted slightly higher competition expense. Any color you can give there? Is that going to be any of it onetime in nature, or your kind of view on that, going forward?

No, there are some key hires at a management level overseas. David illustrated some of them. You have net body additions so that causes it to spike. Our actual year-over-year comp increases aren't very different than what we have experienced in the past, and I think that -- again, in some of our markets, it's just a matter of scale, so you are putting in comp in order to service the business and we need to have the businesses mature enough to where they start to drop on a leverage basis against that fixed cost so we're very optimistic we're going to get there quick. We're not trying to say it we're going to do it in a matter of two or three quarters.

Okay, and quickly, finally, on the strategic communication segment. You have seen some nice signs of growth here in America. In the UK there was some weakness there. Any signs of stability or return there?

We're gaining shares, I think as Jack illustrated by the lead tables. We're number one. I think part of the problem is the economy in the EU. We actually had our board meeting the last two days, and we had one of the heads of our European operation fill us in on where she thought all of the issues were. And there are a lot of issues there. I think the UK markets are very sluggish right now. The UK capital market has a lot of pent-up demand, but it is not actualizing on it, and that business over there is probably more capital markets driven than the business in the US, and I think the continent is confused. I think there is a lot of things going on. It's causing companies to hold back spend, and hold back efforts to use this. I think it's really tough to hire consultants in some of these areas, when you are laying off an awful lot of governmental people. You need to have that equilibrate. And then the governmental business starts to come back to you. So I think it's really more of a macro factor. I think we're going to have a very good year over all, and I think they expect to have an improving year over there over all, but a lot of it will just be driven by a capital market.

To be clear, revenue was basically flat year-over-year in Europe. It was not a significant decline, so it was not a material change.

And that was for -- again, probably the third or fourth quarter in a row their gain and retainer-base business has exceeded anything that has dropped off, which is a very healthy sign. So they're poised again when the trans --I think they have probably seen more preliminary IPO work than anywhere else around the world. So I think they are cautiously optimistic that they'll have a very good year. They have made some tremendous people additions to that business over there. So we would hope that our next move there, the real area of growth is to move from what our traditional practice has been with IPOs and all into making us an established case in the (inaudible) 100.

Frank, this is Dom DiNapoli. In markets that we dominate, we're coming back, we don't believe we're losing share, but not to make this an Asia-focused call, we have had tremendous growth in Asia across the practices, including a strategic communications. And we have got very nice margins in Asia. So, you know, as we fill out our global footprint, we're seeing a lot more opportunities than we may have thought we had a couple of years ago, to really enhance the -- all of our practices with Asia and referrals and just core Asian business.

On a constant currency basis, Europe actually grew as well. You did have a modest decline in the pound particularly year-over-year. So it really -- I guess we're trying to say business didn't slow down in London.

Okay. Great. Thank you very much. That's very helpful.

We'll take our next question from Paul Ginocchio with Deutsche Bank.

Thank you. Still on the rising compensation comment, does that comment have anything to do with the SFD agreements expiring 2011 and 2012 and are the numbers in your 2009 10-K and the percentages that are going to come up for renewal in 2011 and 2012 roughly look the same today?

Number 1 they don't expire. They roll in to a different type of agreement. They are 10-year agreements. Ithink it's an unfortunate use of language, and it is probably legalized, but it's a 10-year agreement with the people. The first six years is a pretty fixed agreement, and then it's an evergreen agreement on an annual basis after that. After six years, so they don't expire in 2011. There's a six-year commitment. They can leave at the end of 2011 and not compete for a year, and then certain incentives that they have will have fully vested with the remaining beingforfeited because they didn't fulfill the full ten years of the contract. So we don't view that as a pure waterfall-type of exercise. The vast majority of people will continue along the contracts. The contracts will be changed into an evergreen after the sixth year, and so that's it -- so they don't expire. There's no budgeted increase surrounding -- we have signed some people to extensions, but that was more for performance, and for promotional aspects than retention.

Great. So just to be clear. The contracts you have recently signed on these evergreens, as they go evergreenThere's no bump in compensation at that point in time.

Nope.

Great. Thanks. If I could just do a follow-up on some of those -- it sounded like from your earlier comments about maybe the large brand-name bankruptcy, and the large brand-name (inaudible) litigation clients, that you have accounted your guidance for those two trail off a little bit? Is that correct?

That is correct.

Great. And just on the forensic litigation, it was down Q-on-Q, and I thought from all of the filings that we saw coming out of that branding litigation that maybe it would be up Q-on-Q on a revenue basis and looking back from 2004 to 2007, forensic was typically Q-on-Q, Was that -- what am I missing on a Q-on-Q basis?

It was down -- it is up I think around 14% year-over-year, number 1. And Q4 to Q4 I think it was down sequentially Q3 to Q4. But that's really because of the cyclicality in that business. The fourth quarter seasonality, the seasonality in that business is a fourth quarter influence of the holidays. So you have pretty much they, at the margin, tend to be driven by what happens in litigation. So you have a week that comes out of it around Thanksgiving, and two weeks that come out of it at the end of the year. So out of that quarter you have effectively for this group have about three billing weeks that aren't that great. Roger used to run it -- what do you -- any --

I think that's correct. Historically the fourth quarter is challenged because of those two holiday periods. Thanksgiving and Christmas time. So I think staying flat to a little down and growing from quarter-to-quarter would be expected in that business.

I think the real way to look at that business the way we look at it ,you always want sequential growth obviously, but in that instance you really want to see how you do versus the prior quarter.

Paul, the sequential numbers just for perspective over the last three years, three years ago was down 11% sequentially, two years ago it was down 7% sequentially, this year about 3.5 it was down about 3.5% to 4% sequentially.

I also think there's a little bit of the tyranny of trying to really look at what are relatively small numbers. Remember that in the third quarter there was a little thing that was the statute of limitations running on the Madoff matter which gave us a little bit of spike in businesses there, as we went around and tried to kind of bring that case together, so I think you had that in there as well.

Okay. So that was in the third quarter, not the fourth?

It was in both but I think a lot of the work was done in the third.

Okay. Just -- not to belabor the point but again back in 2004 to 2007, you were actually up Q-on-Q in the fourth so that seasonality didn't seem to exist in that period. But again that was a pretty litigious period.

You got to blend at a much slower business there. And you also have to blend in some acquisitions we were doing in that time frame.

Okay. Thank you very much.

We'll take our next question from Kevin McVeigh with Macquarie.

Thank you. Could you tell us how much success fees were in the fourth quarter and just kind of absolute percentage of revenue, how that compared to the prior year as well?

Hold on one second --

Just give us a second on that.

Sure. And then as you think about the Asia business going forward, and you think about your existing segments, how do you think that will it be a pretty consistent percentage contribution in terms of finance versus forensic, or do you see more parts of the business getting a greater representation in Asia?

Let's answer the first question first, David.

Success fees were almost identical Q4 versus Q4 last year, and percentage of revenue down ever so slightly because revenue was up a little bit.

And what number was that as a percentage?

$10.3 million in success fees in Q4.

Great. Thank you.

Okay. I think the answer to the second part of the question -- I'll start. I think without a doubt, we see, and we're already there, four of the segments having significant growth opportunities, and that would be in obviously restructuring turn around. It's in forensics. It would be in strategic communications, and it's in technology. I think there will clearly be economics work out there as it applies to international arbitration and very large disputes, where you're building damage models, and requiring expert testimony. How much competition work out there which is clearly a big driver, I think remains to be seen, because I think it's an immature marketplace as to how these countries will (inaudible).

That's not necessarily the case in Australia maybe where you might have some more, especially with all the in-bound capital trying to buy resources, butI think that might be the one that would be the laggard to maybe, wow, at the margin it would be nice opportunities. It wouldn't be as exciting for them as they're seeing, say, in Europe and Latin America. So I think four of the five are already there doing well, and Dom any other comments on that?

No, I think that's -- you just about covered it.

Yes.

One other question on that, is it, are you selling primarily in to US multinationals there? Or is there local demand as well? And how does that evolve over time?

Both. The evolution was clearly inbound capital drove an awful lot of our early business. I think the strategic communications group is a perfect example. I think they started almost exclusively with inbound capital. And then they started working on listings on the Hong Kong exchange. And now they're working with very large government-controlled entities; outbound capital, for example, vis-a-vis Australia, and things like that.

Super. Thank you.

We'll take our next question from Arnie Ursaner with CJS Securities.

Good morning. You spoke a lot about the brand-conversion expenses. Where are they carried, are they in the segments or are they in corporate, these incremental expenditures?

Both.

How should we think about corporate expense for 2011?

Not significantly up. It would be up because we're carrying the CRM and some of the initial hires that we're making in some of these areas in the corporate, it will eventually distribute it down, but this year we have budgeted in corporate, some of the new management hires we're making overseas, and it's not fully allocated out until it -- right, second year.

Okay. My follow up question is you obviously highlighted as I said, the brand conversion, your strength in infrastructure, and the expense you are incurring for systems headcount. Maybe you can sum up in your view what you think the EBITDA margin hit is in 2011, but more importantly hopefully you have given a lot of thought to the incremental margin benefit you ought to get on the $1 billion of revenue you expect over the next four years beyond that. So obviously tell us the penalty you think you are incurring, but more importantly, what the upside margin or incremental margin you expect to generate going forward.

I think it's about $0.17 a share. Away of backing in to the EBITDA margin is multiplying $0.01 by $800,000 to $850,000 and that will get you to EBITDA. Arnie, I think Jack said it pretty clearly. I think our intention is to manage this company to the traditional margins we had which have been in the low 20 on a GAAP basis. I think we firmly believe, and all of the indications are that the scale and the operating leverage exists in these areas, and that we'll achieve that with growth.

If I can ask one follow-on question. Your contingent payments were $63 million this year. Based on where you stand today, what do you think they will be in 2011?

Contingent meaning earn-outs?

Yes.

They are declining pretty rapidly. David is looking up --

Yeah, Arnie, I think it's around $28 million going to about $15 million, but let me come back to you on that.

Okay. Thank you very much.

We'll take our next question come from Joseph Foresi with Janney Montgomery Scott.

Hi, this is Jeff Rossetti for Joe. Thank you for taking my questions. Just wanted to see, going back to the overseas investments, is there any time frame for the break-even point that you mentioned earlier --

I think break even, you know, was probably reflecting that the incremental and margin dollars were profitable in all of these areas, it's just matter of I think break-even in the parlance of the first question was how do we get back to our traditional margins? I think you'll see us get back to traditional margins with revenue growth. The revenue growth in these areas will come from two sources. Organic growth, which we experienced a rapid growth in South America, and in certain segments rapid growth even in Europe in the face of a sluggish economy. It will come from acquisitions, and we will be acquisitive in those areas this year. So basically those two -- and a lot of the acquisitions you do have -- we don't price the acquisitions to save redundancies, but clearly if you have the systems in place, it's very easy to put the acquisitions then on top and pick up the redundancy savings as far as their systems, their knocks, their operating centers, so I think the break-even I think was a shorthand for how do these incremental expenses get to a traditional margin level. And I think it'll be sooner rather than later.

It's Dave Bannister. Let me back up to Arnie's question for a second. Arnie the $63 million you are referring to was our acquisition costs and our earn-out payments. (Inaudible) the bulk was the acquisition costs for the two Hong Kong businesses that we bought. I think the actual earn-out were a little over $20 million and those will go down somewhere to $15 million.

Okay, thanksAnd -- okay. Thanks, and if I could follow up, are there any -- is there any other color that you could maybe provide regarding your press release last week? Areas of interest with LECG practices?

No. I think the press release speaks for itself. And, you know, I think we are obviously engaged in conversations, they are confidential conversations, and -- I mean as you are aware, we are very interested in attracting very good people. They have some excellent people, and so we are engaged in the process, and we would be hopeful we could report something to you soon.

Thank you.

We'll take our next question from T.C. Robillard with Signal Hill Capital.

TC Robillard, how are you?

I'm doing well, guys, how you doing?

Great, thanks.

I just, I guess just a couple of quick questions. First the corporate restructuring practice, just given where the utilization rates came in the quarter, the revenue level, is it a fair comment to say that practice has kind of bottomed out as far as a revenue level?

I think we have been loathe to declare that it has bottomed out. I think as I mentioned there were some positive signs from the third quarter to the fourth quarter, but you have to temper that with as we have always told you, a lot of the bankruptcy work and restructuring work is triggered as either people look at a their year-end results or they get the results or they anticipate them and all of that, and you would also expect the first quarter when people get their audited financials or see what they're going to say, so I temper that a little bit. But I think there is some general positive feeling about the folks in there, and I think it was also very positive that the transaction support business was strong. So I think there are good reasons to think that we are hopefully at or near the bottom, yes. Dom, you are the leading restructuring guy. You are probably better to comment than I.

Well yes, and you've got to remember as I mentioned there is more than just the restructuring in that Corporate Finance (inaudible.) We also have our real estate segment, which although we have seen a slight pickup on the real estate side, we're not anywhere near the levels that we have been historically, but we're hoping commercial real estate will come back. And as Jack and Dennis mentioned we're making a big investment in our transaction advisory business, our new leader Bob Filek, has a great reputation. He is from the big four. The big four dominate that business, and we have really got aspirations of being in that mix over the next few years, so that's a big offset from a lower pure bankruptcy and restructuring volume, which we have seen over the last nine to 12 months.

Okay. And I guess Dom and maybe David can comment on this. How are you guys thinking about as it relates to guidance for the year with headcount in that practice? Should we expect a fairly stable rate. Minus any acquisitions down the road, should we just be thinking about that as stable, slightly growing, slightly receding?

In the restructuring business it will be pretty stable. When you look at the real estate business, that will be pretty stable. When you look at the [Taz] business, that may grow. We hope it grows, because that came down significantly in 2010 versus 2009 and 2008 as the volume was down because of the very few number of middle market deals that we're in. So the growth area that you'll probably see there will be in the [Taz] business, which that could grow 50% in headcount, because it's down 50% from 2009.

Okay. Great. And then just lastly for me, the -- as we think about the FLC segment, last quarter you had made a mention about a lot of the financial crisis issues coming to a head where the likelihood that litigation should start to tick up, and it sounds like you guys are seeing some tick up in the U.S. I'm just trying to get a sense as to what type of swing factor should we think about? And I know there's a lot of moving parts, but I'm trying to get a sense as to where you are in your guidance with that practice, and what could potentially get unlocked should we see a lot more litigation work coming out of the financial crisis?

TC, I think it's -- the balancing, you know, factor here is they more than anyone of the beneficiaries of some of these huge jobs, so they are getting a lot of new business, so their business acquisition has been outstanding. Their growth, you know, we think they are gaining share, and the problem is that is offsetting declines in mega, mega assignments that have been running for several years, and it isn't just Madoff, it's a bunch of other ones. So the real factor in all honesty, as it pertains to this year isn't will be continue to get the business. We're getting it. It will be how much of that simply has to offset a significant decline from mega cases. If the mega cases have longer runway then you'll see that be a much more of an incremental growth contribution. If you don't have a lot of runway, then it will be a replacement for these mega cases to where they'll have a nice year, but not a great year.

And we should continue to grow in the geographies that we have made investments in, particularly Asia and South America. Our FCPA volume is up and growing, so we're very happy with that. And the only reason we have the benefit of those cases is because we built out our footprint and we've provided the capabilities around the world that the accounting firms prior were the only ones that had it. As corporate investigations increase, FCPA matters increase, and just the asset searches need for -- in the Corporate Finance liquidations and fraud matters, as those cases increase, then we're very well positioned to complete against anybody in the world for those cases.

There is an enormous amount of litigation that has been filed as an example in the Gulf for all of the problems that surrounded the accident in the Gulf last year. And as that matures, and works its way through the system, you know, we'll be a big beneficiary of that, but, again, it's little hard to predict it.

Understood. Thanks for all of the commentary.

I apologize for the commercial, but I know that our competitors and a lot of people in the industry listen. And we are desperately interested in building out our transactional support business, and all of the things that collaterally go with that, such as the tax practice and things like that. So I hope that's an area that, as we go through this year, you will kind of mark us to market on as to how we put that capability together.

We'll take our next question from Scott Schneeberger with Oppenheimer and Company.

Thanks, good morning. Just the (inaudible) up front, one could you speak to what you are seeing with regard to your acquisition pipeline? Any color you can provide with regard to geographically where you are looking, segment size, and maybe hurdles of why you can and can't do things with regard to multiple right now? And the second question is just any update on separation of the tax consulting business? That's it.

Geographic pipeline is robust. Looking at -- you know, the areas you would expect, clearly not ignoring the US, looking for opportunities here, but looking aggressively and engaged in conversations in Europe, South America, and Asia. As far as multiples, you know, I think we stay very disciplined. As you know, Scott, I think it really does sort of come -- it's a function of not so much what the market wants, but what fits our model well, so I think we continue to pay about the same level we have had in the past. We're not seeing it go up dramatically, and by the way for good properties, it doesn't drop that dramatically anyway, people just hold them off the market then.

I think as for tech, we're ecstatic with the year that tech had in the face of an awful lot of competition. They are doing a great job in that group, and we're very excited about these new product offerings that are starting to come out. The initial response from the industry analysts, the Gartners of the world have been very positive to them, and I think that I would say we're viewing tech as more of an opportunity to possibly consolidate the market actively going forward, and we are really looking forward to the benefits of this technology rollout hitting the market and, therefore, stimulating growth for us.

Great. Thanks. That's all for me.

We'll take our last question from Paul Ginocchio with Deutsche Bank.

Thank you. Just a couple of modeling questions. Beyond 2011 is there any other earn outs and what should we be thinking about for CapEx in 2011? Thanks.

CapEx will be about $25 million in 2011. We do have earn outs that extend beyond 2011, not of much size. I think it goes down to about 10 -- obviously projecting an earn out is projecting earnings, so I think in terms of when we think about caps and longevity (inaudible) we're looking at levels of 10 or below after 2011

And obviously, Paul, with the new accounting rules you'll be able to see those on the balance sheet going forward? Isn't that right, David?

For (inaudible) post the adoption of those new accounting rules. So for example, the FS Asia has an accrual on the balance sheet for the expected earn outs with (inaudible) total of about 20 -- excuse me -- about $18 million.

Thank you very much.

And that concludes today's question-and-answer session. At this time I will turn the conference back over to management for any additional or closing remarks.

Thank you very much. And thank you again all for joining us, and we will look forward to our next scheduled conference call, and as we had committed we will give you an update as other discussions progress, and we'll do that promptly. With that, again, thank you, and we'll talk to you next time.

That concludes today's conference. Thank you for your participation.