FTI Consulting Inc (FCN) 2011 Q1 法說會逐字稿

Good day and welcome to the FTI Consulting First Quarter 2011 Earnings Conference Call. As a reminder, today's call is being recorded. Now for opening remarks and introductions, I would like to turn the conference over to Mr. Eric Boyriven. Please go ahead, sir.

Good morning. Welcome to the FTI Consulting conference call to discuss the Company's 2011 first quarter results as we reported this morning. Management will begin with formal remarks after which we'll take your questions. Before we begin I would like to remind everyone that this conference call may include the forward-looking statements within the meaning of Section 21 of the Securities and Exchange Act of 1934 that involves uncertainties and risks.

Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues, future results, performance expectations, plans, or intentions, business trends and other information 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 the forward-looking statements, investors should review the Safe Harbor statement in the earnings press release issued this morning, a copy of which is available on our web site at www.FTIconsulting.com, as well as disclosures under the heading risk factors and forward-looking information on our most recent form 10-K and in our filings with the Securities and Exchange Commission.

Investors are cautioned not to place undue reliance on any forward-looking statements which speak only as of the date of this earnings call. During the call we will discuss certain non-GAAP financial measures such as adjusted EBITDA, adjusted segment EBITDA, and adjusted EPS. For a discussion of these non-GAAP financial measures as well as the reconciliation of these non-GAAP financial measures to the most recently comparable GAAP results, 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 thanks, everyone, for joining us. With me on the call this morning are Dennis Shaughnessy, our Chairman, David Bannister, the Chairman of our North American Region, and Roger Carlyle, our Chief Financial Officer. Our results were released first thing this morning, and I hope you had a chance to review them. If you have not they were available on our web site, www.FTIconsulting.com. The first quarter was a good start to what we hope be a very, very good year for FTI consulting. From an operational standpoint, we enjoyed a solid quarter; but in terms of the strategic development of our businesses, it was an outstanding one.

We successfully completed a series of transactions with LECG corporation, that significantly furthered our development as a Company, and enhanced our competitive position in several key practices important to our future. In terms of the deployment of our capital into productive and value-generating initiatives for our shareholders, these transactions and the steps we have taken with our accelerated stock buy back, we believe, leave us with a more efficient capitalization while also preserving a flexibility to make further investments as opportunities present themselves.

From an operational standpoint, revenues in the quarter were an all-time record $362 million, up from $350 million a year ago. This eclipses the prior record of $360.5 million that we generated at the height of the recession in the second quarter of 2009. When our bankruptcy and restructuring activities were going full bore. We achieve this despite our restructuring and bankruptcy activities continuing to be faced by a challenging headwind. We achieve this because our activities that are key to an economic expansion continue to gain traction in their respective markets, and to again more than make up for the decline in restructuring work.

In the first quarter the pro cyclical businesses grew 9.5%, substantially, all of which was organic. Our practices outside the US, again, were a key factor in our growth. Total revenues in Asia-Pacific more than doubled year over year with strong organic growth in forensic and litigation consulting and strategic communications and another great performance by our acquired corporate finance and restructuring business. Latin America grew by 24%. Although our activities here are small relative to our overall business, it demonstrates the market dynamics, and opportunities for us in the region.

While our activities in North America and EMEA, Europe, Middle East and Africa, were in total flat year over year, declines in corporate finance and restructuring marks some interesting and promising growth in our other business. Adjusted EBITDA in the quarter was $61.7 million, or 17% of revenue. This was down from $75.9 million a year ago, when a smaller contribution from corporate finance and restructuring. Included in the adjusted EBITDA for the quarter, are expenses related to the LAC transactions of approximately $1.4 million, which were mostly legal fees, another $500,000 of onetime tax adjustments, and also about $800,000 of essentially nonrecurring incentive payments related to an acquisition.

We reported adjusted earnings per share in the quarter of $0.48, which included the impacts from the above, including about $0.02 related to LECG, the tax items that I mentioned took our tax rate up to 38%, which is higher than the 37% we expect for the rest of the year, and the incentive payment cost us another penny. So, in terms of our underlying earnings power in the quarter, one could make a case for about $0.52. The fully diluted share count of 45.6 million was down 2.5 million, shares or 5%, from a year ago due to shares re-purchased under our current authorization. This share count does not reflect the full impact of our accelerated stock buy-back that we announced in February and have since completed.

During the quarter, we purchased and retired about 4.4 million shares and expect to receive and retire approximately an additional 600,000 shares in May for a total cost of $209 million. Depending on the price, there could also be a few more shares down the road, but this essentially completes our $500 million stock repurchase authorization. With regard to the practices, revenues in corporate finance and restructuring in the quarter were $107.3 million, a decline of about $10 million or 9% from a year ago. Adjusted segment EBITDA for corporate finance was $21.5 million compared to $34.7 million a year ago.

The declines in revenue and adjustment segment EBITDA stem from the continuing softness in demand for restructuring and bankruptcy services as the credit markets continue to improve. This decline was partially offset by improvements in the segment's health care business as well as contributions from the Asia practice acquired last summer. As default rates remain at historically low levels, we continue to explore ways to enhance the profitability of this practice. These includes emphasis on transaction support, and specific domain expertise. We are actively working to shift our restructuring and bankruptcy focus staff with appropriate skills to other practices which are experiencing increasing demand.

All this while we continue to assess the longer-term demand for our restructuring and bankruptcy services. In forensic and litigation consulting, we had another good quarter. Revenues increased more than 5% compared to a year ago to $83million, from just under $79 million. We have more than made up for lower activity in two fraud large cases which, although they remain important contributors to segment revenue, are significantly down from last year.

We have had good new case opening activity, which tends to, in the beginning, use senior people as they're opened up, but later on mature and increase in margin and utilization. There was a solid increase in the overall level of litigation activity, regulated industries maintain their strong performance, and our Asian investigations practice sustained it's momentum. All these factors good indicators of a return in strength to the litigation consulting market. Adjustment segment EBITDA and FLC was $16.9 million compared to -- equal to 20.4% of revenues compared to $19.8 million or 25% of revenues a year ago.

I think the mix of mature and new cases will tend to have a positive effect on our margin and utilization as we go forward. Adjusted segment EBITDA margins declined from a year ago, due to the lower utilization as those fraud cases begin to wind down and higher head count as we anticipate a continuing strength from the market into the year. Economic consulting maintained its strong momentum from the fourth quarter. Activity was strong across a number of core practices within the peak economics, most noticeably M&A and financial economics, and the European and Canadian International Arbitration Practice had an excellent quarter.

As a result, segment revenues were a record for the quarter increasing over 10% to $74.3 million from $67.3 million a year ago. Adjusted EBITDA for ECON was $13.2 million, equal to 17.8% of revenues down slightly from $13.5 million that we recorded last year. Adjusted EBITDA in the quarter reflects increased equity based compensation expense due to the increase in our share price. And about $1 million of expenses allocated relate to the LECG transactions. Margins were also impacted by the investments we're making in our European and Canadian practices in terms of key hires we made over the past six months. While those practices are ramping nicely, they haven't yet achieved the scale necessary to generate the usual level of profitability that we've come to enjoy. Technology had another excellent result in the first quarter.

Revenues increased almost 18% to $51 million, a quarterly record driven by increased litigation and investigations activity and the continued success of our acuity offer. Adjusted segment EBITDA in the quarter was $18.6 million, and the adjusted segment EBITDA margin in the quarter was a strong 36.5% due to the high level of revenue, although down from exceptionally high margins a year ago. We have aggressively managed expenses to maintain margins in the face of the continued competitive pricing environment on the unit-based side of the business. Strategic communications revenues increased 7% in the quarter to $46.4 million driven by modest growth in retainers and some good project work in the largest markets of the US and UK.

Asia-Pacific maintained its strong trajectory on the strength of Australia's strong natural resource driven economy, which was a driver of M&A and overall business. Adjustment segment EBITDA was $5.4 million, equal to 11.7% of revenue. Margins were down slightly versus last year, as they were affected by the accrual of incentive compensation of approximately $800,000 that I mentioned earlier related to an acquisition. This will recur in the second quarter in a similar amount, but then that will be completed.

Now let's turn to the strategic developments that we accomplished during the quarter. As we announced on March 31, we completed a series of transactions with LECG Corporation that significantly advanced the key elements of our strategy, namely building our global platform to enhance our ability to deliver critical thinking at the critical time. And further reinforce our industry expertise in certain vertical markets, where there is an increasing premium being placed on domain expertise to contend with changes that are occurring. The transactions with LECG accomplish both these objectives. To remind you of the details, we acquired a number of practices from LECG, involving more than 200 professionals across Europe, the United States and Latin America.

These professionals were generating about $85 million in annualized revenues on a trailing 12 month basis. At the end of their tenure with LECG, in terms of compensation, we paid about $27 million in cash for the businesses and assumed about $16 million in liabilities. We did not take on additional any debt in connection with the transaction. About 150 of the professionals that we added are based outside the US, so we are adding significant heft to our growing capabilities in Europe and Latin America. This represents an increase of about 13% to our non-US employee base. Fully 30% of our employees now work outside the US, which re-enforces our stature as a truly global firm.

As an aside, while London has been our second largest office for some time, it is now vying for New York for the number one position. This is a remarkable development as less than five years ago we barely had any presence at all in London. This is more than just about putting dots on the map and showing a global presence. The addition of these professionals is strategically important to us in terms of how they enhance our competitive position in several of our consulting disciplines, and raised the visibility of FTI in new markets.

You've heard me speak often of our leadership and competition in antitrust economic consulting, and how we are experiencing strong demand in these areas. With our new colleagues, we will be putting these capabilities on the ground in Europe with the launch of our European Competition in Antitrust Economics Practice, which will have teams in place in important business centers such as Madrid, London and Brussels. With the increasing trends toward cross border M&A, and collaboration regulatory bodies, our ability to advise in multiple jurisdictions greatly enhances our ability to service our global clients with a competitive advantage.

Similarly, we are expanding the global reach of our international arbitration practice, which as you know from our recent conference call is gaining traction not only in its business performance, but is also being rapidly recognized as a leader in the market. The professionals we are adding give us greater heft in Europe, where we have been off to a fast start, but also bring a team of 33 people to Latin America, that launches our practice there. This enables us to triangulate North America, South America and Europe with a seamless team.

In addition to the competition in antitrust and international arbitration capabilities we are adding in London, the LECG transaction provides the basis for launching new practices based there. A European tax advisory practice, which advises FTSE 100 and Fortune 500 companies on their international tax issues, while significantly enhancing our existing London-based dispute advisory practice with seasoned practitioners to complement our market-leading position in the US dispute advisory market. Finally closer to home, as we've long wished, we're expanding our forensic and litigation consulting team in the US, especially the West Coast, with the addition of several senior practitioners in our San Francisco office, who bring expertise in forensic accounting, financial investigations, disputes and expert witness testimony among others.

Apart from the global platform, the other dimension of our strategy that we've often talked about is our pursuit of greater domain expertise in key industries that are undergoing transformational change or experiencing heightened regulatory scrutiny. Our new colleagues increase our resources and global reach and industry practices where we already have critical mass such as insurance and financial institution, energy, utilities, airline and aviation and environmental. They enable us to launch new practice in areas such as these with the critical mass. To help you understand the financial impact on our business from the addition of these new practices, let me offer the following.

As I said before, the practices we have acquired were generating about $80 million in an annual run rate basis. Given that they are joining us one-third into the year we expect $60 million in revenue around 2011. As we bring these folks into our business, they will be in the normal transition impact and integration expenses plus the usual summer seasonality. So, we're looking at a modest contribution to profits in the next quarter or two. But as the year progresses and they get up to running in our organization, we expect both their productivity and profitability to ramp to our normal level of margin in the low 20s as we exit the year. For the full 2011, we expect a contribution in the area of 10% to 15% depending on the speed with which these practices get up to normalized productivity, and this would equate to between $0.10 and $0.15 per share to our earnings. With for the reasons I state, may be slightly biased for the back end.

Now let me say a few words about outlook and guidance and why I am so bullish on our market position and our Company right now. As I look across our practices, they're doing almost exactly what we would expect them to do in a market environment such as the current one with a slightly improving economy. As I look at corporate finance, we see the core restructuring business continue to face headwinds, but those practices within corporate finance, that have domain expertise or rely on an improving economy are beginning to do very well.

Our health care practice had 27 new matters during the quarter after opening 23 in the fourth quarter. Our media practice is gaining traction, and our transaction support business has been strong, with 63 new matters, following 59 new matters in the fourth quarter. Ten of those in the quarter were Company side, 23 were investor side, and 30 dealt with lenders. In forensic litigation, during the quarter our health care practice in that business was up 11%, our pharma business was up 30%, and our insurance business grew by 60%. We also saw improvement in the UK. Tech and its great performance, especially took note that its acuity product, which was an innovative new product, did very well.

We also did an excellent job in Europe in terms of several investigations in FCPA work. Matters are up, our budgets are now there, for on premises and self-service SAAS offering. Interestingly price pressure has been softening slightly and an uptake in the M&A market, so there's every reason to be bullish on technology for the rest of the year. As I mentioned, we significantly beefed up our international arbitration practice and now have the top ten recognized professionals in international arbitration in the world. In ECON, the number of new matters and active matters increased dramatically. Up 25 % in number of matters year over year and up 15% from the fourth quarter.

New matters continued at a brisk pace with 145 in the quarter, following 150 in the fourth quarter, compared to a run rate last year of about 125. M&A and financial economics are robust. We've invested in a new public policy group headquartered in London with the addition of three world-class economists that are only now beginning to ramp up. We think that with the impact of the governments and with the global economy, this can't help but be a roaring practice as we go forward. In strategic communications, we again had good retainer growth. We had excellent representation on M&A transactions where they occurred, but we're still gaining market share and momentum. Still there's been a dearth of IPO work, which will be what's needed to really help them, you know, do even better than the 5% -- or the 7% growth that they recognized.

Finally the LEC transaction, adding 200 new colleagues who I want to welcome to FTI. I think they could have gone to many places, but they chose to be at FTI, harkening back to the mantra we began this Company with almost 18 years ago, which is we wanted to be the place for investors, for clients, and most of all for the great professionals that make the other two things possible. Accordingly, while it is our policy to update our guidance only at midyear, given the potential material impact on our revenue and earnings from these recent events we are increasing our guidance. We expect revenues in the range of $1.5 billion to $1.54 billion and earnings per share of $2.30 to $2.45.

To conclude my prepared remarks, the first quarter was obviously a productive one. We had a record quarter for revenues on the strength of growing momentum for our pro cyclical businesses. We invested over $200 million of our capital in buying back shares, and most importantly we substantially enhanced our global presence. The breadth of our practices and the critical mass of our growing new markets in Europe and Latin America. All of this positions us with more intellectual capital than ever to advise our clients on the most important issues of the day irrespective of where they might be. With that we'll now turn it over to your questions.

(Operator Instructions) We'll pause for just one moment.

We'll take the first question from Tobey Sommer, SunTrust.

Thank you. I had a question for you about your international markets, and I just wanted to maybe see if you could give us some color as far as how many offices you have or percentage of revenue in which you've only got two or three, or maybe even one of your segments present versus having all five to try to give us a sense for what kind of growth in opportunities you have in some of those international locations? Thanks.

Hello Tobey, it's Jack. Again, in most of the US operations, obviously, we have all the segments -- the business is represented. In London, all of them, you know, are represented. In Hong Kong, all of them are represented. The European offices in France and in Spain would probably have three of the five represented physically, although the liaise with London and use some of the expertise in the other segments in those operations. As the demand for those services increase more, you would see us put into Madrid, which is becoming a very large office for us as well as Paris.

In Germany, we would have, right now, three or two and a half of the five in there again, predominantly using technology services out of London from the technology segment; but on the ground communications, arbitration, and transactional support and restructuring would be important there. Middle East, again I'm not going to go through-- we have so many options, Tobey, to go through. The Middle East in general, in the Middle East you would have two of our services in situ, but again, a lot of projects that those people would be bringing on board that might be serviced out of London. Australia, again you would have their two in situ, but with other projects being handled by our economists, you know, coming from the US and somehow restructuring people coming out of Hong Kong.

Down in South America, we would have three of the groups -- actually four, in situ. The only one that we don't have full representation in South America now would be technology and they're partially represented through a technological group we have in place in Brazil, but it's more aligned to our FLC practice. So I think that-- we have so many options, I don't want to take up the entire call. In the aggregate, we're expanding, based upon the development of enough institute demand to justify the placement of people in those markets. In the interim, we're using the logistics and the contacts and the relationships with the other groups on the ground in order to support projects we have in the country for the other groups, or to develop them and to bring resources in on a project-by-project basis.

Thanks. It seems like the change in guidance is mostly a function of the recent hiring, but if there is some sort of other contribution to that change, could you share with us what that may be?

I think Jack tried to tell you that the demand curve-- the new openings in the first quarter our very robust. Not only here, but in Europe and especially in Asia. The anticipation is that these openings, one is a good indicator of a significant pickup in the business and not just a pickup in market share, a gain in market share. And with looking at that, our feeling was that the additional capacity that we are putting on screen, not only through the LECG acquisition, but the actual other tiers that we've made across the platform is going to benefit from good solid demand drivers throughout the year. Then, just the net addition of $80 million in trailing revenues that LECG worked on. Obviously, our feeling is we can do better than that once they're fully integrated along the line, and some of the groups have actually hit the ground running very quickly and are very happy to be attached to the platform.

Okay. I'll get back in the queue. Thank you.

Now we'll move to a question from David Gold from Sidoti.

Hello. Good morning.

Hello.

Wanted to ask a question or two on the technology practice. I guess as we stand, litigation is certainly picking up, but that business continues to be pretty competitive. I guess the landscape has changed a little, where it's gotten an increase in-- more competitive, say, than when we initially entered the business. I was curious on sort of thoughts there on -- well, what we do from here differently to differentiate a little bit more and see if we can get the pricing power back? Is it a function of making some more acquisitions of growth, or is it more of a function of, say, reviewing the offering and going from there?

David, are you specifically talking about the tax segment?

Yes.

I think you have two factors there. One, you know, you're not -- you're never going to have pricing power in storage, because it's a reflection of Moore's law. Every year, the capacity and cost storage goes down or increases or the price moves proportionally. Obviously we have very large out source operations now in the US, Europe and Asia, and you have to offset with volume the market presence. We don't drive storage prices; storage prices are driven by base storage around the world. We're a beneficiary obviously of demand. So there you're going to see increased dollar volumes, possibly decreasing margin, because that's what the whole world looks at in those businesses.

I think we're increased with share at the top end, so I would turn around and say there is a market consolidation. Because, I think what you're seeing is fewer and fewer businesses that can handle complex global challenges and then have to operate within specific geographies for purposes of privacy. So I think, on our consulting side of that business, I think we're gaining share. Then, finally we have a robust R&D effort underway there. Acuity has exceeded our expectations, we are extremely pleased with it. There will be new releases throughout the year related to acuity and to the other areas. And of course, we are spending a of money to position ourselves aggressively in the cloud. I hate to use that cliche, but it is clearly where the world is going to go. It will probably be a way of maintaining margin on storage, by a different type of approach.

We're very pleased with what we see coming out of R&D, expect to see a significant number of doc releases as we build enhancements for what we think is a highly ranked, highly industrial analyst platform. So, I would say you'll see us grow there. As we migrate into the cloud, we think there will be efficiencies. And two, we're going to gain share at the top end on consulting, just because there are more complex global problems and fewer companies available to do it. And then finally, you're going to see a lot of new releases from us over the balance of this year.

I think, if you look, compare this quarter to a year ago, I think one of the things we noted is we had a particularly strong quarter last year on on-premise installation. I think that's a profitable business. Our people are reporting back that corporations are again having budgets to explore this, as I mentioned in my remarks. So, I think we're working to address that need, we're working to make sure our new releases work seamlessly with that kind of thing. It's a partnership with the clients to really address their needs. And we have always been the leader in doing that because of our-- we were a pioneer with S&L and now with our R&D effort, which is well funded and not the product of a venture backed thing or something like that. We're in good shape.

We will, of course, look at acquisitions. Like most of our practices, the technology folks have a list of things that would fit nicely as we continue to co-op the end-to-end solution, so that our clients have-- not only want to use us and have no reason to go anywhere else. So, we're very active on that front. As we say in the business, the results weren't chopped liver as they are. So, when you look -- it is at least a nice respite to have for them to have a quarter where price pressure was not as significant a factor as it has been in the past.

And Jack, just following up on your comment on the acquisition front. There is one large one that is -- a large potential sale announced in the quarter in the business. A competitor who's been having some similar issues on the pricing side and wants to get out. Would you look at something big there?

Which one are you talking about, David?

Iron Mountain.

I don't think at this point we're going to buy hosting capacity. I think that's -- there are people, as the world goes on that--. For us, it was -- it was an important tool because of the confidentiality, and there are certain people, no matter what we say are going to go anything but a private FTI solution. But I think, in terms of being a competitor in the mass market on that, that's not our cup of tea.

Got you. Then one last quick one if I can tuck it in. On the LECG buy, can you give us a sense for how much, if possible -- in addition what you spent, what we might expect it may cost to lock up the senior professionals there or put them on the platform so to speak?

Well, as you can imagine, David, we wouldn't have done the deal if we haven't locked up the senior professionals.

Sure.

As part of a precondition to each one of the a series of the acquisitions, new employment contracts were signed with us. Not only for the defensive purposes, but offensively, to give them the opportunity to earn based on our income model, which we think will have market enhancements and earnings enhancement for them. The total amount of the loans that were used were not significant relative to the combined purchase price. I think that's all over and done, and their packages pretty much look like a template that you've seen us do elsewhere, but they are, in fact, locked up.

Got you. Perfect.

In a positive sense.

Right. For sure. Very good. Thank you all .

And now we'll hear from Tim McHugh with William Blair & Company.

Hello Tim.

Hello, guys. How are you doing?

Great. Thank you.

First I wanted to ask on the large cases, if you could give a little more color both on the forensic side, you talked about how those are down, and also technology. Were there any large cases? I guess from a high level do you feel more comfortable that's less of a risk? You talked about that being a little bit of a risk on the last call, that you were thinking about for this year?

As Dave answered, the quarter was much less dependent on large cases than many quarters we've had in the past. So in the forensic group, the two large cases which we've spoken about frequently, were down about two-thirds in revenue versus the run rate last year. They are still significant cases, but they would no longer fit in the unusual category in terms of their sale versus the business. The only other segment that would have significant cases would have been technology segment, and the largest case there, again, is down significantly versus last year. So, the dependence on it is just a lot less. In corporate finance there really are not mega cases going on now in an internal sense. So, we don't have cases that would be $10 [million] or $20 million in the quarter. Those cases are behind us.

Yes. Tim, I think one of the reasons for the optimism that Jack was trying to project is that when you have such an increase in the number of retentions that we're getting, number one, some of those, by simply sheer force of inertia grow into larger cases. But it allows us to redeploy the younger range of our consultants into those, as I think Jack said. When you get the cases in the beginning, obviously your senior people are on, and as the cases expand, you would start to add to your leverage with your younger people, and most of those people are being deployed out of the large fraud cases that we have referenced. So you can't turn sort of the ship into a parking lot in a couple of weeks, but we're pleased with what we're seeing as far as all new bookings. We had an outstanding first quarter of new business, overall.

Tim, this is really the fruition of a game plan. We think we will continue to get the elephants, because one, we hunt them, and two we've been partners in the great firms in the world about having very successful conclusions for our clients. As you know, we've been moving much more towards domain expertise. When you look at the figures about our health care business being up 11%, and our insurance business being up 60%, we're trying to build things where we don't just get it because it's a big thing; we get it because we are the gold standard in that particular industry, and that's something that you will continue to see [from] us. So, in the process of a lot of Sturm and Drang over the last year about body, head count, and all the rest of it, what we've done is continually focused new hires and replacement hires on industry and domain expertise.

Okay. That's great. Can I ask about the marketing plan or the brand consolidation plan this year? The corporate expense was actually much lower than I had thought. So was that fully ramped up in Q1? And I guess just how is it going?

No. It -- for the brands that we were going to convert sort of on a big bang in Q1, that money for the most part has been expended. Probably was a little less than budget, but it went seamlessly. So we didn't really have issues. The bigger brands, the ones that would be converted between now and in November was where we had the bulk of the spend. That money is targeted to be spent; it will be spent, and so far so good. We think it's going extremely well, and a lot of it is geographically driven, because you just have to do, your conversions, your promotion, and your transition based on the geography that you're in. I think obviously we've gone to this new organizational structure with a geographic bias, so we want those leaders to weigh in heavily on sort of the last model of execution of the dollar spend or euro spend or [yen] spend or wherever it's going to be.

Okay. So should we -- it's fair to think about that expense, corporate being relatively similar to Q1, maybe up a little? I mean, is that a good number?

I think you'll see it go up a little in Q2 and pretty much be as planned in Q3 and Q4.

Okay. And then one last question, just on the strategic communications business, can you talk a little bit about your view on that business right now? I know you said you're waiting for a greater level of IPO activity. I guess I thought it might be stronger than this at this point in the cycle. Are you comfortable with retention and market share trends and everything there? And it's just a market issue, or is there anything else you may be focused on within that business?

I think we're gaining share in the basic core business, especially in Europe and Asia, and probably keeping share or expanding slightly here in the US. I think that the capital markets have just not been robust. It's been somewhat stop/start. Our backlog of activity, either on a primary secondary fund-raising basis, especially again in Europe and Asia is robust. It's there, we simply haven't been able to execute. A lot of the deals we have worked on have really gone to the altar only to be pulled at the last minute.

I think that while we think M&A activity is going to pick up. M&A activity on a hostile basis, it is clearly a big driver of business for us when that heats up. You're reading some of the same headlines we are, so I think we may see a benefit in the second half from that. Our retentions are up. The pricing pressure on retentions seems to have abated. The big lack here that we still have not recovered from where we were in the last cycle is the M&A/capital markets business. We believe we've gain share by the retentions that we have. We were just simply not being able to execute on the transactions.

I think in light of that, we can't sit around and wait for IPOs to come back. When you look at our developments in that business, one of the things that's exciting is with the new leadership that we have there and with the addition of Mark Malloch-Brown over in London, and with our operation in Brussels. We're much more looking at government and global affairs as an opportunity. You're going to have, given the, I'll say, politely involvement of government in business here and abroad and given events in Spain and Greece. I think the addition of this cadre of economists that I spoke about, in our economic consulting combined with the capabilities we have in strategic communications. I think by the end of the year you might see that be a pretty big contributor for us on not just the US basis but a global basis, and that's an exciting development for us .

Okay. Great. Thanks, guys.

And now we'll move to a question from Scott Schneeberger with Oppenheimer.

Thanks. Good morning. I guess starting out, could we speak a little bit on tech consulting? It sounds like you're bullish for the remainder of the year, and computing going well. Could you guys speak to -- in the past there's been consideration of spinning that off. Where do you stand on that front given it looks like it has a nice runway here?

It's Dennis, Scott. I think we're not considering anything like that right now. I think again, what we're looking for is support the group especially with all of the new product releases I think you'll see in the next 16 to 18 months. I think there's consolidation going on in the industry. There are people exiting the industry, that were referenced before. There are the smaller companies that Jack referenced that will either fall by the wayside or get gobbled up. It's hard to ignore the dynamic in the industry, that clearly the players are going to change, or the players will get larger. But I think we're very comfortable where we are now. We think it's possibly one of the most valuable parts of the company. And again, I think that capital markets dictate strategy often of times, and not necessarily there's a capital market need to do anything for us right now with this. We feel very comfortable, having this in the portfolio, and as I said it's hard to ignore what's going on in the macro sense, but we feel we're in a very good position.

Yes. I'm as excited about the business; I don't want to sell it. I mean, capital markets will not dictate something on this, in my opinion. We have the best leadership team we've ever had there, with Seth Ryerson and Eddie O'Brien there on the R&D side, Adam Vendell, and I think we just have great prospects for that business. It's the kind of thing where they have an opportunity because of their stature in the field to do collaborative projects with people that may have a different type of expertise than we do. But I think it's part of the family and part of the reason why we have fared better than some of the people that are in the business we're in, is because we're able to offer that as part of our offerings. Let's put that to bed and just continue this growth spurt and this profitability.

Thanks. And consistent in mid 30s, EBITDA margins is a reasonable expectation for that business considering it's been performing that, and you guys are going to manage it as such?

Yes. We try to say, when it's below that, please come back to the mid to low 30s. Yes, that's what we're looking for.

Fair enough. And switching up a little bit. SMG, no longer called SMG, but could you give us an update on how that's performing?

Yes. The budget for the first quarter, I think their utilization is going up. They've been active in several projects in the small investment bank, that we have. The projects, you know, have not closed yet. That could have a positive influence on us going forward. Clearly the commercial real estate market where they really play is starting to heat up even more. So we're looking for SMG to have a good year.

Great. Thanks so much, guys.

Now moving to a question from Paul Ginocchio with Deutsche Bank .

Thanks for taking my question. Just want to make sure I was clear on something. You raised your guidance 10%, $0.10 at the low end, $0.05 at the high end. But sounded like you said LECG added $0.10 to $0.15 for the year. Is that correct, and if it is, where is the underlying downgrade? And I have a follow-up.

There is no underlying downgrade. We tried to give you a range; we're not trying to be exactly precise, that it was just going to be additive. We're trying to give you a range of what we thought LECG could do, and rather than get too far ahead of ourselves. Luckily, I think we have a reputation of trying to be relatively conservative on these things, and I think that's way we did it.

Okay. And then I calculated about $6 million of FX on the revenue in the quarter. Does that sound right to you?

Let us check.

We'll check and give the answer in the call.

And then just if could, while you're checking, the health care practice, how big that is within restructuring? Is that just hospital restructuring or performance improvement? If it is, what are you doing? Is it revenue cycle throughput?

Yes, it's got $60 million. It is all the above. It's revenue cycle, it's operational improvement and it would be core restructuring. So, the bulk of the business now is in the more consultative areas, as you can imagine, operational improvement and op restructure.

Importantly, we had health care expertise in many of our segments that are also of substantial size. So we think of it as the totality of our domain expertise. It's not a $60 million business, it's probably a $150 million to $200 million business.

Thank you.

Next question will come from Bill Sutherland with Boenning & Scattergood.

That's good enough. Good morning.

Bill says that's good enough. (laughter)

So on the --

Scattergood. Okay. Good.

Thank you very much for that plug. The expenses that you all called out last call on the network operating centers and CM, are they tracking along as far as the ranges you put out there?

Yes.

Okay. And Jack, on the last call, you referenced activity really starting to heat up in the private equities? Is that sustaining?

I think the private equities are very active. When you look at the case openings we have on the transactional support side, I think that's indicative-- 50, 60 new cases a quarter, that is indicative of that.

Okay.

It's an area of concentration for us, because there are so many different things, between our process improvement people, the post-merger integration activity. It's very much a focus for us.

So that is contributing a lot to the new matters you're getting. Okay.

I wouldn't say it's contributing a lot to the new matters. When you think about -- when you think about M&A as a major factor across all of our businesses, and as I say, the single biggest driver that could move us up to and beyond the high end of the range. I think still the strategic M&A is the major focus because we -- it effects the technology in the second request and effects ECON. So, it's more in our transaction support that the private equity firms in terms of their M&A activity would effect us.

Right, right. The other thing you called out was the credit crisis. Is that going through as you expected?

The litigation from the credit crisis is absolutely. I mean we're-- I think one of the reasons the, when we talk about financial economics, a lot of that business, where it's been very strong has been the result of the credit crisis.

And then last question for me on the tech growth, would you think that first quarter is something that can be sustained in terms of growth rate for the year?

Yes. I -- tech is -- they're involved in some great projects. They're going to be releasing new products. I think, with the caveat that-- if the core projects they are working on right now continue, they will clearly add new business. If he new products they plan on releasing, if they get traction, we think they can have excellent growth the rest of the year.

Okay. Great. Good work, guys. Thanks.

The next question will come from Arnold Ursaner with CJS Securities.

Good morning. On the LECG acquisition of professionals, will many or most of have to take garden leaves?

No, none.

That's why we did it. It was much cleaner to do an acquisition than to try to do group hires, even though LECG has their own plan of sort of winding down. They had contractual control over a lot of individuals, so that if we had just hired them right on, they would require, especially in Europe, gardening leaves, or some states refrain from competition. All of that was waived by LECG as part of the consideration of the purchase. So all of the people came over clean, and were able to sign new contracts with FTI as a condition precedent for the deal, and executed contemporaneously with purchasing the company. So there are no gardening leave issues there.

So with the annualized type revenue numbers, should be a pretty good starting point. Can you speak to the margins on their business versus your corporate average? And what sort of goal you have over the next 12 to 18 months when they integrate in?

Yes, I think, first of all, it's impossible to speak to their margins on a trailing basis. Simply given the issues that were going on in LECG. I'll leave it at that. I think the people we have, I would turn around and say were the stars of the show there and have tremendous demand power behind them, individually, as well as the groups that came over. There's no reason that after sort of a transitory period-- they went through a lot in the last six months there. You're always nervous extrapolating out where you think it's going to go without some degree of hiccup, and that your porting people from one office into another office, new support, new systems, the normal run-of-the-mill integration issues that you have.

It's going along very smoothly so far. It's not perfect, but we would anticipate that we should exceed their run rate, towards the second half of the year in revenues, based on the bookings we're seeing and the business we're already generate. For example, I know the competition practice in Europe was the best competition practice. Jorge [Cadeo] was the number one guy there. They're cooperating fairly closely with our number-one practice over here in the US and have been handing off assignments to each other. So, I think you do have that, working for us in the second half as well.

The earnings contributions, the margins, our expectation is they'll earn exactly what the rest of our groups earn, and should be in the 20s. A good proxy would be to average ECON and to average FLC together, because it's almost at an approximate 50/50 split of the people. Our target would be get them to that margin as soon as possible, hopefully by the end of the year. We would anticipate a nice positive margin in this quarter, but nothing earth shattering and moving quickly toward our margin. That's why we try to be conservative and use the range we did, given that you're going to have one quarter of integration and that's the one we're in right now.

Over the last six or nine month your basic, I wouldn't use the word guidance, because that's a little too strong, but the overview of how you think about your business is essentially keep the trends flat for what we're seeing over the last few quarters. Could you perhaps speak to that and talk about your trends in Q1 by the month? Is was there any noticeable change during the quarter?

No. It was just a very strong quarter. I think there's probably a lot of macro drivers, I think, as Jack said. Without a doubt, the litigation and regulatory business has really picked up, and to some very interesting global-type engagements that are new to the quarter. The M&A work, our ECON guys are going flat-out practically. So the addition of all this new power from LECG especially in Europe is very welcome. So those trends are robust, and I think do probably indicate, as Jack said, sort of the loosening of the purse strings in some of the corporate budgets, and maybe just sort of a finality and people waiting to resolve disputes. They've been pushing them off, and now they're trying to get them over. So, I think the demand drivers, which are really the new bookings, were extremely strong in the quarter.

So, should we be thinking more about an acceleration of trends starting in this quarter continuing through the balance of the year in your pro-cyclical pieces?

If you look at the businesses, as I said, they're kind of doing what we would have thought. Technology is probably the most sensitive to pick up in the economy, so it's kind of the canary in the mine shaft. ECON, you know, gets -- especially in an M&A market like we're experiencing now gets a lot of the business before. Forensic litigation, again, is a steady solid performer that tends over year in and year out to grow with the economy. So I think if you look at these specific sets of result with technology at 17%, FLC at roughly the growth rate people were anticipating for the economy, ECON a little bit above, I think this quarter is a pretty good template. That would be a good result if we get that. Then, if we get the businesses in corporate finance that are pro-cyclical in domain straightened out, and we reach the bottom on the restructuring, I think that's the kind of template for the year we're looking at.

Thanks very much.

Now we'll move to a question from Joseph Foresi with Janney Montgomery Scott.

Hello, guys. I think -- my first question is just on the litigation environment. What has caused the pickup this year in your estimation, and is there any pent-up demand in that recovery?

Well, I wouldn't refer to it as pent-up demand, although I like the concept. I would refer to it more as following every financial crisis. If you look at 2001, 2002, the big litigation years were 2005, 2006, 2007. They weren't right following that, because you have investigation phase, you have the phase where when you're coming out of the event itself, typically people are -- especially insurance are shy about funding a lot of stuff. So here, we're seeing a natural cycle where there's a human cry to quote, go find the bad guys. You see the editorials in the newspapers about nobody seems to have paid a price for the financial upheaval. Well, now people are exploring that when you look at the list of defendants, you look at the size of the litigation that's being filed. You look at even in the cases that we have here, we just really came up against a statute of limitations in the filing of all the cases. I just think you'll see a relatively extended-- and for good or ill, litigation begets litigation.

I agree with Jack. I think a lot of it is a final reckoning of what happened in the financial meltdown. Everybody is now, you know, the protagonists are alive, they have money, their balance sheets are secure. The people that feel they were injured, mostly institutional investors or other counter parties, have something to go after and sue. So, a lot of the pent-up demand in litigation is now maturing. It is [access] to the statute of limitations driven or it's just driven by the reality that I have real defendants to go after that aren't necessarily protected by the government's investment and things like that. So, we're certainly seeing a lot of that.

I think we would be naive not to think that there isn't a benefit to us, and I'm not trying to say we're the only one. You've taken -- a major competitor has gone out of the market over the last two years at ACG. They had excellent people; they did excellent work. We're the beneficiaries from that. I'm sure other companies are as well over the last two years. I think, as far as the larger cases, there are fewer people to go to who can work on these big complex international cases. So, I think, part of the demand driver, is they don't have as many people to turn to as maybe they did in the past.

You talked about earlier the restructuring practice. I wonder if we can revisit that. Is it -- do we feel like we've bottomed here in the first quarter of the restructuring practice? Or do you think we face a couple more tough comps either in that practice or if we'll see from some large engagements.

The comps certainly get easier after this quarter. If you'll recall, last year's first quarter was still a pretty strong corporate finance restructuring quarter. Then it, in theory, fell out of bed in the-- restarting about late April last year. You may remember that we even came out with a pre-earnings release commenting on that. So, the comps certainly get easier. As to whether we're at an absolute bottom, we currently see default rates of around 1.5% to 1.4%, which is way below the historical average or the 20-year average of 4% to 4.5%. So, if those continue at those levels we would probably have a little bit of room left under our heel, but the world tends to regress to means. So, we don't think we'll have 1.5% default rate in perpetuity.

Okay, And my last question, can you comment on what organic growth expectations are in guidance and whether that includes any kind of acquisition activity going forward?

Well, I think it's directly related to your last question. I think we recorded about a 9%, in round numbers, organic growth for the Company ex restructuring. And restructuring itself was cushioned by an acquisition and that's Ferrier Hodgson, so it overcame an awful lot of correction in the restructuring run rate. I think you should see us continue at that level, if not even better, in the more pro-cyclical businesses. The net number will be a function of your question, how quickly do we find a floor for the classic restructuring? As David said, we're going to start lapping easier numbers. Most of the big cases have already ended, so you're not lapping those [billings], and we're starting to see a pickup inside of corporate finance, but they're non-restructuring business in certain areas. Now, we need that to pick up more, but I think that the net number is going to be really derivative of where that bottoms out.

The revenue last year was $1.4 billion. Our original guidance of where our consensus was around $1.46 billion. Substantially, all of that was organic. There was a little bit of effect from the Asian acquisition of maybe $15 million or so. The challenge for us, and we had to fully determine how it was going to show up in our filings, is how we characterize the LECG transactions. Some of them historically would have been referred to in our vernacular as organic, because they were hiring people, and a little bit of it took the legal form of acquisitions. These would be so quickly integrated that we really are not going to track them as effectively as standalone acquisitions. The people are going right into our offices sitting in the same seat next to people [and so on]. So my guess is we're going to end up having to talk about that as organic growth recognizing we put out a little bit of capital. We put out $30 million-odd of capital to make that happen.

There are no future acquisitions in the guidance.

Yes. And there's no earn-outs or anything associated with LECG obviously. So, as David said it will pretty much morph into organic. On the other hand, we are in conversations with people constantly. We are, as you guys know, inquisitive. We will generate a lot of cash we'll be putting to use. So, we are not against doing more acquisitions this year, in fact, we would probably plan that we would, it's just difficult to forecast. But it is not in the guidance.

Okay, thank you.

And now we'll move to a question from Kevin McVeigh with Macquarie.

Great. Thank you. Just wanted to follow up on the accelerated buyback, and sounds like -- at what point is that completed? Sounds like there's another 600,000 shares or so. Just at what point does it essentially end in terms of acquiring shares in the public market?

Contractually, the understanding, what the agreement goes through, basically through the end of the year. We are substantially complete with the main phases of it by mid May, which is what the $600,000 referred to. For the balance of the year, the counter parties at Goldman Sachs in effect has the ability to cover their short-- or their purchase shares they delivered to, and depending on how they do it and how the stock reacts, we could get more shares. We will not get any fewer than we talked about. The topside of the more shares might be as much as 10% more, it just depends on the stock price. That's really no way for us to predict what the that number is now.

Got it. But it could be upwards of 10% more.

It could be as much as 10% more.

We hope not. We hope that that will begin to operate down.

Right, right. And it's 10% obviously of what's already been purchased, right?

Correct.

Super.

It could be as much as another 500,000 shares, it could be as few as zero.

On top of the 600,000 already that are earmarked for May?

Correct.

Super. Thank you.

And next question will come from Chitra Sundaram with Cardinal capital.

Thank you. Very useful conference call, but the one piece I guess I'm a little puzzled still by is, what was the-- something must have changed between the time when you gave the guidance for Q4 and now the guidance--. Sorry, the guidance at the time of the Q4 call and the revised guidance now for 2011? Obviously the acquisitions, one piece and you've broken that out, but there's another $0.16 to $0.20, kind of -- if I'm not wrong, that appears to be based on an improved the view of the organic environment, organic growth environment. You've given a lot of color around it, but I'm just wondering what changed for you between the two calls?

We -- our modus operandi is that we only look at those kind of softer issues twice a year. Once, when we originally give guidance and second, in the middle of the year. We only revise our guidance when there's been a definitive transaction. This year that would be the share re-purchase, the accelerated stock buy back, which is what caused us to raise our guidance earlier in the year. Then, this time it was the acquisition of the people and practices from LECG. So, we started the year at $2.00 to $2.20. When we announced the accelerated share buyback, we went from $2.20 to $2.40. Now, with the advent of the LECG transactions we've gone from $2.30 to $2.45.

Thank you so much.

And we'll have a follow-up question from Paul Ginocchio from Deutsche Bank.

Thanks for taking my follow-up. Because of LECG, is it possible to give us a revenue generating head count by division where it is currently, just to help with the modeling? And secondly, maybe just current shares outstanding?

Do you mean the additions from LECG to each one, or -- because the tables in the back do reflect the addition of those folks.

Oh, they do. Okay.

They would include the LECG folks.

Yes, Paul, they came in literally right at the end of the quarter.

Are those average numbers or those -- ?

Quarter end.

Great. Thank you. Current share count?

42 million?

Yes. It's about 40 -- that, again, I think is in the tables. It's about 42 million.

Great. Thank you. And finally, if I calculate your international exposure now about 24% of revenue with LECG, does that sound right?

It was 21% or so in the quarter. So, I would say that's a pretty good guess.

Yes. That's about right. It should ramp because you have a lot of LECG in the quarter.

He made it 24% so he's ramping it up right now.

And, Paul, I think you had asked earlier about the currency FX?

Correct.

Yes. Our revenue in the first quarter had $1.9 million of currency FX in the revenue, and that had a negligible impact on earnings.

Great, thank you.

And we'll take our final question today from Tim McHugh with William Blair & Company.

Hi. Just wanted to sneak one or two more numbers questions in here. The depreciation and amortization was a fair amount lower than I thought. I just wanted to know if you can give us an updated view and including the LECG transaction in there? Also on the interest expense, or more specifically the other income line. That's been somewhat volatile from quarter to quarter. Is there any visibility you can give us on what to expect from that going forward?

I think the amortization would have been impacted by the fact we have a large brand write-off back in the fourth quarter. So, where we would have been amortizing, say, acquisition-related expense that had to be attributed to the brands that we bought, we chose to write those off and took that in one fell swoop in the fourth quarter. So, that would have had one impact that would have dropped it. There was no significant-- there were no brand transfers from over with LECG. Any of the amortizations related to people's contracts go directly into comp. So it wouldn't have affected that line. Really not much in the form of assets, maybe some lease-hold amortization would show up, but again that would be in the operating line possibly. I don't see a lot of impact to that depreciation. There clearly will be some, I just don't see much.

What I would say, David, is if you think of it as we added roughly 5%, 6% more people, our depreciation across the company tends to be somewhat head-count driven, because it's desks, computers, and so forth and so on. But you would be more conservative than that, because a fair amount of depreciation also runs to the tech segment. So, I would say it's not going to be much of a change in the depreciation as we fully deploy these people. Plus, many of them are moving into existing office spaces where we already have depreciation. So I think it's a negligible effect LECG. In terms of the balance of the year modeling, the depreciation could go up a little bit as we do a little bit more work at some of the service centers and they get put in place. But I don't think it's a big effect.

There's a little bit of an uptake. We brought in our Asia-Pacific service center for technology services, for infrastructure technology. As David said, that's not going to have a dramatic impact.

Okay. Thanks. And then the other income line was, like, $2 million this quarter? You've had some periods worse than that, but it's been bouncing up and down. So, I'm not sure what to expect for that.

The FX?

Yes, it's just--

I'm not even sure the FX would be important.

Okay. All right. Thanks.

And that will conclude our question-and-answer session. I'll turn the call back over to management for any additional or closing remarks.

Okay. Great. That concludes our session today. Thank you for joining us. We look forward to talking to you at the end of the next quarter. Thank you.

Once again, ladies and gentlemen, that does conclude today's call. We do thank you for your participation.