Release Date: July 25, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- FTI Consulting Inc (FCN, Financial) reported a strong quarter with earnings per share of $2.34, a 33.7% increase year-over-year.
- Revenue grew by 12% in the first half of the year, with almost all of it being organic growth.
- Adjusted EBITDA increased by 27% compared to the first half of the previous year.
- The company raised its full-year 2024 revenue and EPS guidance ranges, reflecting confidence in continued strong performance.
- FTI Consulting Inc (FCN) is actively investing in senior talent, with 19 SMD hires announced and another 15 expected to join soon.
Negative Points
- The company experienced a significant tax benefit this quarter, which is not expected to recur, potentially impacting future earnings.
- There was a sequential decline in restructuring revenues due to the conclusion of several large engagements.
- Adjusted segment EBITDA in Forensic and Litigation Consulting (FLC) and Strategic Communications declined year-over-year.
- The company noted that the December slowdown, where both clients and professionals take time off, could impact second-half results.
- Billable headcount growth has been below expectations, with only a 1.7% increase year-over-year, which may affect the company's ability to meet its growth aspirations.
Q & A Highlights
Q: What are the prospects for group hires as opposed to individual consultants coming over laterally?
A: (Steven Gunby, President, Chief Executive Officer, Director) It largely depends on the specific agreements that senior people have with their current employers. We honor non-competes and non-solicits, so typically, senior people cannot bring their entire group with them. However, over time, some junior people may reach out to us separately, and after a year, there are usually no restrictions on them.
Q: Can you describe the demand outlook for M&A-related antitrust services?
A: (Ajay Sabherwal, Chief Financial Officer) The demand for M&A-related antitrust services continues to be strong. While it's difficult to link this directly to elections, the matters are ongoing, and new ones are emerging.
Q: Which segments are most affected by the seasonal December slowdown?
A: (Ajay Sabherwal, Chief Financial Officer) All segments are affected because both our people and clients take vacations. However, exceptions occur when there is a crisis, such as a bankruptcy or a deal, which requires work over the holidays.
Q: Can you provide more details on the change in compensation plans?
A: (Ajay Sabherwal, Chief Financial Officer) The new plan is more variable-based, with bonuses tied to revenue thresholds and specific types of work. This is similar to plans in other segments like Corporate Finance. There are also some reductions in fixed compensation, but these are smaller.
Q: Should we anticipate margin pressure in the second half of the year?
A: (Ajay Sabherwal, Chief Financial Officer) Yes, we expect some margin pressure due to hiring and bonuses as we get closer to the end of the year. However, we believe SG&A expenses have likely hit their high watermark for the year.
Q: How would a change in administration affect the M&A and non-M&A antitrust business?
A: (Steven Gunby, President, Chief Executive Officer, Director) It's difficult to predict the exact impact of a change in administration. Our focus remains on building our business and hiring great people, which allows us to adapt to various market conditions.
Q: How do you plan to deploy excess cash if it continues to rise?
A: (Ajay Sabherwal, Chief Financial Officer) We will first pay down our small revolver. We also aim to invest in organic growth, consider acquisitions with tough filters, and return capital to shareholders opportunistically.
Q: What is the outlook for the restructuring market?
A: (Ajay Sabherwal, Chief Financial Officer) Predicting this reliably is difficult. Currently, no rating agency is predicting an increase in speculative debt default rates. We are seeing more liability management rather than full-blown operational restructuring, which plays more to investment banks than to us.
Q: What is the productivity curve for new hires?
A: (Steven Gunby, President, Chief Executive Officer, Director) Senior hires typically lose money in the first year, break even in the second year, and start making money in the third year. Junior hires can be made accretive much quicker.
Q: Can you provide more color on the economic consulting segment's margins?
A: (Ajay Sabherwal, Chief Financial Officer) The margins were high this quarter due to the reversal of deferred revenue, which had a high margin. Competitive pressures and compensation increases also impact margins. We expect margins to normalize when looking at the first two quarters together.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
