FTI Consulting, Inc. (FCN)

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FTI Consulting (FCN)

Q3 2010 Earnings Call

November 05, 2010 9:00 am ET


Jack Dunn - Chief Executive Officer, President and Director

David Bannister - Chief Financial Officer, Chief Development Officer and Executive Vice President

Dominic DiNapoli - Chief Operating Officer and Executive Vice President

Eric Boyriven - Investor Relations

Dennis Shaughnessy - Executive Chairman


Joseph Foresi - Janney Montgomery Scott LLC

Tobey Sommer - SunTrust Robinson Humphrey Capital Markets

Daniel Leben - Robert W. Baird & Co. Incorporated

David Gold - Sidoti & Company, LLC

Scott Schneeberger - Oppenheimer & Co. Inc.

T. C. Robillard - Signal Hill Capital Group LLC

Arnold Ursaner - CJS Securities, Inc.

Kevin McVeigh - Macquarie Research

Timothy McHugh - William Blair & Company L.L.C.



Good day, everyone, and welcome to the FTI Consulting Third Quarter Earnings Conference Call. [Operator Instructions] For opening remarks and introductions, I would like to turn the call over to Eric Boyriven of FD. Please go ahead, sir.

Eric Boyriven

Good morning, and welcome to the FTI Consulting Conference Call to discuss the company's 2010 third quarter results, which were reported earlier 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 forward-looking statements within the meaning of Section 21 of the Securities Exchange Act of 1934 that involve uncertainties and risks. Forward-looking statements include statements concerning our plans, objectives, goals, strategies, future events, future revenues, future results and performance, expectations, plans or intentions, business trends and other information that is not historical, including statements regarding estimates of our future financial results. For a discussion of risks and other factors that may cause actual results or events to differ from those contemplated by forward-looking statements, investors should review the Safe Harbor statement in the earnings press release we should this morning, a copy of which is available on our website at www.fticonsulting.com, as well as the disclosures under the heading Risk Factors and Forward-Looking Information in our most recent Form 10-K and in our filings with the Securities and Exchange Commission.

Investors are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this earnings call. During the call, we will discuss certain non-GAAP financial measures such as EBITDA. For a discussion of these non-GAAP financial measures, as well as reconciliations of these non-GAAP financial measures to the most nearly comparable GAAP measures, investors should review the press release we issued this morning.

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

Jack Dunn

Thank you, Eric. Good morning, and thank you, all, for joining us. With me on the call are Dennis Shaughnessy, our Chairman; David Bannister, our Chief Financial Officer; and Dom DiNapoli, our Chief Operating Officer. Our results were released first thing this morning, and I hope you've had a chance to review them. If not, they are available on our website at www.fticonsulting.com.

Since we last spoke, the business climate in our view have not changed. It is our goal on this call to briefly recap our third quarter performance, and then open it up for your questions.

As was true last quarter, as a general matter, our pro-cyclical businesses continue to follow the trajectory of the improving economy, while the high-yield market, and at least temporarily sympathetic creditors, continue to impact the restructuring side of our business, with the continuing caveat that M&A and capital markets work remain very slow, and that affects almost all of our segments.

Unlike last quarter, however, where our pro cyclical businesses did not improve as fast as we thought, and our Restructuring business declined faster, in the third quarter, growth in our pro-cyclical business all but offset the decline in restructuring, even comparing to a record third quarter last year. The harder part was equaling the profitability of the declining restructuring revenues, which at the margin are our highest.

As I said, our third quarter revenues of $346 million were down only slightly from our third quarter record $349 million a year ago, despite a 14% decline in our Corporate Finance/Restructuring segment. Excluding Corp Fin [Corporate Finance], aggregate revenues of our other segments increased about 7% year-over-year, with outstanding organic growth performance in Forensic Litigation and Technology. The $346 million of revenue in the quarter was also fairly consistent with the $349 million that we reported in the previous quarter, which supports our view that we are bumping along a bottom here while we transition through the economic cycle.

Adjusted EBITDA in the quarter was $65 million compared to about $78 million a year ago, again, hard to top the profitability in Restructuring revenues generated at the peak of a bankruptcy cycle.

The third quarter adjusted EBITDA margin was 18.8%, down from 22.3% a year ago, but again virtually identical to the second quarter. Our EPS in the quarter was $0.47 compared to earnings per share of $0.70 a year ago. EPS included a $0.07 charge for the early extinguishment of debt in connection with our financing activities, which I will go into in detail in a few minutes. Excluding this charge, our adjusted earnings per share was $0.54.

Our tax rate in the third quarter was a more normalized 38% compared to 32% in the prior year period when we implemented some strategies to enhance our tax position. The impact of the prior year tax benefit, however, was ameliorated by the positive impact to earnings per share from a reduced share count as a result of our continuing share repurchase program.

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