FTI Consulting, Inc. (NYSE:FCN) Q4 2023 Earnings Conference Call February 22, 2024 9:00 AM ET
Company Participants:
– Mollie Hawkes – VP, IR and Communications
– Steve Gunby – President and CEO
– Ajay Sabherwal – CFO
Conference Call Participants:
– James Yaro – Goldman Sachs
– Tobey Sommer – Truist
– Andrew Nicholas – William Blair
Operator:
Good morning everyone and welcome to the FTI Consulting Fourth Quarter and Full Year 2023 Earnings Conference Call. All participants will be in a listen-only mode. [Operator Instructions]. After today’s presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please also note today’s event is being recorded. At this time, I’d like to turn the floor over to Mollie Hawkes, Head of Investor Relations. Ma’am, please go ahead.
Mollie Hawkes:
Good morning. Welcome to the FTI Consulting conference call to discuss the company’s fourth quarter and full year 2023 earnings results, as reported this morning. Management will begin with formal remarks after which they 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 27A, the Securities Act of 1933 and section 21 of the Securities Exchange Act of 1934 that involve risks and uncertainties. Forward-looking statements include statements concerning plan, initiatives, projected prospects, policies, processes and practices, objectives, goals, commitments, strategies, future events, future revenues, future results and performance, future capital allocations and expenditures, expectations, plans or intentions relating to acquisitions, share repurchases, and other matters, business trends, ESG related matters, new or changes to laws and regulations, scientific or technological developments and other information or other matters that are not historical, including statements regarding estimates of our future financial results and other matters. For 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 issued this morning, a copy of which is available on our website at www.fticonsulting.com as well as other disclosures under the headings of risk factors and forward looking information in our quarterly report on our annual report on Form 10-K for the year ended December 31, 2023, and in our other filings with the SEC. Investors are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this earnings call and will not be updated. During the call, we will discuss certain non-GAAP financial measures such as total segment operating income, adjusted EBITDA, total adjusted segment EBITDA, adjusted earnings per diluted share, adjusted net income, adjusted EBITDA margin and free cash flow. For discussion of these and other non-GAAP financial measures, as well as our reconciliations of non-GAAP financial measures to the most directly comparable GAAP measures. Investors should review the press release and the accompanying financial tables that we issued this morning, which includes the reconciliation. Lastly, there are two items that have been posted to the investor relations section of our website for your reference. These include a quarterly earnings presentation, and an Excel and PDF of our historical financial and operating data, which have been updated to include our fourth quarter and full year 2023 results. Of note, during today’s prepared remarks, management will not speak directly to the quarterly earnings presentation posted to the investor relations section of our website. To ensure our disclosures are consistent, these slides provide the similar details as they have historically, and as I have said, are available on the investor relations section of our website. But these formalities out of the way, I’m joined today by Steven Gunby, our President and Chief Executive Officer and Ajay Sabherwal, our Chief Financial Officer. At this time, I’ll turn the call over for President and Chief Executive Officer, Steven Gunby.
Steve Gunby:
Thank you, Mollie. Welcome, everyone. And thank you all for joining us this morning. I’m sure many of you saw in this morning’s press release, we delivered fabulous results in the fourth quarter, and fabulous results more generally, in the second half of the year. Those results in turn — turn the year, the whole year into one that was terrific overall. The results at the end of this year exceeded our expectations and I suspect many of yours as well. So what I’d like to do before turning this over to Ajay, who will go through the quarter in more detail just take a moment to reflect on the entire year. In particular, to reflect on the variation we saw in some of the performance metrics across the quarters. And talk about how we thought about what actions we should take and what actions we shouldn’t take as the year went on. I’m hoping those reflections support the more general conversations that we’ve had from time-to-time, about how do we think about the twin objectives of being responsible stewards of this company for your shareholders being seen as responsible stewards. Also not losing sight of the core ultimate objective, which of course is not quarterly earnings, which can be very transient, but rather is building something more powerful, ever more capable organization, a more welcoming organization, one that can make evermore difference for our clients, one that’s ever more able to attract great people and support them so they can develop themselves and the people around them. Through that creates something real, something durable for our clients and for our people and for you, our shareholders. Looking back ashore, as many of you will recall, our first quarters’ earnings were well below our internal expectations below Street’s expectations and down versus the prior year, even halfway through the year earnings were only flat versus the first half of the year. To the responsibility point, when you have periods of time where earnings are down or flat, you have to as a responsible management team, look at the underlying causes and challenge themselves. If the results are down because you’re losing traction with clients, professionals are departing in droves, or you’re not attracting more great professionals. Those are serious indicators, indicators, you may have fundamental problems and you may need to react in fundamental ways. We look at the company’s performance, actually on an ongoing basis, after every quarter in every good quarter and ask those questions. But of course, we particularly ask them when quarters are down. And if you remember, during the first half of the year, that was a time when the number of competitors were talking about difficult market conditions and when some of them were taking major actions. And that sort of commentary and set of actions also has to cause one to reflect. So we reflected. Interestingly, importantly, when we looked at our first half of the year, we continued to feel good about what was going on. Yes, our EPS was down but we were doing great work for our clients. We’re supporting brand building assignments and those efforts were showing up. They were showing up in qualitative terms like awards and client feedback. And I know that always can be something you get a little skeptical about, how are you measuring and so forth. But they also showed up pretty tangibly and quantitatively and measurably, for example, in terms of revenue growth, where we have 13%, revenue growth in the first half of the year, and important, we actually had more great people than we expected. Because we had, as we have, in recent years, had real opportunities to invest in terrific talent, which of course, we always take advantage of whether the quarter is good or not. So some of the extra talent that we had was because our — we’re really attracted is terrific talent. But in 2023, we also had the fact that attrition was down significantly lower than we expected lower than the prior year in the first half of the year. So those were the main goals of fact that our revenue was up so terrifically in the first half of the year, and yet our profits were not we also had some higher SG&A really hoped for. And so we took a look at that. But the deeper looks at most of that, not all but most of that was driven either by one-time factors or some key investments we felt good about…
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