Fti Consulting, Inc Q3 FY2021 Earnings Call

Good day, everyone, and welcome to the FTI Consulting Third Quarter 2021 Earnings Conference Call. As a reminder, today's call is being recorded. All participants will be in a listen-only mode. After today’s presentation, there will be an opportunity to ask questions. And now for the opening remarks and introduction, I would like to turn the conference over to Mollie Hawkes, Vice President of Investor Relations. Please go ahead.

Good morning. Welcome to the FTI Consulting conference call to discuss the company's third quarter 2021 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 of 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 plans, policies, practices, programs, objectives, goals, strategies, future events, future revenues, future results and performance, expectations, plans or intentions relating to financial performance, acquisitions, share repurchases, business trends, new or changes to laws and regulations, including U.S. and foreign tax laws and other information or other matters that are not historical, including statements regarding estimates of our future financial results and other matters. 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 issued this morning. A copy of which is available on our website. 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 and total adjusted segment EBITDA, adjusted earnings per diluted share, adjusted net income, adjusted EBITDA margin and free cash flow. For a 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 include the definitions and reconciliations. Lastly, there are two items that have been posted to the Investor Relations section of our website this morning 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 third quarter of 2021 results. With 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 will turn the call over to our President and Chief Executive Officer, Steve Gunby. And I think Steve is muted.

It wouldn't be a COVID event if somebody wasn't muted. So I'm glad to get that out of the way. Thank you, Mollie, and good morning, everyone, and thank you all for joining us. As we've been saying all the time during COVID, I hope you and your loved ones continue to be safe. But I’m hoping as well that you and I are beginning to see the light at the end of this tunnel and that the end of the scourge of COVID is within sight. Ajay, of course, is going to give you the details of this quarter. I am guessing that most of you have noticed based on some of the materials already released this morning that this was a spectacular quarter. Now Ajay will stress that some of these earnings strength this quarter reflect one-time benefits, things you can't count on recurring, like FX, some revenue deferrals being recognized, a lower tax rate, etc. But even normalizing for all that, as far as I can tell, it was a great quarter. More importantly, and I hope you do too, it's yet another in a long line of great quarters, which to me is not just confirmation of one-time things or transient things but of the fundamental strength of this company—what our people are doing every day to build this business and help our clients navigate not only their greatest challenges but, in many cases, their greatest opportunities. It’s a fabulous quarter. I want to be clear, however, it is not that we've turned all our businesses into businesses that go up in a straight line. As we have talked about many times, each of our businesses and the company as a whole can have huge zigs and zags due to market conditions or the winning or losing of a significant job. We're jumping on an opportunity to invest, which can hurt the P&L in the short term but supports future growth. Even in this great quarter, we saw some of that. If you look at our restructuring business, it continues to face widespread market slowdown around most of the world. Although we benefited from some legacy cases during the quarter, that business is off significantly from a year ago. Now I don't believe anybody thinks this restructuring market has gone away permanently. So we're continuing to invest in that business, but that's the zag. Similarly, in Tech, some of the fuel that ignited the incredible performance in the first half of the year, notably second request activity, weakened this quarter. We have enormous confidence in the multiyear trajectory of that business and, more importantly, the people on that team that are driving that trajectory. So we have, in the face of that slowdown, continued to hire. We increased our headcount in that business 12.4% year-over-year. So even though the revenue went up, the adjusted EBITDA declined. That's just an example of investing to support the business over the medium term, something that we have committed to and will continue to do. And even in FLC, where we have great strength compared to last year, we've had pockets of weakness. For example, Asia because borders remain closed and travel restrictions have been extended, affecting our ability to deliver certain services and reach clients in the market. Even if we do the right things, our business has zigs and zags, and some can be pretty bad zags. But what I think we've said many times and what I now believe the data fully supports is if we do the right things, although there are zigs and zags, over any extended period of time, each of our businesses are growth engines—vital and powerful growth engines. They allow us to deliver on major assignments that make at least me proud and, I believe, many of us proud. They allow us to attract great people to build our brand. Therefore, although they may have zigs and zags, they will become zigs and zags around an upward sloping line. It doesn't mean you can't have all the zags come in the same quarter or even the same year, but it does mean that, over an extended period of time, the zigs and zags are around an incredibly powerful upward sloping line. Now that line, I assume, is important to you, our shareholders. I believe it's equally important for the engine of the firm—our people. The upward sloping line gives us, and I hope you, the confidence to invest in great people regardless of whether it's a good quarter or not for a particular business. It allows us not to do layoffs just because some businesses temporarily slow down in a quarter. The strength of conviction we drew on last year supported our people and is giving us real benefits this year. It allows us to promote people when they're ready to get promoted, rather than when the numbers happen to be good. It allows us to hire aggressively when great talent is available, rather than when it feels convenient according to the P&L. It allows us to invest in our people's development when they’re eager to grow. My experience is that when you do that, you build a firm, a powerful firm, and you make it ever more powerful. Great people doing great work who feel supported end up as fabulous individuals in an environment where they can develop further. We create businesses through these zigs and zags become sustainable, powerful, resilient, and exciting growth engines. That is the journey we have been on. It has been a lot of work. It always is a lot of work. There's always something to struggle with daily. It is also incredibly rewarding. That is a journey we look to continue on.

Thank you, Steve. Good morning, everybody. In my prepared remarks, I will take you through our company-wide and segment results and discuss guidance for the full year. Beginning with our third-quarter results, as Steve discussed, this morning, we reported another excellent quarter. Revenue grew 12.9%, with every segment reporting growth. And we continued making investments in headcount, adding 346 total billable professionals year-over-year, including 36 senior managing directors. Earnings per share were also boosted by FX remeasurement gains and lower weighted average shares outstanding, resulting in a 45% increase in GAAP EPS and a 31% increase in adjusted EPS compared to the prior year quarter. Overall, we are delighted with these results, which exceeded our expectations. Revenues of $702.2 million increased $80 million compared to revenues of $622.2 million in the prior year quarter. GAAP EPS of $1.96 in 3Q '21 compared to $1.35 in 3Q '20. Adjusted EPS for the quarter was $2.02, which compared to $1.54 in the prior year quarter. The difference between our GAAP and adjusted EPS in 3Q '21 reflects $2.4 million of noncash interest expense related to our convertible notes, which reduced GAAP EPS by $0.06 per share. In 3Q '20, we had a special charge of $7.1 million as well as noncash interest expense of $2.3 million, which reduced GAAP EPS by $0.14 per share and $0.05 per share, respectively. Net income of $69.5 million compared to $50.2 million in the prior year quarter. The increase in net income was primarily due to higher revenues, which was partially offset by an increase in compensation, including the impact of a 6.9% increase in billable headcount and higher SG&A expenses. FX remeasurement gains this quarter versus losses in the same quarter last year also boosted net income. SG&A of $138.6 million or 19.7% of revenues. This compares to SG&A of $122 million or 19.6% of revenues in the third quarter of 2020. The increase in SG&A included higher compensation, outside services expenses, bad debt, software costs, and travel and entertainment expenses. Third-quarter 2021 adjusted EBITDA of $100.3 million or 14.3% of revenues compared to $90.9 million or 14.6% of revenues in the prior year quarter. Our third-quarter effective tax rate of 21.6% compared to 22.3% in the prior year quarter. Our tax rate for the quarter benefited from discrete tax adjustments related to the release of a valuation allowance on our Australian deferred tax assets because of sustained profitability. Fully diluted weighted average shares outstanding of 35.4 million shares in 3Q '21 compared to 37.1 million shares in 3Q '20. Our convertible notes had a dilutive impact on EPS of approximately 842,000 shares, included in WASO, as our average share price of $138.83 this past quarter was above the $101.38 conversion threshold price. As I mentioned, billable headcount increased by 346 professionals or 6.9% compared to the prior year quarter. Sequentially, billable headcount increased by 250 professionals or 4.9% as we welcomed 211 professionals from university campuses. Now I will share some insights at the segment level. In Corporate Finance & Restructuring, revenues of $250.3 million increased 5.8% compared to the prior year quarter. The increase in revenues was due to higher demand and realization for our transactions and business transformation services, as well as the recognition of deferred revenue, which were partially offset by lower demand for restructuring services. Adjusted segment EBITDA of $55.6 million or 22.2% of segment revenues compared to $56.2 million or 23.8% of segment revenues in the prior year quarter. The year-over-year decrease in adjusted segment EBITDA was due to increased compensation, including the impact of a 6% increase in billable headcount and higher SG&A expenses. In the third quarter, we continued to grow our transactions and business transformation practices globally. We are not only growing these practices, but also leveraging professionals across practices, especially at junior levels. This quarter, a number of our junior professionals, who typically support restructuring assignments, worked on transactions-related engagements. On a sequential basis, revenues increased $19.4 million or 8.4% as the segment benefited from continued growth in our business transformation and transactions businesses and recognition of prior deferred revenue. Adjusted segment EBITDA for the third quarter increased $15.5 million. Turning to FLC, revenues of $145.3 million increased 22% relative to a weak quarter in the prior year. The increase in revenues was primarily due to higher demand for our investigations, disputes, and health solutions services. Adjusted segment EBITDA of $16.6 million or 11.4% of segment revenues compared to $13.6 million or 11.4% of segment revenues in the prior year quarter. The increase in adjusted segment EBITDA was due to higher revenues, which was partially offset by higher compensation, which includes 7.7% growth in billable headcount and higher SG&A expenses compared to the prior year quarter. Sequentially, revenues decreased $5.5 million, primarily due to lower demand for investigations and health solutions services. Adjusted segment EBITDA decreased $1.4 million. Our Economic Consulting segment's revenues of $172.5 million increased 11.3% compared to the prior year quarter. The increase was primarily due to higher demand for non-M&A-related antitrust and financial economic services, which was partially offset by lower demand for our M&A-related antitrust services compared to the prior year quarter. Adjusted segment EBITDA of $29.9 million or 17.3% of segment revenues compared to $25.7 million or 16.6% of segment revenues in the prior year quarter. The increase in adjusted segment EBITDA was due to higher revenues, which was partially offset by higher compensation, which includes the impact of 5.1% growth in billable headcount. Sequentially, revenues decreased $10.8 million or 5.9%, driven by decreased demand for M&A-related antitrust services, primarily due to the conclusion of a large matter in the quarter. In Technology, revenues of $64.7 million increased 10.4% compared to the prior year quarter. The increase in revenues was primarily due to higher demand for litigation, investigation, and information governance services, which was partially offset by lower demand for M&A-related second request services compared to the prior year quarter. Adjusted segment EBITDA of $7.8 million or 12.1% of segment revenues compared to $11.9 million or 20.4% of segment revenues in the prior year quarter. The decrease in adjusted segment EBITDA was due to higher compensation, which includes the impact of a 12.4% increase in billable headcount. As our Technology segment continues to make investments in talent, particularly at the senior levels, to bolster our capacity and expertise globally across data risk, compliance, privacy, and information governance, we are also steadily seeing higher SG&A expenses. Sequentially, revenues decreased $14 million or 17.8%, primarily due to decreased demand for M&A-related second request services. Adjusted segment EBITDA declined $10.7 million sequentially. Record revenues in the Strategic Communications segment of $69.4 million increased 31.1% compared to the prior year quarter. The increase in revenues was due to higher demand for corporate reputation and public affairs services. Adjusted segment EBITDA of $15.5 million or 22.3% of segment revenues compared to $8.4 million or 15.9% of segment revenues in the prior year quarter. The increase in adjusted segment EBITDA was due to higher revenues. Sequentially, revenues increased $1.6 million, primarily due to higher demand for financial communications and corporate reputation services. Adjusted segment EBITDA increased $2 million sequentially. Let me now discuss key cash flow and balance sheet items. We generated net cash from operating activities of $196.9 million, which increased by $85.3 million compared to $111.6 million in the third quarter of 2020. The year-over-year increase was largely due to an increase in cash collected resulting from higher revenues, which was partially offset by higher compensation-related costs and other operating expenses. We generated free cash flow of $172.2 million in the quarter. Total debt, net of cash, decreased $160.7 million sequentially from $159.4 million on June 30, 2021, to a negative net debt position of $1.3 million on September 30, 2021. The sequential decrease was primarily due to an increase in cash and cash equivalents and repayment of borrowings under our senior secured bank revolving credit facility. Turning to our guidance. In light of our record financial performance during the first nine months of 2021, we are raising the low end of our previous full-year 2021 guidance range for revenues of between $2.7 billion and $2.8 billion to expected revenues of between $2.75 billion and $2.8 billion. We are raising our full-year 2021 guidance ranges for GAAP EPS of between $5.89 and $6.39 and adjusted EPS of between $6 and $6.50 to GAAP EPS of between $6.39 and $6.64 and adjusted EPS of between $6.50 and $6.75. The $0.11 per share variance between EPS and adjusted EPS guidance for full year 2021 includes the estimated impact of noncash interest expense of $0.20 per share related to our 2023 convertible notes and the second quarter 2021 $0.09 per share gain related to the fair value remeasurement of acquisition-related contingent consideration, which are not included in adjusted EPS. Our updated guidance after our record year-to-date performance is shaped by four key considerations. First, restructuring activity remains subdued. As credit markets remain in an accommodative mode and the number of stressed and distressed issuances remains low, Standard & Poor's is forecasting that the trailing 12-month U.S. speculative grade default rate will fall further in the first half of 2022, reaching 2.5% by June 2022, compared to 3.8% in June 2021 and 6.6% in January 2021. Second, global M&A activity, which drives demand in our Economic Consulting and Technology segments as well as our transactions business in Corporate Finance & Restructuring, has been at record levels year-to-date. There is no certainty that M&A activity will continue at this pace. Third, we are a large jobs firm. And when large engagements end, they may not be immediately replaced. As Steve and I have both mentioned today, we saw several large jobs end or significantly wind down in the last two quarters across our Economic Consulting, Technology, and Corporate Finance & Restructuring businesses. Fourth, the fourth quarter is typically a weaker quarter for us due to seasonal business slowdown at the end of the year. Before I close, I want to reiterate four key themes that underscore the strength of our company. First, our results show that while continuing to dominate our traditional areas of strength, we have demonstrably grown our adjacencies and footprint, making us less susceptible to the business cycle. Business transformation and transaction services, which represented 36% of total segment revenues in Corporate Finance in Q3 of last year, contributed 59% this quarter. Non-M&A-related antitrust services have steadily grown to represent 32% of our Economic Consulting revenues this quarter, compared to 23% in Q3 of last year. Our Australian business has grown to 31 senior managing directors from 19 two years back, and our Middle East business has grown to 16 senior managing directors from five two years back. EMEA represented 30% of revenues this quarter, with us only recently ramping up in Germany and Spain. Second, we count among our staff arguably some of the leading experts in the world in areas such as antitrust, financial arbitration, economic analysis, restructuring, technology, data analytics-based investigations, and corporate reputation and communications. Third, in many industries around the world, the pace of change is accelerating. We have the surge capacity to help our clients when they face their greatest challenges and opportunities. Finally, our strong balance sheet continues to give us the flexibility to make sustained investments towards growing our business globally. With that, let's open the call up for your questions.

The first question is from Andrew Nicholas from William Blair.

My first question was just going to be on the hiring environment and your ability to source talent right now. You mentioned a few times in your prepared remarks about a willingness to kind of add headcount here, particularly where talent exists. But how easy is that to do? Are you having an easy time finding that talent, both at the senior level and at the junior level? And what may be a tighter labor market might mean in terms of wage pressures? All of that would be really helpful to understand.

Yes. Maybe I'll take a crack and Ajay, chime in if you have anything additional to add. Look, I think there are two factors that drive our ability to attract talent—supply and demand is what it boils down to. A lot of it has to do with whether we are an attractive place, particularly for senior talent, for people to come. Are we seen as a place that is moving, that has integrated external talent well? When people are frustrated with their existing places, this is a great place to go. I think on that front, we're not perfect, but we have built a really good reputation around the world now. The word of mouth on that is quite powerful. No matter how silver-tongued I try to be or one of our segment leaders tries to be, it’s often the friends of friends whom people trust that they check with, and they say, 'No, it's a great place.' That word-of-mouth is really powerful and is sustaining us. We also benefit from when competitors have issues. When competitors have challenges or do things that don’t sit well with some of their leaders, people come over. We picked up some talent last year because some of our competitors laid off people. They didn't lay off the folks we picked up, but people were frustrated that great people below them were laid off. They came over saying, 'What do you guys do over there?' And people said, 'Wow, that's a culture I want to be part of.' So those are great things that we've invested in and are sustaining. In addition to that, you have labor markets. I think that has less effect on the senior-most talent; it does have an impact on junior talent. Last year, we were hiring in the face of some downturns in our business while some of our competitors were laying off junior people. So it was an easy market for junior talent. Today, if you're going to go get junior talent in transactions, you're competing worldwide. You’re fighting a global battle with busy transactions, along with some of the world that underhired junior people last year. So on that front, it's much tougher. In terms of wages, yes, this environment demands you constantly monitor to ensure you're not just sticking to some payment scale that someone developed years ago. You must ensure particularly your strongest people are compensated appropriately. That means we've made adjustments and will continue to make adjustments. I can't quantify exactly how those will develop, but it is a phenomenon we are watching closely. My experience over a long history in professional services is that these are typically short-term problems, not long-term ones. If there is a short-term raise, there are often ways to manage that over time and keep your best people. Does that help, Andrew?

Yes, you hit all the questions and topics. I really appreciate that.

Mollie preps me really hard.

Well, hopefully, this is another one then. My second question and follow-up would just be on the Technology segment. You mentioned a few times ramping up investments there. Headcount was up double digits. Can you just spend some time talking about or more about the opportunities for that business, where you're seeing opportunities for growth, whether it's from a geographic perspective or individual types of underlying business opportunities? I think that would be helpful to understand.

Yes. Look, thank you for that. Let me break it down. There are a couple of different things going on. I think part of this hiring right now is because we were under hiring for a while. Our core people were stretched too thin in the first half of this year. People will throw themselves into work; dedicated people will do almost anything, but not forever. We needed to bring people on to ease that workload. The utilization numbers can't be really interpreted in the usual manner we discuss because they're skewed, but the point remains that people were stretched too thin during that peak period. The more fundamental forces, I think you know, a few years ago, that this business was underperforming, and we changed the strategy. We’ve always had a great reputation, particularly for the most complicated jobs. Many people know we are the leader in complicated e-discovery jobs and related services. There's a distinction to be made between the global complicated jobs that are from the commodity end of this business, where we outperform competitors. About four or five years ago, we changed leadership, we adjusted our strategy, and that led to some turnover early on. Since that day, I believe we've been by far the best organic growth engine in the industry, and pre-COVID, we had a right to own a bigger piece of the market, in my view. Our people are incredibly capable, and what we’re starting to see is that as we call on firms, when potential clients try us out, people are impressed. We are growing our market share in law firms and among corporate clients. I think we’re starting to solidify our footprint in the U.S. and also beyond. There’s still ample room for us to grow, and we are focused on that. The challenge is that you do see lots of zigs and zags in this business. I don't think we released specifics on our revenue from second requests, but it can fluctuate significantly from quarter to quarter. When you hire based on the fluctuations, you're always going to end up under-resourced and will sometimes miss market opportunities. So I have made it very clear to Sofia and her team that when they find the right talent, they should hire, and we're going to support this business. Does that help?

Yes, very helpful.

Next question is from the line of Sam England from Berenberg.

The first one I had was could you talk a bit about the pipeline for the next couple of quarters? And particularly, which areas of the business are looking strongest that are linked to the M&A work that's obviously been strong this year?

I'll let Ajay answer that. But where are you, Sam? Are you in London? Are you back here in the U.S. or where?

Still in London. The travel restrictions still remain. I can't get back. But hopefully, next month, things will change.

Yes, I think finally, well, nice to hear your voice. So you want to address that, Ajay?

Sure. Sam, we haven't sort of given guidance for next year, and I want to be clear about that. But in general terms, our business transformation and transactions business continues to do well. Remember, there's two aspects there: transformation and transactions. The M&A market, as we said, is quite robust, but it's not likely to continue growing at this pace forever. So that's the area where there is continued growth. In the Restructuring space, it’s still quite subdued. In M&A, we also are a large M&A firm, and that’s where the antitrust piece kicks in. We talked this quarter about a large assignment in M&A antitrust ending—those things can cause the zigs and zags that Steve talked about. And we are not in the business of predicting when the next very large M&A will take place and how it will benefit us.

Okay, great. And then the next question I had was around the cash position and capital allocation. You've obviously seen the leverage come down. You didn't do any buybacks in the quarter. So how are you thinking about capital allocation for the rest of the year and into 2022?

So first, we're obviously very proud of the free cash flow, but I want to throw in a little cautionary note. We typically pay our bonuses in the March and April timeframe. If you look at quarterly trends over any extended period, you’ll see us adding cash in Q3 and Q4, and slightly down in Q2 while bleeding cash in Q1. That’s our typical cycle. This is not different from our typical cycle. So a significant cash outlay happens in the March and April time frame. In terms of capital allocation, listen, the single biggest priority for us is organic growth. We have the capacity to do whatever we need to do for organic growth where the opportunities exist. That is one area. Over an extended period, we don’t like dilution. Just in the last 12 months, we've bought back stock. You're right about this quarter not buying back, but over the past 12 months, we bought back $300 million of stock at an average price of $107. So we do pay attention to dilution over an extended period of time. We've also made some small tuck-in acquisitions where those make sense. We don’t have any plans for a dividend in the foreseeable future.

Okay, great. And then maybe just one more at the end. You mentioned the growth in the Australian business. I was just wondering if there are any other markets like that where you think you're underweight at the moment and you could accelerate the growth like you've done in Australia?

Yes, I think if you talk to my team, they would say I believe that in every market, and I’m putting pressure on them to figure out how to do it. That's a bit facetious. But the reality is we have opportunities everywhere. At one point, the restructuring business was the key growth engine in the U.S.—it's exciting now that we are finding powerful growth engines globally, even if it’s muted due to current market conditions. The non-transaction and non-restructuring businesses have shown their strength—our tech business and so forth. If you look at one point, the U.S. was the critical growth engine of this company; it is not anymore. In addition to episodic strategic things, I have quarterly strategy conversations with every segment and every region. We are exploring significant growth opportunities everywhere. The tricky thing in professional services is that it’s tied to talent. It’s not like I used to be at BCG, where you could assemble a team and build a factory. To enter a market or pursue opportunities, if you can't attract top talent there, you struggle. The conversations we have revolve around every geography or region in every segment.

Yes, that's great.

Next question is from the line of Marc Riddick from Sidoti & Company.

So I was wondering if you could give an update regarding the utilization of some of your talent. You’ve previously mentioned this and I think it's interesting how your flexibility has allowed folks to work in different segments, particularly junior talent being utilized in various areas. I was wondering how much different that is than maybe what you've done in the past? Is that something you're doing more often? And how does this play into development in the long run?

Yes. Thank you for that question. It’s a good one. Let me provide some context. I previously came from a company that hired talented junior people with no expertise and flowed them between roles. That was my experience at BCG. In contrast, this firm is very much expertise-based. A lot of our hiring isn’t entry-level; it’s mid-level professionals who have been doing restructuring or similar work for years and want to join us. The expertise required to testify on antitrust clearance is different from conducting a forensic accounting investigation or other services. So there are inherent limits to how much we can move people across boundaries given our nature as an expertise-driven business. That said, we previously imposed limits due to silos and a lack of commitment in the past. We’ve started to loosen those limits, and we've been surprised at how flexible many of our professionals are. It’s not all or nothing, but I think if you talk with key leaders like Carlin and Mike about CF, they’ve successfully moved people not only from the bankruptcy side to non-restructuring services but even from FLC professionals with the right backgrounds. This is something we’re committed to enhancing. You’re correct, this improves motivation for junior staff. During COVID, individuals in different regions figured out how they could work remotely on cases, strengthening our ability to leverage talent across the globe. So we’re committed to that flexibility, and I’m encouraged by the progress we're making.

It does. And then just one quick little follow-up. I was wondering if you could sort of give an update on where you feel you are with folks returning to the office, especially now as things have evolved?

Yes, yes. Two phrases you used—'here and there' and 'crystal ball'—are the right ones. It's vastly different around the world. I think in Western Australia, they almost never left the offices—no cases for an extended period there. They won’t let anyone in from around the world and wouldn’t allow movement even from other parts of Australia. Eastern Australia has had serious lockdowns and changed quite a lot. They are now focused on getting vaccinated. Asia, most of our people are back in the office, some wearing masks. In Hong Kong, I believe about 70-80% of our teams are now back in the office. But this can shift with any resurgence. Other places, most notably the U.S., have not returned to offices as much. In D.C., we started to go back, but mask mandates led people to prefer working via Teams or Zoom. Many people were eager to return, but circumstances dictated otherwise. London was mostly shut until recently, but on a recent visit, I saw an energetic turnout of around 500 people in the office, which was encouraging. Germany is still behind that curve. I don’t think we will revert to 'normal.' Even prior to COVID, many people traveled frequently for work. In conclusion, it’s a journey, and I'll be cautiously optimistic that we are heading in the right direction, provided COVID allows it. I do believe that once a higher percentage of the population is vaccinated, we'll see a resurgence in office attendance—it's a crystal ball question.

Next question is from the line of Tobey Sommer from Truist Securities.

I was wondering if you could comment on the aspect of your businesses that are driven by regulatory actions. There were expectations for the Biden administration to be more active on several regulatory fronts than the previous administration; however, I know there can be a transition period where there's less regulatory activity irrespective of an eventual posture. What's your perspective on that?

Yes. I’ll give you my hallway chatter here as opposed to definitive insight. The gathering from that chatter is a lot of uncertainty. Certainly this year, there’s been a transition. As new people take office, there’s often a lull, as it takes time for the right individuals to be appointed and the organizational structure to form. I think there is an incoming belief in the direction you mentioned, but I wouldn't say there's been significant movement yet in terms of regulatory output. Regulatory action often comes in waves, and sometimes we can ride out demand attached to high-profile cases even years later. We are monitoring this closely, but I wouldn’t categorize it as a surge in demand right now. Our belief is that over time, as regulatory actions ramp up, the trajectory will become evident.

It does. With the pandemic experience and newly visible public companies, has anything changed significantly regarding the risk of e-discovery consulting being disintermediated by technology?

Yes, I think we spend a lot of time thinking about technology changes in that industry. There have been some major ones that signify we don’t want to be a software provider; we want to remain software agnostic to leverage the best tools for our clients. At present, we would assert that for the high end of e-discovery work, we don’t foresee significant disintermediation. The contrary is true; as various forms of media have expanded, there’s been an exponential increase in data volume that necessitates an intelligent person who can filter through complexities. While technology is improving, we maintain that expertise will remain crucial in navigating this high-complexity space. Therefore, we stay bullish about our portion of that business for the foreseeable future.

It does. Yes, how do you view opportunities for FTI to develop and grow recurring revenue streams?

I came from a telecom background, where recurring revenue streams are abundant; however, the challenge is that they often decrease. I am a fan of recurring revenue streams, and in consulting, traditionally there are none. We must sell to different clients or the same client for different services. We do have some recurring revenue, for example, in our Strategic Communications practice, as numerous companies for us engage on retainers. In our Technology practice, to the extent that we host data for an extended period, you could argue that’s another form of recurring revenue. Ultimately, our significant revenue comes from ongoing relationships with attorneys who repeatedly call upon our professionals for various cases—that’s our recurring revenue framework. The relationships and trust we build are foundational.

It’s good that we have those relationships because Ajay, when he first got here, said, 'Oh my God, if you actually look at how much of our revenue is predictable, you'd compare it to the telephone company.' It’s done okay since he has been here, right, Ajay?

Quite.

Does that help? Any other questions?

That was our last question. Let me say thank you again for the attention and support from each of you; we really appreciate it. I want to express my gratitude towards our team for not only this quarter but for building an enterprise that is as powerful and exciting as it is. Thanks, everyone. Have a good rest of your day. Thank you very much, sir. Ladies and gentlemen, this conference call has now concluded. Thank you for attending today's presentation. You may now disconnect your lines. Thank you.