Fti Consulting, Inc Q1 FY2023 Earnings Call

Good morning. Welcome to the FTI Consulting conference call to discuss the company's first quarter 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 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, objectives, goals, strategies, future events, future revenues, future results and performance, expectations, plans or intentions relating to financial performance, acquisitions, share repurchases, business trends, ESG-related matters 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 at www.fticonsulting.com, as well as other disclosures under the heading of Risk Factors and Forward-Looking Information in our quarterly reports on Form 10-Q for the quarter ended March 31, 2023, our annual report on Form 10-K for the year ended December 31, 2022, and in our other filings with the SEC. Investors are cautioned not to place undue reliance on any forward-looking statements, which speak only to 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 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 reconciliation. Lastly, there are 2 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 first quarter 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 same details as they have historically, and as I've said, are available on the Investor Relations section of our website. With those 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.

Thank you, Molly. Welcome, everyone, and thank you all for joining us this morning. I am pleased to say that we reported record revenues yet again this quarter. And in fact, we reported double-digit revenue growth year-over-year once again. As Ajay will talk about, that level of revenue growth was despite the fact that we had foreign exchange headwinds this quarter, and we had some revenue deferrals. Disaggregating that revenue performance, each of our segments, once again, grew year-over-year. Strat Comm's revenues grew mid-single digits despite some significant FX headwinds. The Economic Consulting segment, for reasons I'll describe later, only reported modest revenue growth. But all of the rest of our segments' revenues grew at double-digit levels. And when you adjust for FX headwinds, they grew at strong double-digit levels. Below that terrific revenue story, as you might imagine, are enormous numbers of success stories. I am going to leave it to Ajay to share some of them, and if you'd like further details or elaboration, we can go into more depth during the Q&A. But today, I want to move from the revenue story to the bottom line story because notwithstanding that strong top-line performance, our bottom line, in fact, underperformed our expectations this quarter, and did so substantially. Ajay will discuss the reasons for those shortfalls in some depth, but I'd like to give you a few of the top-level reasons. First, let me come back to Economic Consulting. Our Economic Consulting business, as I think everybody on this call knows, is an incredibly powerful business that has, for many years, delivered strong results for our shareholders and, at least as importantly, for our clients. We've averaged about 15% average annual adjusted EBITDA margins in that business for the last many years, at least 10. For a number of factors, including some slowness in parts of the business in the beginning of the year, some revenue deferrals, and a few other things, we happened to deliver an 8% adjusted EBITDA margin this quarter. As we will discuss later, we do not expect adjusted EBITDA margins in Economic Consulting to remain at that level for the rest of the year. The second factor is one that we've talked about a lot in the past. In any given quarter, there are a lot of factors that can happen to cut one way or another. The second factor, as we’ve talked about, is one that we've discussed a lot in the past. This quarter, those items happened in total to cut more negatively than they often do. I want to spend some time, though, on the third reason, which is different. As high as our revenue growth was this quarter, we actually staffed ourselves up in terms of billable and non-billable headcount and the compensation associated with that for an even higher level of revenue growth than we delivered. That resulted in expense growth that actually exceeded the terrific revenue growth. So let me talk about that and how that happened because it's not totally random. In a few places, that is a little random. It’s the sort of thing that happens every quarter. You can’t predict exactly how much revenue growth you’ll have in any particular area around the world. In this quarter, we had revenue growth shortfalls in parts of Strat Comm, our Health Solutions business within FLC, and some of our businesses in EMEA and Asia Pacific. But that is pretty typical. It happens every quarter, in some places. You can’t ever predict exactly where. We don’t consider any of that part of a long-term trend, just normal quarter-to-quarter variations. More systemically, this quarter, our employee turnover was lower than in recent quarters. And even though we expected it to be lower, it was even a bit lower than we had expected. On top of those factors, however, we also have something else important happen, which is that we continue to find terrific talent looking to join us. We took advantage of that in multiple key markets, including the Middle East, Australia, Hong Kong, Continental Europe, and elsewhere. To support the businesses we're building in those jurisdictions and elsewhere, we continue to add non-billable headcount. So though we had record revenues, we actually staffed ourselves up for an even higher level of revenue growth than we delivered. As Ajay will discuss, we do expect that gap between expense growth and revenue growth to gradually normalize as the year goes on. Let me talk about something that I find very important. When I look at the bases for the bottom-line shortfall this quarter, they do not give me pause in any way with respect to my confidence about the powerful future of this company or even my outlook for the year. FX issues cut against some quarters, but typically not all; in some quarters, they go the other way. Revenue deferrals we typically get recognized. If attrition continues to be lower, we can gently reduce our hiring, and, of course, we can moderate our non-billable headcount growth to match the billable headcount growth. The important point is that though the bottom line is not what we wanted this quarter, or what we'd ideally want in any quarter, the shortfall is not the result of us being unable to grow revenues or that the majority of the bets that we've been making suddenly stopped working. We had strong top-level growth, and a series of things this quarter that happened to hit us negatively coupled with a series of things we chose to do because we believe they will allow us to continue to build a fundamentally more attractive enterprise over time. Before I close, let me focus a little bit more on that choice part of the prior sentence. Is it possible that we continue to have great talent looking to defect to us, and we decide to invest ahead of demand? That is always a possibility. If we took advantage of it, could it hurt quarters? Of course, it could. But as those of you who have been following this company for years now know, it’s been by making those sorts of bets that we've been able to get this company on the terrific multiyear trajectory we've been on now for almost a decade. We have hired some of the best people in this firm. People have helped transform our businesses in quarters when the businesses they joined were slow. We've talked about some of those examples over time. I know a reasonable amount of the talent that has joined us this quarter, and for those I know, I must say I'm extraordinarily excited about them joining us, and I am excited about the professionals that I'm hearing right now wanting to join this company. Molly slipped in some data into my script apparently during this first quarter. I knew we were hiring some great people. Apparently, we announced 44 senior hires this quarter, a combination of SMDs and MDs, which I think is unprecedented for our first quarter. Let me reiterate to me the most important point. None of the issues this quarter give me pause about our multiyear trajectory or even this year. Quarterly results in this business and our company can always be volatile. And I don't ask management here to focus on reducing that volatility. I ask them to focus on building powerful sustainable growth engines, not one that will never be impacted by short-term volatility, but one that can demonstrate over time that powerful multiyear trajectory. And to do that by having our teams focus on client needs, making bold bets where the needs are great and where we believe we have a right to win, and ensuring that every day we attract, develop, and promote great professionals who can deliver on those needs, and we support them as they build those businesses. I believe we have now shown that when we maintain that commitment and focus over any extended period of time, our business soars, our people develop and they soar. I still look forward to us continuing on that journey. With that, let me turn this over to Ajay for some details on the quarter.

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. As Steve mentioned, today we reported yet another quarter of record revenues with all of our segments growing year-over-year. Of note, restructuring activities strengthened in the quarter. In fact, according to S&P Global, in the U.S. through March, monthly bankruptcies have increased sequentially for 4 consecutive months. Conversely, the pace of M&A-related services in several of our segments was slower than we anticipated. Strong revenue growth did not sufficiently offset the increase in direct cost, SG&A expenses, FX transaction losses, and a higher tax rate compared to the prior year quarter. As a result, EPS and adjusted EBITDA declined year-over-year. Overall, our first quarter results were below our expectations. Now, turning to the details for the quarter. First quarter of 2023 revenues of $806.7 million were up $83.1 million, or 11.5% year-over-year. Excluding the estimated negative impact of FX, revenues increased $99.7 million or 13.8%. Earnings per share of $1.34 compared to $1.66 in the prior year quarter. Net income of $47.5 million compared to $59.3 million in the prior year quarter. The decrease in net income was primarily due to an increase in compensation, including the impact of an 11% increase in billable headcount, higher SG&A expenses, and FX remeasurement losses. SG&A of $184.2 million was 22.8% of revenues and compares to SG&A of $149 million or 20.6% of revenues in the first quarter of 2022. The increase in SG&A was primarily due to higher compensation, which included a 14.4% increase in non-billable headcount, increased travel and entertainment expenses, and higher bad debt. First quarter 2023 adjusted EBITDA of $78.4 million decreased 13.3% compared to $90.5 million in the prior year quarter. Our first quarter 2023 effective tax rate of 24% compared to 22.2% in the prior year quarter. The higher tax rate this quarter was primarily due to an increase in foreign taxes and a lower discrete tax adjustment related to share-based compensation from fewer shares vesting. For the balance of 2023, we continue to expect our effective tax rate to be between 24% and 26%. Weighted average shares outstanding for Q1 were 35.5 million shares compared to 35.6 million shares in the prior year quarter. For the quarter, our convertible notes had a potential dilutive impact on EPS of approximately 1.3 million shares in weighted average shares outstanding. As our share price, on average, was $173.8 this past quarter, it was above the conversion threshold. Billable headcount increased by 614 professionals or 11% year-over-year. Sequentially, billable headcount increased by 123 professionals, or 2%. Non-billable headcount increased by 14.4% year-over-year. We added non-billable employees to support a larger business, especially outside of North America, in areas such as recruiting, HR, finance, and marketing. Sequentially, non-billable headcount increased by 36 professionals, or 2.3%. Now turning to our performance at the segment level. In Corporate Finance & Restructuring, record revenues of $300 million increased 18.4% compared to the prior year quarter. The increase in revenues was primarily due to higher demand for restructuring and business transformation services, which was partially offset by lower demand for transaction services. Business transformation and transactions represented 53% of segment revenues, while restructuring represented 47% of segment revenues in the quarter. This compares to a split of 59% for business transformation and transactions and 41% for restructuring in the prior year quarter. Year-over-year, restructuring revenues grew 38%, as we successfully helped clients in a variety of verticals, including retail, healthcare, financial institutions, and airlines. Adjusted segment EBITDA of $55 million or 18.3% of segment revenues compared to $53.5 million or 21.1% of segment revenues in the prior year quarter. The increase in adjusted segment EBITDA was primarily due to higher revenues, which was partially offset by higher compensation, including the impact of a 13.9% increase in billable headcount and higher SG&A expenses, including increased business development activity. Turning to Forensic and Litigation Consulting or FLC. Revenues of $173.4 million increased 12.7% compared to the prior year quarter. The increase in revenues was primarily due to higher demand for data and analytics, investigations, and health solutions services. Adjusted segment EBITDA of $18.6 million or 10.7% of segment revenues compared to $17.3 million or 11.2% of segment revenues in the prior year quarter. The increase in adjusted segment EBITDA was primarily due to higher revenues, which was partially offset by an increase in compensation, which includes the impact of a 4.2% increase in billable headcount, as well as an increase in outside contractors' expenses and higher SG&A expenses. In Economic Consulting, revenues of $169.6 million increased 2.2% compared to the prior year quarter. The increase in revenues was primarily due to higher demand for M&A-related antitrust services and higher realization for non-M&A-related antitrust services, which was partially offset by lower demand for non-M&A-related antitrust services. Adjusted segment EBITDA of $14.2 million or 8.4% of segment revenues compared to $21.2 million or 12.8% of segment revenues in the prior year quarter. The decrease in adjusted segment EBITDA was primarily due to higher compensation, which includes the impact of an 8.5% increase in billable headcount and higher SG&A expenses. We had expected higher revenues and adjusted segment EBITDA in Economic Consulting. This is in part due to revenue deferrals that have resulted in and may continue to result in variations in the timing of revenue recognized on work already performed. We believe that conditions to recognize these revenues will be met later this year and could positively impact adjusted segment EBITDA by approximately $5 million. Technology revenues of $90.6 million increased 12.6% compared to the prior year quarter. The increase in revenues was primarily due to higher demand for investigations and litigation services, which was partially offset by lower demand for information governance, privacy, and security services. Adjusted segment EBITDA of $15.4 million or 17% of segment revenues compared to $13.4 million or 16.6% of segment revenues in the prior year quarter. The increase in adjusted segment EBITDA was primarily due to higher revenues, which was partially offset by higher SG&A expenses and an increase in compensation, which includes the impact of a 17.1% increase in billable headcount. Strategic Communications revenues of $73.1 million increased 4.5% compared to the prior year quarter. The increase in revenues was primarily due to higher demand for corporate reputation services, particularly supporting crisis communication and cybersecurity-related engagements. Adjusted segment EBITDA of $9.6 million or 13.1% of segment revenues compared to $15.7 million or 22.5% of segment revenues in the prior year quarter. The decrease in adjusted segment EBITDA was primarily due to lower gross margin resulting from higher compensation, which includes the impact of a 16.2% increase in billable headcount. That and an increase in SG&A expenses more than offset the increase in revenues. Let me now discuss a few cash flow and balance sheet items. As is typical, we pay the bulk of our annual bonuses in the first quarter. Net cash used in operating activities of $254.2 million compared to $203.8 million in the prior year quarter. The year-over-year increase in net cash used in operating activities was primarily due to an increase in salaries largely related to headcount growth, higher operating expenses, and an increase in annual bonus payments, which was partially offset by an increase in cash collections. During the quarter, we spent $17.8 million to repurchase 112,139 shares at an average price per share of $158.70. As of the end of the quarter, approximately $460.7 million remained available for stock repurchases under our current stock repurchase authorization. Total debt net of cash of $122.7 million at March 31, 2023, compared to $60.1 million at March 31, 2022, and negative $175.5 million at December 31, 2022. The sequential increase in total debt, net of cash, was primarily due to an increase in cash used in operating activities, which included annual bonus payments. Turning to guidance. As is typical, we will re-evaluate guidance once we have another quarter under our belt at the end of the second quarter to see if any changes are warranted. Despite the weaker-than-expected results in Q1, we are not changing our guidance. Our expectations for the year are shaped by several assumptions, including the following: first, restructuring activity continues to strengthen, both in the United States and overseas, which was reflected in a 6% sequential increase in restructuring revenues compared to 4Q 2022; second, while we expect M&A activity in 2023 to remain slower than in 2022, we expect a pickup from the near record low levels seen in Q1 over the coming quarters, which would positively impact our Economic Consulting and Technology segments and our transactions business in Corporate Finance; third, we expect to recognize certain revenue deferrals in Economic Consulting in the coming quarters; fourth, we expect momentum to continue to build in our forensic and litigation consulting business. Finally, we expect SG&A expenses in each quarter for the balance of the year to remain at a level similar to SG&A in Q1. We expect non-billable headcount growth, which exceeded both billable headcount growth and revenue growth in Q1, to be lower in the second half of the year. Before I close, I want to reiterate 3 themes that I believe underscore the attractiveness of our business. First, we are focused on the duality of growing the business for the long term while also being mindful of utilization; second, our strong balance sheet allows us the flexibility to continue to boost shareholder value through organic headcount growth, share buybacks, and acquisitions when we see the right ones; and third, we have demonstrated our ability to generate strong revenue growth in any cycle. We believe we are the strongest provider of restructuring and antitrust services anywhere in the world. We continue to grow those businesses while also growing many other practices, including business transformation, ESG, cybersecurity, technology with key capabilities in digital assets and emerging data, and crisis communications globally. With that, let's open the call up for your questions.

I wanted to just start with the restructuring environment. It sounds like you're pleased with the sequential step-up in revenue quarter-over-quarter. It seems like you're seeing some strength, both in the U.S. and overseas. So I was hoping you could just spend a little bit more time talking about how that's developed and maybe how you're thinking about that business over the next several quarters or years relative to maybe how you were thinking about it a couple of months back.

So Andrew, restructuring is definitely increasing, both in the U.S. and abroad in countries like Australia, Germany, and the U.K. It is indeed on the rise. We clearly mentioned this in our prepared remarks and guidance. The challenge lies in accurately predicting the precise trajectory of that growth, which is why we provide a range in our guidance. However, we can confirm that there is certainly an upward trend.

Understood. And then I think, Steve, you mentioned in your prepared remarks that there's a combination of factors that cut negatively in the quarter. I know, Ajay, you called out the revenue deferral and Economic Consulting. Were there any other timing items that were sizable that you'd call out that kind of make it a combination of factors? Or was that the only one that we should be cognizant of as we think about potential reversals as we move through the rest of this year?

In terms of reversals, I’ll check if Ajay has any additional thoughts. I'm not aware of any reversals. Other factors can fluctuate in any quarter, such as foreign exchange and the level of bad debt. In certain quarters, we've seen higher than anticipated bad debt, while in others it has been lower. Similarly, foreign exchange can either work in our favor or against us. It often feels like when we face difficulties in one area, other short-term factors also take a negative turn. I'm sure that's just a perception; it may not necessarily be true. However, this quarter we did experience some negative impacts from those factors as well. There's no certainty that these will reverse, and we can't assume that foreign exchange will improve as the year progresses. There's no connection indicating that a poor performance in the first quarter guarantees a poor performance in the second. Does that answer your question, Andrew?

Yes, absolutely. If I could ask one more question. To clarify Ajay's comments on SG&A, should we expect SG&A to remain at a similar level to Q1 in absolute dollar terms, or are we looking at it in terms of revenue percentage?

Absolute dollar terms.

Just start with Corporate Finance & Restructuring. And specifically in terms of the business transformation and transactions subsegment. In that subsegment, despite the weaker macro backdrop, it was still up very slightly quarter-on-quarter, which is obviously a positive. I'm just trying to understand, within those two businesses, how they would perform in a potential recession scenario. And I guess the two questions are, how do we think about transactions performance in a weaker M&A backdrop? And then on the business transformation side, should that be adversely impacted by a pullback in spending by corporates and sponsors, if we do enter a recession? And do you think you could outgrow any adverse effects through headcount growth over time?

So here are the facts. Combined business transformation and transactions grew 5.5% year-over-year. Noting that transactions were actually down 8% year-over-year. So business transformation, even in this cycle, grew for us. We're small relative to the business transformation market out there or the whole industry out there. So I think there's enormous scope for us to continue to grow business transformation despite cycles. The transaction side is cyclical, and we experienced the same.

Okay. That's very clear. Maybe if you could just speak to the crypto revenue opportunity you see across your business. And then within which segments do you see the opportunity? And where are you investing in that?

Yes, it's a dynamic space. We have several segments that have opportunities in that area. There have been bankruptcies and litigation in crypto, which can impact multiple segments. Technology plays a role in e-discovery and investigations related to litigation, leading to disputes and expert witnesses. It's definitely an area we've focused on, and while we don't discuss individual cases, we're making serious progress. Does that answer your question?

Absolutely. I just had one other one, which is just on the hiring opportunity. You've obviously continued to conduct robust hiring, especially outside of the U.S., as you alluded to before. Maybe you could just speak to why the opportunity has remained so robust and why you're seeing such high-quality talent shaking loose? And whether what's happening with the big 4 consulting firms has anything to do with that?

Yes. Some factors relate to us while others pertain to the global landscape. Over the past 7 to 8 years, we've started to be recognized as a strong competitor in various regions worldwide. In Australia, although we had capable people, we weren't viewed as a leading player, and this was also the case in much of Continental Europe. While we had a solid presence in London, we weren’t really considered significant in many European markets. That perception has shifted. People prefer to align themselves with a successful team. As we expand some U.S. operations globally, we now have the opportunity to secure crucial global assignments that top professionals want to be involved with. For instance, 15 years ago, most of Lehman Brothers' work went to one of the big four firms, but in the last five years, we've handled two of the largest global bankruptcy cases. People appreciate the opportunity to work on high-profile cases. We've altered our standing in several regions globally. Another factor is the shifts and changes among competitors worldwide. It can often be challenging to convince top talent to leave their current firms. However, when disruptions occur, individuals start exploring their options. A decade ago, during various upheavals, we weren't on many people's radar. Today, we're becoming a focus for many candidates. Some of those who have joined us from smaller boutique firms or larger firms have shared their great experiences. While we acknowledge we're not flawless, we genuinely support our employees and assist in their business growth, and that reputation spreads. It's a positive cycle that I strive to maintain each day since it is crucial for our growth through different economic conditions. Overall, we’re not perfect, but things are progressing well. Does that answer your question?

To begin with, has there been a change in conditions or opportunities for the company to consider larger lateral hires from competitors? Is there anything we should be aware of regarding the variability of headcount growth this year?

I don't think there's been a sudden and significant change. As you know, we've been successful in attracting lateral talent for some time. We're also promoting employees at an unprecedented rate. Without those efforts, we wouldn't have achieved the growth we've seen recently. We are actively monitoring the situation. The concern is whether a disruptive event at a competitor could cause a large group of people to leave, similar to what happened with Anderson Consulting. We keep an eye on this and work hard to avoid it. We support many other great firms and wish them success, but we want it to be known that if such situations arise, we are prepared to add talent. If it impacts a quarter, we are okay with that because it's essential for business growth. However, there aren't people lined up at my door right now ready to sign with us tomorrow. Does that answer your question?

Sure. What's the outlook for boosting what has kind of been persistent and stubbornly low utilization in FLC? And maybe in the context of answering that, you could give us your perspective for the market for large projects in that space and in that segment.

Yes. Look, I think we have made quite a bit of progress, actually, in FLC over the last while. Some of this is masked by some other things that are going on in that segment. But the management team recognized that last year, we slowed some hiring. But more importantly, we got pretty aggressive commercially and made sure we were in front of certain potential assignments. So look, we’ve had very substantial revenue growth there. I think actually, to your point, it’s still not at the utilization overall that we would like or they would like, but it's not because we're not growing. It's just that actually their expectations were for even faster growth like many other parts of our business. So I think we're going to get the utilization to the levels we want. We may just either all the revenue that people are hoping comes in or you can taper the growth of headcount. It’s not like we’re shrinking, so you have to cut heads. What you have to do is, if you're growing a little less fast than you think you are, you may have to taper your hiring. And I think we're in much better shape in that business than we were six and twelve months ago. Does that respond to your question?

Steve, was there any change you could perceive in demand in your various segments and lines of business when SVB occurred and the current sort of banking crisis emerged? Just wondering if there was any opportunity or diminishment in demand in various pockets.

Let me address that in two ways. While I can't discuss specific clients, disruptive events like bank bankruptcies can often create demand for services across multiple segments we offer. On a broader scale, the second and third order consequences you mentioned relate to the macroeconomic outlook. I'm not sure how many of those forecasts you’ve seen lately, but there's speculation about whether the Fed will increase rates by 0.5% or just 0.25%, and how that might influence the housing market. It's easy to get bogged down in speculation like that. From my experience, we should concentrate on having the right offerings and being commercially proactive, while also periodically reassessing our enthusiasm for hiring. If we find ourselves being overly ambitious, we can adjust our hiring pace. It’s challenging to anticipate the ripple effects of macro changes accurately. If you have any insights, feel free to reach out. Does that answer your question, Tobey?

Right. Right. Sure. Last year, GA growth, infrastructure growth sap some of the ability for margins to expand. Could you talk about the risks and opportunities of that not occurring this year or the risk of it recurring this year?

When we engage in interesting initiatives, it tends to lead to increased expenses. Expanding into new markets, countries, locations, and adjacent areas while aiming to provide the best experience for our practitioners and clients entails additional costs. For instance, to support the number of hires we've made, we need recruiters; otherwise, we would have to pay external firms significantly. Offering a good experience in a different country necessitates having dedicated staff in that location. This has contributed notably to the growth in non-billable headcount. We are further along in this process, though I'm not sure exactly where we stand. This trend should start to decrease in the second half of the year.

Thank you all for taking the time. I mean, let me just reiterate, we are feeling very good about the company, and the revenue of this quarter really demonstrates that. And obviously, the bottom line wasn’t exactly what we wanted, but it leaves us still with enormous confidence about where this company is moving over time. Looking forward to continuing to engage with you all. Thank you very much.

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.