Fti Consulting, Inc Q3 FY2023 Earnings Call

Welcome to the FTI Consulting Third Quarter 2023 Earnings Conference Call. All participants will be in a listen-only mode. Please also note that this event is being recorded today. I would now like to turn the conference over to Mollie Hawkes, Head of Investor Relations. Please go ahead.

Good morning. Welcome to the FTI Consulting conference call to discuss the company's third 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 related 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. 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 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 accompanying financial tables that we issued this morning, which include the reconciliations. 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 address our third quarter 2023 results and changes to certain historical information. Of note, effective July 1st, 2023, 127 billable professionals in the health solutions practice within the company's Forensic and Litigation Consulting business segment were transferred to the Corporate Finance and Restructuring business segment. 83 billable professionals within the Health Solutions practice remained in the Forensic and Litigation Consulting segment. Prior period information for these two segments included in the quarterly report on Form 10-Q for the quarter ended September 30th, 2023, and the financial tables in this morning's press release have been recast to reflect the modified composition of these segments. Additionally, the unaudited summary financial information and other select financial and operating data for the Corporate Finance and Restructuring and Forensic and Litigation Consulting segment included in the historical financial statements posted on our website have been recast for each of the previously reported years ended December 31st, 2020, December 31st, 2021, and December 31st, 2022, and the previously reported quarters in each such year and the first and second quarters of 2023 to conform to the current period presentation reflected in FTI Consulting's quarterly report on Form 10-Q for the quarter ended September 30th, 2023. 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 exposures are consistent, these slides provide similar details to what they have historically, and as I've said, are available on the Investor Relations section of our website. 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.

Thank you, Mollie. Welcome everyone and thank you for joining us this morning. I want to convey one main message regarding this quarter: we got our earnings back on track. I'm emphasizing 'earnings' because our revenue has been consistently strong throughout the year. In the first half of this year, our revenues increased by 13%, and this quarter, we achieved 15% topline growth. These figures are ones I would be proud of in most years, especially given the challenges many professional services firms have faced this year. I believe revenue growth is a key indicator of long-term success, validating the effectiveness of our teams and their competitive position in the market, as well as the impact they are making for our clients. This growth also reflects our team's commitment to attracting and supporting talent aspiring to make a difference for clients. We have been very pleased this year with our strong revenue growth. However, the first half of the year posed challenges in translating that revenue growth into earnings growth. Generally, earnings align with revenues over time, which we have observed over the past five years. Still, there can be periods where earnings and revenues diverge, as was the case in the first half of the year. We have previously discussed some factors contributing to this lag in bottom-line results. Two external factors were inflation, which took time to adjust to, and unexpectedly lower attrition rates compared to previous years. The third factor was a series of active decisions regarding our portfolio. We are committed to acquiring and supporting top talent whenever it's available, even if the associated business temporarily shows lower utilization than we aspire to. This commitment remained throughout the first half of the year, despite some slower businesses, as we were fortunate to have strong talent wanting to join us. Consequently, while revenues grew by 13% in the first half of the year, our cost structure increased by 14%. Despite impressive revenue growth, the rising costs created pressure on earnings. In this quarter, we did not dramatically change our business management approach. Some factors began to normalize. We experienced another strong quarter of revenue growth, but our cost structure did not grow as rapidly as before. We made progress against inflation, saw an uptick in attrition, both voluntary and performance-related, and tightened hiring as needed in areas of low utilization. We remained open to hiring exceptional talent, but overall, we slightly scaled back hiring. Our headcount grew by 8% year-on-year in this quarter, which was slower than the 11% increase in the first half, resulting in a cost structure that, unlike in the first half, increased less than revenue. When the revenue growth is higher than the increase in cost structure, it positively impacts earnings, which is what occurred this quarter. It was not a drastic strategy shift but rather a normalization of factors that enabled the underlying strength of results to also reflect in earnings. For the most part, this quarter aligned with what Ajay and I, as well as the management team, anticipated. It's worth noting that this quarter's actual results exceeded our expectations slightly, not due to the previously mentioned factors but rather because some other random factors turned positive, like foreign exchange and higher success fees. Therefore, the movement back towards strong revenue growth translating into higher earnings growth was anticipated, and we ended up performing better than expected this quarter. I hope this provides a helpful context. Ajay will provide more details shortly. To wrap up, I want to connect this quarter and the year to broader discussions we've had previously. We often mention that numerous factors can cause fluctuations in the underlying earnings of our business over short periods. These fluctuations can persist not only for a quarter but for multiple quarters or even a couple of years for specific businesses. We believe that when we experience a downturn, it’s essential to assess it carefully to ensure it does not reflect a permanent shift in the market or in our competitive position. If we identify such a change, it necessitates a response. However, we also believe that if we determine it’s neither of those, it’s critical to withstand short-term pressures. In those situations, rather than overreacting, we should focus on the core elements vital to building a successful professional services business. We need to develop great talent, support their ambitions, and address the key challenges faced by our clients, ensuring we have the best teams for their support. Our conviction is that by concentrating on these essential components and avoiding overreaction to short-term fluctuations, we can position our firm to enter a virtuous cycle of professional services. We build strong teams that deliver excellent work and nurture client relationships, which helps attract motivated individuals who enhance our service quality and client connections. Ultimately, this creates a powerful growth engine, one that may experience fluctuations but can evolve into a stable institution that serves clients effectively and delivers consistent value for investors. This year exemplifies that principle, highlighting the path we've aimed to follow and our commitment to continue on that trajectory. Now, I'll turn it over to Ajay to delve into the quarter in more detail.

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. We reported record revenues this quarter with all business segments growing year-over-year. 15.1% revenue growth outpaced the 14.4% increase in direct costs and SG&A expenses, and earnings per share grew by 8.8%, setting a new record at $2.34. Growth in revenues resulted from higher demand and higher realized bill rates. Utilization remains steady as we welcomed our new class of graduates while moderating other hiring. Overall, we are pleased with the strong results, especially after a weaker-than-expected first half of the year. Year-to-date, our performance is more modest. While 3Q 2023 adjusted EBITDA of $118.7 million is up 20% from $99 million in 3Q 2022, year-to-date adjusted EBITDA of $297.4 million is up only 12% compared to $265.6 million in the prior year period. And earnings per share have increased only 3.4%, primarily because of a higher tax rate this year and FX remeasurement losses compared to the prior year period. Now, turning to our third quarter results in more detail. Record revenues of $893.3 million increased $117.4 million or 15.1% compared to revenues of $775.9 million in the prior year quarter. The increase in revenues was primarily due to higher demand in Corporate Finance and Restructuring, Forensic and Litigation Consulting, Strategic Communications, and Technology segments. Net income of $83.3 million compared to $77.3 million in the prior year quarter. The increase in net income was due to higher revenues, which was partially offset by an increase in direct compensation, including the impact of a 7.8% increase in billable headcount, higher SG&A expenses, a higher effective tax rate, and a decline in FX remeasurement gains compared to the prior year quarter. Earnings per share of $2.34 in 3Q 2023 compared to $2.15 in the prior year quarter. SG&A of $186.1 million were 20.8% of revenues. This compares to SG&A of $159.2 million or 20.5% of revenues in the third quarter of 2022. The year-over-year increase in SG&A was primarily due to higher compensation and bad debt. Third quarter 2023 adjusted EBITDA of $118.7 million or 13.3% of revenues compared to $99 million or 12.8% of revenues in the prior year quarter. The year-over-year increase in adjusted EBITDA was primarily due to higher revenues. Our third quarter effective tax rate of 22.6% compares to 17% in 3Q 2022. As a reminder, we had an unusually low tax rate in the prior year quarter because we utilized foreign tax credits against the licensing of our intellectual property to additional foreign subsidiaries. For the full year, we expect our effective tax rate to be between 24% and 26%. Our 2% convertible senior notes matured on August 15, 2023, and were fully settled on August 17, 2023. We settled the principal amount of $315.8 million in cash and $280.3 million of premium in shares of our common stock based on a share price of $191.89, resulting in 1.46 million additional shares being added to our total shares outstanding this quarter. As a reminder, our weighted average shares outstanding numbers in prior quarters already included the then estimated impact of our 2023 convertible notes premium, if converted in stock. Fully diluted weighted average shares outstanding in 3Q 2023 decreased by 262,000 shares compared to 35.9 million shares in 3Q of 2022. We remain steadfast in our commitment to attract talented professionals. Billable headcount increased by 467 professionals or 7.8%, and non-billable headcount increased by 104 professionals or 6.9% compared to the prior year quarter. Sequentially, billable headcount increased by 247 professionals or 4%, which included 316 new joiners from university campuses, our largest class ever. Non-billable headcount decreased by 11 professionals or 0.7%. Now, I'll share some insights at the segment level. In Corporate Finance and Restructuring, revenues of $347.6 million increased 23.2% compared to the prior year quarter. The increase in revenues was primarily due to higher realized bill rates and demand for restructuring and business transformation and strategy services, as well as an increase in success fees. Adjusted segment EBITDA of $68.1 million or 19.6% of segment revenues compared to $53.5 million or 19% of segment revenues in the prior year quarter. The year-over-year increase was due to higher revenues, which was partially offset by higher compensation, including the impact of a 9.8% increase in billable headcount and higher SG&A expenses. Restructuring represented 46% of segment revenues. Business transformation and strategy represented 33% of segment revenues and transactions represented 22% of segment revenues this quarter. This compares to 41% for restructuring, 33% for business transformation and strategy, and 26% of segment revenues for transactions in 3Q of 2022. On a sequential basis, revenues increased $29.6 million or 9.3%, primarily due to higher demand for business transformation and strategy and restructuring services, which was partially offset by a decline in demand for transaction services. Restructuring revenues grew 6%. Business transformation and strategy revenues grew 26% and transactions revenues declined 2%, compared to 2Q of 2023. Adjusted segment EBITDA increased $22.6 million compared to 2Q of 2023. Industries where we have been helping clients with restructuring where we saw sequential increases in revenues include energy, utilities, healthcare, retail, real estate, and technology, among others. Worth noting, on July 1st, 2023, we transferred 127 billable professionals from our health solutions practice within our FLC segment, who focus on business transformation in the healthcare and life sciences sector into the business transformation and strategy practice within our Corporate Finance & Restructuring segment. This change is reflected in the recast historical financials document and other documents filed with the SEC which, as Mollie said, we shared on our Investor Relations website this morning. Turning to FLC, revenues of $166.1 million increased 15.9% compared to the prior year quarter. The increase in revenues was primarily due to higher demand for our investigations, data and analytics, and construction solutions services. Adjusted segment EBITDA of $21.5 million or 12.9% of segment revenues compared to $16.2 million or 11.3% of segment revenues in the prior year quarter. The increase was due to higher revenues, which was partially offset by higher compensation and SG&A expenses compared to the prior year quarter. Sequentially, revenues were essentially flat, and adjusted segment EBITDA decreased compared to 2Q of 2023, primarily due to a $4.5 million increase in segment SG&A expenses, largely related to higher bad debt. Our Economic Consulting segment's revenues of $193.9 million were essentially flat compared to the prior year quarter. Excluding FX, Economic Consulting revenues decreased $3.5 million or 1.8%. The decrease in revenues was due to a decline in non-M&A-related antitrust revenues which was partially offset by an increase in international arbitration and M&A-related antitrust revenues compared to the prior year quarter. As a reminder, in the third quarter of last year, our Economic Consulting segment recognized $21.4 million of previously deferred revenues from one large client, which resulted in higher realized bill rates in the prior year quarter. Adjusted segment EBITDA of $27.8 million or 14.3% of segment revenues compared to $32.9 million or 17% of segment revenues in the prior year quarter. The decrease was primarily due to higher SG&A expenses, which was partially offset by lower compensation compared to the prior year quarter. Sequentially, revenues decreased $8 million or 3.9% and adjusted segment EBITDA decreased $7.8 million. As a reminder, in the second quarter of this year, our Economic Consulting segment recognized $7.6 million of previously deferred revenues from one large client. If you look at Economic Consulting's performance for the first nine months of 2023 compared with the first nine months of 2022, the fluctuations we have seen in recent quarters as a result of deferred revenues are normalized. Year-to-date, the Economic Consulting segment's revenues increased $42.1 million or 8% compared to the prior year period, primarily due to higher demand for international arbitration, M&A-related antitrust, and non-M&A-related antitrust services. Year-to-date, adjusted segment EBITDA increased $1.7 million or 2.3% as higher revenues were partially offset by an increase in compensation, including the impact of an 8.7% increase in billable headcount and higher SG&A expenses. In Technology, revenues of $98.9 million increased 16.4% 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 M&A-related second request services. Adjusted segment EBITDA of $14.9 million or 15% of segment revenues compared to $13.2 million or 15.6% of segment revenues in the prior year quarter. The increase was primarily due to higher revenues, which was partially offset by higher compensation, including the impact of a 14.8% increase in billable headcount and higher SG&A expenses. Sequentially, revenues increased $1.4 million or 1.5%, primarily due to higher demand for litigation services. Adjusted segment EBITDA decreased $5.2 million sequentially, primarily due to higher SG&A expenses, largely related to higher bad debt and compensation compared to 2Q of 2023. Revenues in the Strategic Communications segment of $86.8 million increased 19.9% compared to the prior year quarter. The increase in revenues was largely due to higher demand for corporate reputation and public affairs services compared to the prior year quarter. Adjusted segment EBITDA of $13.5 million or 15.5% of segment revenues compared to $12.9 million or 17.9% 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 6.2% increase in billable headcount and higher SG&A expenses. Sequentially, revenues in Strategic Communications increased $4.2 million or 5.1%, primarily due to higher demand for corporate reputation services. Adjusted segment EBITDA increased $1.2 million. Let me now discuss key cash flow and balance sheet items. Net cash provided by operating activities of $106.7 million for the quarter compared to $128.3 million of net cash provided by operating activities for the prior year quarter. The year-over-year decrease in net cash provided by operating activities was primarily due to cash collections not keeping pace with the increase in revenues and not sufficiently offsetting the increase in salaries and other employee cash compensation, largely related to headcount growth as well as higher operating expenses. We generated free cash flow of $92.5 million in the quarter. Total debt, net of cash and short-term investments of $59.4 million at September 30th, 2023, compared to a negative debt position of $10.8 million at September 30th, 2022, and $137.2 million on June 30th, 2023. The sequential decrease in total debt, net of cash and short-term investments was primarily due to the $315 million repayment of our 2023 convertible notes at maturity which was partially offset by an increase in net borrowings of $285 million under our senior secured bank revolving credit facility. Turning to our guidance. With the passage of three quarters and a stronger-than-expected third quarter, we are narrowing and raising the lower end of our revenue and EPS guidance ranges. We now expect revenues will range between $3.35 billion and $3.4 billion, which compares to our previous range of between $3.33 billion and $3.4 billion. We now expect EPS to range between $6.70 and $7.20, which compares to our previous range of between $6.50 and $7.20. Our updated guidance is shaped by several key considerations. First, we are an event-driven large jobs firm and our intake of and success rate in winning new business may moderate. Second, our business is, in the short term, a fixed cost business where small swings in revenue can cause significant swings in earnings per share. Third, as Steve said, we have and will continue to invest aggressively in talent when the right people become available; such investments typically negatively impact EBITDA in the short-term. Lastly, the fourth quarter is usually a weaker quarter for us because of a seasonal business slowdown as professionals may take time off during the holidays. Before I close, I want to reiterate five key themes that underscore the strength of our company. First, our key differentiating factor is the expertise of our people, their relationships, and the impact they deliver for our clients. Second, we continue to find opportunities to attract strong professionals and grow our reach globally. Though such growth at the outset can and typically does adversely impact EBITDA, we have demonstrated our continued commitment to seize such opportunities. Third, we are able to both grow at a double-digit rate and optimize staff utilization and bill rates. Fourth, our scale and diversity of services reduce risk. And finally, our balance sheet remains exceptionally strong. We have the ability to boost shareholder value through share buybacks, organic growth, and acquisitions when we see the right ones. With that, let's open the call up for your questions.

We will now begin the question and answer session. At this time, we will take our first question, which will come from James Yaro with Goldman Sachs. Please go ahead.

Good morning, and thanks for taking my questions. Maybe I could just start with the corporate finance and restructuring. I think restructuring was up, on my map, nine million quarter on quarter. So post the dramatic increase in long rates over the past one to two months, maybe you could just speak to the outlook for restructuring and whether this has improved versus a few quarters ago. And then I'm going to make this into a multi-part question, so I apologize in advance, but maybe if you could just give us a little bit more color on the distinct outlooks across business transformations and strategy versus transactions, and then finally, you did touch on the success fees in the segment which are usually I think it's a fairly small portion of your fees so any chance you could just type that?

Sure, sure, we can address all of those, James. So first on the success fees, success fees were around $12 million in the quarter. That was up from about $2 million in the same quarter last year, but they were lower than the about $15 million that we had in the second quarter of this year. So that's those specifics. In terms of the three areas, certainly, I mean, the math that you should do is look at the sequential growth rates in restructuring, business transformation and strategy, and transactions. Each quarter we give you those numbers, let them plot out the sequential growth rates. The sequential growth rate this quarter is higher than last quarter at 6%, I think, versus about 5% or 4% it was last quarter. So it's up slightly. Does that say that we are entering into a recession? Not necessarily. The default rates are still in between the three and 4% range. In a recession, you get 10% default rates on speculative grade debt. So this is a stronger performance for restructuring, but I'm not willing to say this is a harbinger for a recession coming up. So that's on that point. And so we expect to continue to be strong and to be the leading provider of restructuring services in the world. On the second one, on business transformation and strategy, of course, we had an exceptionally strong quarter, but it came after a quarter and second quarter that was weak. And what happens here is, we are relatively small in the grand scheme of things for business transformation, and you could have big jobs ending and new big jobs starting off, causing one quarter strong and one quarter weak again. We are very confident about this area. We believe we have enormous potential to grow, but don't read one quarter as a trend. Finally, transactions, down 2% from Q2, but still relatively strong. Look, in transactions, there's a lot of due diligence going on, but less closing of deals. And it's when you close that you get the success fees that result in the revenues in that area. We're optimistic about the future, but those are the trends. Does that answer your question?

Absolutely, that's super clear, so thank you for that. And then just, I think your guidance upgrade was very constructive, but it does imply, on my math, a slight revenue decline in the fourth quarter. So, maybe you could speak to the drivers of this, and maybe how we should sort of think about the jumping off point for next year. Because obviously this quarter is very strong, it seems like the fourth quarter is a little bit weaker. You did talk about how there's seasonality there. So just putting that all together.

Yes, so essentially James, what we are saying is, don't take Q3 and start multiplying. Take the first three quarters and extrapolate. That's the main message we're giving you. I'm not going to give you the guidance and trend lines for next year just yet. Give me till February to get there. But that's the main theme that we're indicating. I'm not taking anything away from the strength of this quarter. Despite hiring 316 people from university, our utilization was strong, which meant our bill rates and utilization were higher than we anticipated for the more senior professionals. We also had very strong realization, especially in corporate finance and restructuring from work that was done in prior quarters. Overall, a good strong quarter, but you must take the first three quarters and extrapolate and not just the third quarter.

I guess the only other thing I'd add, Ajay, is to underscore your other point, which is we do have holidays and we're a professional services business in the fourth quarter. And that is, occasionally we have weird stuff happen at the end of the year where we close deals so that you don't see it in the numbers. But if you look back over multiple years, our Decembers are much weaker and it's not because our business fell off, it's because people take some well-deserved vacation around the holidays that we bill by the hour. So that's the other factor to have in mind, James.

Absolutely, that's very clear. And then for just my last question, I just want to turn to cash flow conversion. Despite very robust earnings, cash balances were down sequentially and the three-Q day sales outstanding are substantially above historic 3Qs. Maybe you could just speak to the drivers of the lower conversion and perhaps whether there's anything structural that is different versus prior years.

There isn't anything structural. That's the first part of that. Look, we launched a new ERP system in April, and in April, our billing was depressed. Since then, our billing has picked up substantially. The last few months, we're billing over $300 million each month, but there's still a little bit of a lag. Our revenues have surged, which I'm delighted about in the same timeframe. So as billing and collection is picked up, it lags the revenue. And I think in the fourth quarter, we will flip that.

Okay. Thank you so much.

Our next question will come from Tobey Sommer with Truist. Please go ahead.

Thank you. I was curious, from a historical perspective, what's a reasonable revenue range for what constitutes a large project at the company in a single quarter? Is there a high degree of variance across the segments? I don't expect specific numbers, but if you could ballpark it for us, because we do know that it's a big project firm.

Did we answer that, Ajay? I'm happy to answer it. I just don't know if we give out that information or not. I don't know why I answered that.

Yes. In general terms.

So let me say this. They do vary. They do vary a lot by segment. I mean, they all have big jobs, smaller jobs. But if I think back over the years, the largest job in Stratcom has been less than the largest job in Econ or the largest bankruptcy we've done in Corp Fin or the largest investigation we've done in FLC. I don't, do we respond to the range and the size of the jobs?

I mean, I would say what we will do is we will call out if any one job is more than 10% of segment revenues. So, from time to time, we'll have that size of case. And more recently, it's been around Econ, larger matters there, and Technology. I think last year, actually, in Technology, we called out that we had one large mandate that was over 10% of segment revenues.

So that's a good threshold. Over 10% of revenue is a good threshold for what constitutes a large job?

So, in short, that would be a significant job. If it represents 8% of revenues, we see it as a substantial job as well. What we're indicating is that certain segments could potentially experience more double-digit revenue in a quarter based on that calculation, which is quite substantial. If you have strong double-digit revenue in a quarter that then drops to zero, that is significant given our fixed cost structure. Based on the numbers, I believe that's what Mollie's comment suggests. Does that make sense, Tobey?

Yes, it does. Thanks. Where does FTI stand in terms of the development of the international business? It's clear that not every city abroad possesses every segment and capability of the firm, and you're expanding those capabilities over time as you grow. Will the margins internationally over the next few years likely be a hindrance, neutral, or will they expand from a level that might be below the firm's average but still contribute positively to the corporate margin as that develops?

Let me break that down into two parts, even though you framed it as a single question. Regarding our international expansion, we're still in the early stages. I hope someone is noticing our revenue growth; we reported a year-on-year growth of around 26% to 27% for EMEA. Some of that is due to foreign exchange, but it was over 20% even without considering FX. We're not yet at the level of presence I aim for as leaders in this segment, country by country. However, we can no longer be labeled just as a European firm with most of our workforce concentrated in London. While we have more employees in London than when I started, we also have teams across the continent that are developing businesses and demonstrating our capability to succeed in those markets. I'm specifically talking about EMEA right now, but in Latin America, we’ve assembled the best team we've ever had. We've also discussed the progress we've made in Asia and Australia recently. We are in the early stages of what could be a long-term business endeavor, and I feel optimistic about it. As for earnings, this quarter has indeed presented significant challenges, but it has not always been that way. We're seeing success in many areas; the challenge lies in the ability to attract a lot of talent in some regions while succeeding in others. This can obscure the numbers a bit because success in one area can lead to new investments elsewhere. I believe this situation will continue for some time. It's about seeing successful investments come to life and having the confidence to act when great talent becomes available, which we did this year. That's how we are achieving not just double-digit growth, but remarkable growth levels in EMEA. We believe we can keep investing in that growth. If we were to stop growing, our EBITDA margin would certainly improve, but that's not our goal. Our margin would increase without opportunities for hiring, but we want to keep growing, which is a balancing factor for us. I wouldn't underestimate the number of exciting international investments we have and how well they're performing. Did that address your question, Tobey?

Sure. So I had a couple of questions on M&A. I'd like to get your autonomous sense for what the large activity in the oil patch, is that indicative of a broader resurgence or perhaps isolated? And I'd love to hear if you have any perspective on the new merger guidelines out of the FTC related to antitrust. It seems a little bit stricter, which can maybe be favorable on a specific project but could also influence the animal spirits that sometimes drive consolidation, making some others sort of reluctant to pursue it. If you have an early perspective, I'd love to hear it.

I don't have a clear viewpoint on this. You're highlighting two crucial points: the number of deals being completed and how competitive those deals are. This year, the deal market has significantly declined, but our E-Con business is performing well. This is largely due to increased regulatory scrutiny, which puts our group of economists in demand. You're noting the right factors that people consider regularly, such as higher interest rates and their potential impact on deal activity, along with the effects of regulatory scrutiny. I can't predict how everything will play out, but historically, increased regulatory scrutiny has led to higher demand for our services rather than lower. As for the number of M&A deals next year, I can't provide more insight than you can; I welcome comparing notes, but I think we're both just making educated guesses.

Absolutely. Last question for me, Ajay, you retired the convert. Is the current balance sheet structure what we should think of over the medium term? Or do you have something in mind to alter the complexion?

No. No, Tobey. We have a $900 million revolver, and that's what we are using and paying down.

Thank you.

Thank you, Tobey.

Our next question will come from Andrew Nicholas with William Blair. Please go ahead.

Hi. Good morning. I appreciate you taking my questions. A lot of things that I was going to ask have been covered. So apologies for a little bit more granular questions here. I guess, first on CFR, the higher bill rate, really good growth. I think you mentioned some differences in terms of the staffing period and who's doing work. But is there any way to kind of frame the impact from mix between the different business lines and practices versus underlying rate increases or price increases on a rate card? Just trying to get a better sense for the different levers there.

I wouldn’t focus on the rate card or the mix initially. Instead, I would consider the factors we discussed, such as the significant hiring of junior employees from universities. Despite this, our utilization by segment remained relatively stable, indicating that more senior staff were occupied and billing at higher rates. Additionally, there was realization on previously deferred revenues, where either someone reached a cap or we commenced work without a letter of engagement. These were the main influences. In our last call, Steve highlighted that our revenue should surpass the growth in headcount and inflation combined. This quarter, we accomplished that goal. Moving forward, these improvements can emerge from rate increases, mix, utilization, or realization, with two of these four factors playing a role this quarter.

Understood. That's helpful. Thanks, Ajay. And then for my follow-up, on the Restructuring environment, I appreciate all the commentary to this point, including the details on the sector level momentum. But just wondering if you could speak to differences between the restructuring environment here in the United States versus abroad? I think there's been a dichotomy in the way that you described that historically or at least a few quarters ago, wondering if there's been any kind of narrowing of the experience between those two regions? Or any color you could give on regional differences. Thank you.

There is a lot of variation around the world, and it differs by geography. Earlier in the year, while we mentioned that some overseas markets were slow, our business in Australia was quite active, despite the general sluggishness in that market. The new team there seems to be winning many projects, although not every single one. Recently, those projects in Australia have declined, so the activity level has decreased. Our German business started slowly earlier this year but has since become busier. If we take a broad view, the earlier assessment may have been overly simplified. Certainly, the U.S. was busier than the average overseas market earlier this year, and that trend still holds, albeit with some reduced differences. Our Spanish business, on the continent, is thriving and there's a stronger momentum overseas now compared to earlier this year, but still with significant regional differences. Ajay, do you have a different perspective on this, or does that sound accurate?

No, it's exactly it.

Thank you very much.

Thank you. And thank you all for the time today and over the year and over the multiple years. We so enjoy building this institution and appreciate your continued attention and support. So thank you very much.

This concludes today's conference call. Thank you very much for attending today's presentation. You may now disconnect your lines.