Earnings Call Transcript - FCN Q4 2020

Operator, Operator

Welcome to the FTI Consulting Fourth Quarter and Full Year 2020 Earnings Conference Call. All participants will be in listen-only mode. After today’s presentation, there will be an opportunity to ask questions. Please note, this event is being recorded. I would now like to turn the conference over to Mollie Hawkes, Vice President of Investor Relations. Please go ahead.

Mollie Hawkes, Vice President of Investor Relations

Good morning. Welcome to the FTI Consulting conference call to discuss the company's fourth quarter and full year 2020 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 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 as well as other disclosures under the heading of Risk Factors and Forward-Looking Information in our Annual Report on Form 10-K for the year ended December 31, 2020, and in our other filings with the SEC. Investors are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this earnings call and will not be updated. During the call, we will discuss certain non-GAAP financial measures such as total segment operating income, adjusted EBITDA, total adjusted segment EBITDA, adjusted earnings per diluted share, adjusted net income, adjusted EBITDA margin, and free cash flow. For 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 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 has been updated to include our fourth quarter and full year 2020 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 will provide the same details as 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.

Steven H. Gunby, President and CEO

I always have to remember to take off from mute, Mollie. Thank you for the introduction and good morning, and thank you all for joining us. My guess is many of you, like me, are extraordinarily happy to see 2020 behind us. I think also many of us realized that some elements of 2020 are not yet fully behind us. The COVID cases are coming down from the extraordinary levels that we saw over the holidays. But of course, they're not down to zero by any chance, and there's still a lot of it around. We have vaccines, but they're not yet in each of our arms. And I guess most importantly, the disruption that COVID-19 has caused to our businesses, our personal lives, and society more broadly obviously remains. Having said that, I think we all see some light at the end of this tunnel and I, for one, am so, so grateful to see that. So look, in addition to thanking you, as I normally would do for your continued attention to our company, I mean, once again wish you and each of your families good health over the next while and rapid access to things like vaccines. Today, I have two messages about our company. The first is that I am and I hope you are, incredibly impressed by how our company has weathered this unprecedented set of challenges of 2020 and continued to do so thus far in 2021. And the second is to suggest that the resilience shown in 2020 further underscores my condition in the tremendous power of this company and just how bright our future is coming out of COVID. Let me talk to both of those points briefly, and then I'll turn it over to Ajay to go through the numbers for the quarter and for the year. In terms of the first message, let me start by thanking and celebrating the teams that delivered those results, our people, for the dedication that they showed last year that drove the success. Our teams did an incredible job. Keeping our people safe, keeping their families safe, supporting each other and our families through that challenging year, all while delivering for clients in unprecedented ways, in critical ways from home. As a result of those efforts, even in the face of those challenges, we won and delivered on some of the most important assignments in our company's history. We built our brand. While maintaining incredible morale around the firm, we promoted terrific people. We attracted more great people to FTI and through all that, we delivered solid financial results, even while parts of our business faced unprecedented challenges. With respect to the financial results, I'm going to leave most of the discussion to Ajay, but let me talk about why I use the word solid. Some folks could look at the $5.99 of adjusted EPS for 2020 and point out, it's another record year, another record year of adjusted EPS for the company. In truth, when you unpack it, and Ajay will unpack it a bit further, I think it's more appropriately viewed as a solid performance. As you know, there are a bunch of things in any quarter that can play out one way or another like taxes or success fees. In the fourth quarter, those items played out positively in a much bigger way than we typically have seen. If you adjust for that, you don't see it as a record year but rather a solid year. And I think that's a better way to look at it. Because if you look at some of the underlying factors, it's also I think, a solid year. We grew, but we grew less fast than we had hoped to at the beginning of the year, but we grew less than the headcount we added. Adjusted EBITDA, which you know we've been growing over time this year was really flat. So I think a solid year is a more appropriate description of 2020. But another way to look at it, and I think this is an important part, we had a solid year. For example, we grew in the face of COVID. A solid year in a year when some parts of our business had unprecedented challenges. Some parts of our business were close to shut down for parts of the year. And importantly, we drove those solid results without short changing our future, in fact, while supporting and investing for the future of this company. We didn't risk teams that were facing slow periods, we supported them. We continued to attract great people, develop our people, retain terrific talent. We made both organic and inorganic investments. We didn't cut headcount in the face of COVID, we increased our billable headcount by 14.5%. We seized the opportunity created by disruptions in the market to attract 36 terrific Senior Managing Directors laterally, and we welcomed an additional 21 Senior Managing Directors through the acquisition of Delta Partners. We didn't make those investments to bolster our profitability this year on the short term. As we talked about in the past, most investments like that in professional services cost you in the short term. We made them because we believe they, like the prior investments we made, build our business and will build our business for the next many years, and we made those investments because we could, because the investments we had made in prior periods had given us a strength that allowed us to have the wherewithal to invest at a time when others were not so fortunate. Those moves, those investments, that support for the great core team of FTI in my opinion positions us extremely well for the period coming out of COVID. You could ask about challenges ahead, of course there are challenges ahead, I think we all know them. I've never seen a world with more uncertainty with more disruption, whether it's economic uncertainty, credit uncertainty, or political uncertainty. You can point to loose money out there and government interactions that are dampening restructuring activity, you can look at the fact that there are new variants of the coronavirus that could accelerate cases conceivably, and we can all point to stress and uncertainty in the global political world. But to me, if this year proves anything about our company, it is the incredible resilience of our business and our people, our ability to thrive through a myriad of challenges over any medium term. A few quarters ago, we had some businesses that had record low utilization and were for the first time ever, not profitable. In those circumstances, you always have some people question, oh, should we do layoffs? Will these businesses ever come back? We thought those were great businesses with great people, and we continued to support them; and now just two to three quarters later, that confidence in these businesses is being rewarded. The efforts of the people in those businesses that they made to stay relevant to clients, connected to critical issues, connected to their people not only resulted in those businesses coming back, but as a result of us being involved in critical matters and our backlogs are up dramatically from where they were just a few quarters ago. This past year confirms for me lessons I've learned over many years in professional services, which in times of difficulty, if you avoid focusing on the quarter, avoid overreacting, but rather concentrate on aggressively building positions around the most important market needs, attracting and supporting the best professionals, you can use that period to help build an institution that's a powerful growth engine, perhaps not in that quarter or the next one, but for years to come. An institution that great professionals want to be part of, that they want to help grow and an institution that creates economic value for those committed employees and for shareholders. That is what we have been doing in these last years. It has led to some quarters with down results, and some years with only solid results, but it's also led to years where we can deliver the highest employee engagement scores and the lowest turnover ever. We can invest in important initiatives for the future of this company, like diversity, inclusion, and belonging, and corporate citizenship. It allows us to continue to attract great talent. I think it's not generally known that two-thirds of our Senior Managing Directors in this firm today either joined the firm or were promoted during my six years. What a degree of energy and enthusiasm and forward-looking that we have today because of that investment in terrific talent. And it allows you to win more big impactful cross-segment jobs in more places than ever before. Ultimately, those sorts of investments allow you to build a better, stronger, more attractive vibrant institution, which ultimately then also allows you to deliver a lot of shareholder value. For example, as many of you know, we've more than doubled the market cap of this company over the last few years. I so look forward to continuing that journey, hopefully, with each of you in the years ahead. With that, let me turn the call over to Ajay to take you through our financial results in more detail. Ajay?

Ajay Sabherwal, Chief Financial Officer

Thank you, Steve. Good morning, everybody. In my prepared remarks, I will take you through our companywide and segment results for 2020 and the fourth quarter and guidance for 2021. I'll begin with some highlights for the year. Revenues of $2.461 billion increased $108.6 million or 4.6%. GAAP EPS of $5.67 compared to GAAP EPS of $5.69 in 2019. Adjusted EPS of $5.99 compared to adjusted EPS of $5.80 in 2019. As Steve mentioned, our GAAP and adjusted EPS included a significant tax benefit that boosted full-year 2020 EPS by $0.30. And adjusted EBITDA of $332.3 million was down from $343.9 million in 2019. Our performance this year is the result of the breadth of our service offerings and the continued investments we have made for future growth. The global pandemic boosted demand for our restructuring services. Though such demand peaked in the second quarter as governments increased liquidity and placed moratoriums on insolvency proceedings. Conversely, in the second half of the year, increased liquidity spurred M&A activity, creating more demand for our Economic Consulting and Technology segments as well as our transactions practice within our Corporate Finance & Restructuring segment. Undeterred by the impact of the pandemic on co-closures and travel, which especially hurt our Forensic and Litigation Consulting or FLC segment, we continue to invest in growth. In 2020, our total billable headcount for the company grew 14.5%, on top of the 17.8% growth in 2019. Lower SG&A expenses from the constraints on travel and entertainment and lower weighted average shares outstanding or WASO from share buybacks also boosted 2020 EPS. Overall, given the challenging year, we are very pleased with these results. Now I will turn to fourth-quarter results, which exceeded our expectations. For the quarter, revenues of $626.6 million increased $24.4 million or 4%, GAAP EPS of $1.57 compared to $0.76 in the prior-year quarter. Noteworthy during the quarter, we recorded an $11.2 million tax benefit from the use of foreign tax credits in the United States and a deferred tax benefit arising from an intellectual property license agreement between our U.S. and U.K. subsidiaries, which boosted both GAAP EPS and adjusted EPS by $0.32 for the quarter. Additionally, the impact of lower WASO from share repurchases increased EPS by $0.11. Adjusted EPS of $1.61, which excludes $0.04 of non-cash interest expense related to our 2023 convertible notes compared to adjusted EPS of $0.80 in the prior-year quarter. Net income of $55.6 million compared to $29.1 million in the fourth quarter of 2019. Adjusted EBITDA of $82.3 million or 13.1% of revenues compared to $58.3 million or 9.7% of revenues in the prior-year quarter. The increase in EBITDA was primarily due to higher revenues in our corporate finance and restructuring, economic consulting and technology segments, which was partially offset by a decline in FLC and lower SG&A expenses due to a true-up of bonuses and lower travel and entertainment expenses. These increases were only partially offset by higher compensation related to a 14.5% increase in billable headcount. Now turning to our performance at the segment level for the quarter. In corporate finance and restructuring, revenues of $219.8 million increased 21.4% compared to Q4 of 2019. Acquisition-related revenues contributed $19 million in the quarter. Excluding acquisition-related revenues, the increase was primarily due to higher demand for restructuring services, largely in North America and EMEA as well as higher success fees. This increase was partially offset by a $7.6 million decline in pass-through revenues due to a decline in billable travel and entertainment expenses. Adjusted segment EBITDA of $35.4 million or 16.1% of segment revenues compared to $24.8 million or 13.7% of segment revenues in the prior-year quarter. This increase was due to higher revenues, which was partially offset by an increase in compensation, primarily related to 38.6% growth in billable headcount and higher variable compensation. Of note, the net year-over-year increase of 461 billable professionals includes continued organic hiring, 147 professionals from the acquisition of Delta Partners, and the transfer of 66 professionals from our FLC segment into corporate finance, which occurred in the second quarter of 2020. On a sequential basis, corporate finance and restructuring revenues decreased 7.1% due to the decline in restructuring activity. This decline was partially offset by a sequential increase in revenues from our transactions-related services. Moving on to FLC. Revenues of $127.2 million decreased 15.4% compared to the prior-year quarter. The decrease was primarily due to lower demand for disputes and investigation services. Adjusted segment EBITDA of $7.6 million or 6% of segment revenues compared to $17.4 million or 11.6% of segment revenues in the prior-year quarter. This decrease was primarily due to lower revenues with lower staff utilization, which was partially offset by a decline in SG&A expenses. Sequentially, FLC revenues increased 6.8% due to higher revenues in North America particularly driven by higher demand for our dispute services. As with last quarter, we continue to see momentum steadily building with an increase in new matters being opened, the gradual reopening of courts and trial dates getting scheduled, though utilization is still below pre-COVID levels. Economic consulting's record revenues of $160.5 million increased 4.9% compared to Q4 of 2019. The increase in revenues was primarily due to higher demand and realized bill rates for M&A-related and non-M&A related antitrust services. Adjusted segment EBITDA of $31.3 million or 19.5% of segment revenues was a record and compared to $17.3 million or 11.3% of segment revenues in the prior-year quarter. This increase was due to higher revenues, a reduction in our use of external affiliates, and lower SG&A expenses. Sequentially, revenues in economic consulting increased 3.5% as we continued to see higher demand for our non-M&A related antitrust services. In technology, revenues of $58.6 million increased 13.8% compared to Q4 of 2019. The increase in revenues was largely due to higher demand for M&A-related second request services and litigation services. Adjusted segment EBITDA of $10.2 million or 17.3% of segment revenues compared to $7.8 million or 15.1% of segment revenues in the prior-year quarter. This increase was due to higher revenues, which was partially offset by an increase in compensation. Lastly, in strategic communications, revenues of $60.5 million decreased 8.8% compared to Q4 of 2019. The decrease in revenues was primarily due to a $4.8 million decline in pass-through revenues. Adjusted segment EBITDA of $11.7 million or 19.4% of segment revenues compared to $9.9 million or 14.9% of segment revenues in the prior-year quarter. This increase was primarily due to a decline in SG&A expenses compared to the prior-year quarter. Sequentially, revenues in strategic communications increased 14.2%, primarily due to higher demand for corporate reputation and public affairs services in the EMEA region. Now I will discuss certain cash flow and balance sheet items. Net cash provided by operating activities of $327.1 million compared to $217.9 million in the prior year. Free cash flow of $292.2 million in 2020 compared to $175.8 million in 2019. In 2020, we repurchased 3.3 million of our shares for a total cost of $353.4 million. In Q4 alone, we repurchased 1.6 million shares at an average price per share of $105.84 for a total cost of $169.2 million. And throughout 2020, we continued to invest in the business through both organic and inorganic investments, including attracting and developing senior managing directors through lateral hires and promotions and our acquisition of Delta Partners. Despite using $353.4 million for share repurchases, a 14.5% increase in billable headcount, and the acquisition of Delta Partners, we ended the year with our total debt, net of cash, up only $74.4 million compared to December 31, 2019. Turning to our 2021 guidance, as usual we are providing revenues, GAAP EPS, and adjusted EPS guidance for the year. We estimate that revenues for 2021 will be between $2.575 billion and $2.7 billion. We expect our GAAP EPS which includes estimated noncash interest expense related to our 2023 convertible notes of approximately $0.20 per share to range between $5.60 and $6.30. We expect full-year 2021 adjusted EPS, which excludes the impact of the noncash interest expense, to range between $5.80 and $6.50. You may notice that our guidance ranges are slightly wider than previous years. And the low end of our guidance for adjusted EPS is up only slightly compared to our full-year 2020 performance after adjusting for the benefits of our tax strategy. Our 2021 guidance range is shaped by several assumptions. Globally, increased liquidity and moratoriums and insolvency have benefited even the most distressed companies such that speculative debt default levels are at a record low. We expect restructuring activity to be subdued in terms of new defaults, at least through the first half of 2021. However, we believe that eventually, moratoriums will be lifted and there may be limits to liquidity, resulting in an increase in restructuring activity but when such demand surfaces or to what extent is uncertain. Conversely, we see the current backdrop of strong M&A activity continuing to favorably impact our economic consulting, technology and strategic communications segments as well as our transactions business within our corporate finance and restructuring segment. We have also invested significantly in capacity in our business transformation and transactions businesses where we believe we have enormous growth potential. The segment which was most impacted by COVID-19 in 2020 was FLC. We're already seeing a recovery, albeit slow and our current expectations are that we will continue to gain momentum. We expect a higher effective tax rate in 2021. We currently expect our full-year 2021 tax rate to range between 23% and 26%, which compares to 19.7% in 2020. And we expect SG&A to gradually increase through the year as the pandemic eases. Before I open the call to questions I, like Steve, would like to express my gratitude to our employees for their performance in 2020 in the face of COVID-19 and to our shareholders and clients for their continued support. And now I'll close my remarks today by emphasizing a few key themes. First, our business is resilient because of our diverse mix of services, which uniquely positions us to help our clients as they navigate their most complex business challenges, regardless of business cycle. Second, our business is strong not only in North America, but also globally; our capacity to serve our clients in multiple jurisdictions is one of our distinct competitive advantages. Both our EMEA and Asia Pacific regions had record revenues in 2020. Our CAGR for revenues in EMEA since 2017 is 23.9%. As Steve said, we succeed by building positions around the most important market needs and attracting and supporting the best professionals. Third, our leadership team remains focused on growth with strong staff utilization. And finally, our business generates excellent free cash flow, and our balance sheet is exceptionally strong. We have the capability to continue 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.

Operator, Operator

The first question comes from Tobey Sommer with Truist Securities. Please proceed.

Tobey Sommer, Analyst

Thank you. With respect to your outlook for corporate finance and restructuring, you cited subdued defaults in the first half. Do you assume that segment is down year-over-year, and if so, how much and do you think the moratoria will be lifted this year?

Ajay Sabherwal, Chief Financial Officer

So Tobey, let me try and answer that fully. There's a range of outcomes, which is why we provide a range of guidance. At the higher end, assuming all other factors remain constant, we expect growth, while at the lower end, we see different possibilities. Regarding its direction, restructuring is currently weak, and we anticipate that moratoriums will be lifted as the pandemic subsides. However, I can't predict exactly when the pandemic will fully end, and governments often extend the duration of moratoriums. This uncertainty is included in our assumptions and guidance range. More importantly, restructuring overall offers higher billing rates and margins, and we have a very successful transactions and business transformation practice that's experiencing consistent growth. Restructuring, on the other hand, is more volatile, while these other segments provide steadier growth. We do experience some trade-offs, particularly with staff transitioning between the two areas, especially at the junior level. All these factors have been considered in our guidance, and it's also possible that our corporate finance business could see year-over-year growth.

Tobey Sommer, Analyst

Okay, thank you. And in your guidance, you don't guide formally for sort of an EBITDA or operating margin. Implied in your guidance is EBITDA margin up year over year because you have a few offsets below that line in terms of a lower share count and a higher tax rate? Thanks.

Ajay Sabherwal, Chief Financial Officer

At the lower end of the range, it wouldn't align with your statement, but at the higher end, it would. This explains the presence of the range. Regarding share buybacks, we are fine with cash accumulating. Over time, we will avoid dilution, but there is no strict mandate from our Board to buy back shares tied to a specific time frame or share price. We don’t have a concrete plan in that regard. Naturally, if performance declines, the share price typically reacts, leading us to buy back more shares and vice versa. All of these various scenarios with their offsets have been considered in our guidance.

Tobey Sommer, Analyst

What is the posture for hiring this year? I know the long-term rate in recent years has been strong double-digits, but is there any reason to think that you may be slightly slower in your billable headcount growth this year versus recent trend?

Steven H. Gunby, President and CEO

Maybe I can address that, Tobey. It's great to hear from you. I hope you and your family are doing well. We analyze the situation in parts. Some of our businesses are currently sold out, while others are experiencing slower activity. It’s important to forecast this over a longer period because sometimes we need to commit to hiring months ahead. We don’t set an overall target for the company; instead, we evaluate each business individually. We’ve brought on several senior staff members, and we need to develop support for them. We also consider the current economic climate. If a business has been slow for a year and didn’t utilize all the resources we expected to hire due to anticipated growth the previous year, we typically reduce hiring in that area. We approach this logically, examining each business segment carefully. However, we remain proactive when it comes to senior hires. If we find exceptional senior candidates regardless of how a business is performing, and if we believe in the business, we will proceed with the hire and address the rest later. Otherwise, we adjust our hiring and focus depending on whether we are overstaffed or understaffed. Does that cover your question, Tobey?

Tobey Sommer, Analyst

It does, thank you and likewise for your family, Steve. Last question for me, could you refresh us on the approximate breakdown of revenue in the various businesses within corporate finance and restructuring, I think that's something that investors struggle to perceive? Thank you.

Ajay Sabherwal, Chief Financial Officer

There's a reason for that, the struggle because it's not static as you can imagine, right. Let me give you an example. In Q2, restructuring was almost 70% of the revenue. In Q4, closer to 55%, so it varies. And staff at the junior level can do restructuring work, transactions work, and business transformation work. There are matters or assignments, engagements, as you would like to call them, which have components of all three. So this is the reason why you have that. But to give you a sense for it, we've been doing over the years if you want to take a slightly longer-term view, over the years, business transformation and transactions are becoming a growing percentage of the total mix. This is a concerted effort on our part. Yet, when there's a sudden boom, as it were, in restructuring, that revenue does become a much higher part of it. So right now, the transactions practice for example is doing exceptionally well. And so you will see that percentage grow. I hope I've answered the question.

Tobey Sommer, Analyst

Thank you.

Steven H. Gunby, President and CEO

Thanks Tobey.

Operator, Operator

The next question comes from Andrew Nicholas with William Blair. Please go ahead.

Andrew Nicholas, Analyst

Hi, good morning.

Steven H. Gunby, President and CEO

Good morning, thanks for joining.

Andrew Nicholas, Analyst

Of course. Ajay, in your prepared remarks, you mentioned your assumption that SG&A will gradually increase throughout the year as the pandemic lessens or evolves. I guess I'm wondering, it's almost a year now under your belt in the new environment, could you speak to whether you expect any kind of permanent savings in that SG&A line, whether it be from lower real estate spend with a higher reliance on remote work or less T&E spend, and then somewhat relatedly, how much of that is simply just a reduction in pass-through revenue as opposed to potentially a bottom-line benefit?

Steven H. Gunby, President and CEO

Yes, I'll let Ajay respond to the second part of that question about the pass-through revenue. I can address the first part more broadly. Look, nobody knows for sure what the post-COVID world will look like. There are many forecasts, but I believe we will end up somewhere in the middle. I remember in the early part of my career, I flew to Korea for a six-minute pitch. My part in that pitch was only six minutes, but I had to fly there, get off the plane, take a shower, drink coffee, give my six-minute pitch, and then fly back. I'm pretty sure nobody in consulting will go to those lengths again. The world has changed. People will use Zoom or Teams for those meetings now. However, while some people predict that offices will disappear and nobody will meet in person, I don't think that's the case, especially not in our market segment. The work we do is high-intensity and involves teams collaborating closely on unique products. Each project is different, with significant stakes involved, requiring teamwork. We invest heavily in building teams both in offices and globally because our work demands collaboration. I don't believe we will eliminate our real estate; we will still need offices and people working together. There might be a slight reduction in office space or travel, but no one knows exactly how that will balance out. In terms of 2021, which Ajay can confirm, we did not plan for drastic changes in our SG&A strategies for 2020 or 2021. The reality is that while we spent less on travel, our SG&A costs grew, and we expect those travel expenses to return gradually. We don't have a clear vision of the post-COVID world yet, but I believe we will figure it out as we progress. Ajay, would you like to add anything or address the pass-through revenue question?

Ajay Sabherwal, Chief Financial Officer

Yes, absolutely. To expand on what Steve mentioned, billable travel and expenses are included in revenue, while direct costs are not counted in SG&A. That’s the first point. My comments regarding this are that it’s essentially a pass-through, meaning it doesn't affect margins or EBITDA. Regarding SG&A, non-billable travel and expenses should be approached cautiously, as many are realizing that the business can operate effectively without travel. For instance, consider this call; we are not all gathered in one location but are connecting from our homes. While I know some of you may want to see me in person, we've been managing these interactions remotely. It would be wise to plan for a return to previous levels by mid-year, with a gradual increase to that level and then sustained growth. This is the assumption we are modeling, with some variability around it.

Andrew Nicholas, Analyst

Got it. No, that's helpful, thank you. Another question I had was just on kind of project size dynamics in the fourth quarter, specifically interested in the economic consulting segment. Looks like you had a really strong quarter with what I believe are record margins in that business. So I'm wondering if that was partly due to some larger than usual engagements or if the strength was pretty spread out.

Ajay Sabherwal, Chief Financial Officer

I am extremely proud of the achievements of our economic consulting practice. It's fulfilling to be part of a company that is addressing many significant issues globally. However, I won't dive into the specifics as it's not appropriate to discuss particular matters or their scale. The key takeaway is that if you're considering a substantial M&A issue, FTI and our Compass Lexecon economic practices are the right choice. For non-M&A antitrust matters, especially in the technology sector, we have top economists at FTI. It's crucial to engage our services for these needs. Regarding margins, they are influenced by functional revenue, and we utilized fewer external affiliates compared to our staff, which leads to higher margins. Margins can fluctuate based on the conclusion of matters and who is engaged, so I wouldn't place too much emphasis on that. It's more important to focus on the revenue narrative and profile.

Andrew Nicholas, Analyst

Great, that's helpful. And then one last one for me. One of your competitors in the UK sold off its restructuring business a couple of weeks back, I believe. And so I'm wondering, first, if there's any potential market impact to a competitor changing ownership, in your view, perhaps an opportunity to take some share or add talent? And then relatedly, I'm wondering how much private equity's interest in the consulting space more broadly is impacting asset prices right now and how that affects your approach to M&A in the current environment? Thank you.

Steven H. Gunby, President and CEO

If I can address both of those points. Regarding our restructuring business, we have experienced substantial growth. Ten years ago, we were primarily a U.S. business, but now we have established a strong global presence. We rank number one or two in more locations around the world than any competitor I am aware of, although we still have goals for expansion. When I started, we had around 700 billable professionals in CF, and now we have between 1,600 and 1,750. This area has seen significant growth, and this year we grew by approximately 38% through acquisitions and organic development. We are deeply committed to this business, and I believe we are in the strongest position we've ever been. The demand for our services is high, and we are consistently attracting talented individuals globally. We are vigilant about our competition and monitor them closely, but I am optimistic about our competitive stance in this sector. As for private equity, we have noticed its impact as well. The availability of loose money has allowed for unprecedented levels of debt financing in professional services and other sectors, driving asset prices to historically high levels. We actively seek acquisitions but evaluate them rigorously. Our primary consideration is whether we believe a group of people will want to remain with our firm for long-term growth, followed by the purchase price. This environment makes it challenging to pursue acquisitions that we feel confident about. Nonetheless, our growth has continued despite a few successful acquisitions, and we are ready to leverage opportunities when they arise. If private equity inflates prices and we cannot make acquisitions for a while, we will wait. However, I anticipate that when capital becomes more available, there may be many assets worth pursuing, and we will take advantage of that. Does this answer your question?

Andrew Nicholas, Analyst

Yes. That's a great answer. Thank you very much. And talk to you again soon.

Steven H. Gunby, President and CEO

Thank you.

Operator, Operator

The next question comes from Marc Riddick with Sidoti & Company. Please go ahead.

Marc Riddick, Analyst

Hey, good morning.

Steven H. Gunby, President and CEO

Good morning, Marc.

Marc Riddick, Analyst

I wanted to address a couple of quick points. I was reflecting on the future of office space, and more generally, I was curious about potential capital expenditure levels for 2021, as well as targeted areas for spending, whether it involves technology investments or anything else we should consider.

Ajay Sabherwal, Chief Financial Officer

So Marc, a great question. CAPEX is going to be high this year. We're thinking around $70 million, in that ZIP code, which is more than the typical $35 million to $40 million that we spend because we have a major project in New York. We are consolidating our office space and building out a new space there. And that's more than half of that. So this is the CAPEX and we also have the change-out of our ERP systems that too is taking place this year. So that's the answer to your question.

Marc Riddick, Analyst

So do you think that's going to be contained at 2021 or do we think that's going to go into 2022 with those projects?

Ajay Sabherwal, Chief Financial Officer

No, this is a once in a lifetime. Actually, I'm not masochistic to do ERP systems every year.

Steven H. Gunby, President and CEO

Ajay, I thought you were asking me because you wanted to do those every year. It was so much fun, Ajay. Did I misunderstand?

Ajay Sabherwal, Chief Financial Officer

And New York real estate is a once in a lifetime.

Marc Riddick, Analyst

Okay, and then switching focus, there's certainly a good amount of headcount additions towards the end of the year. I was wondering if you could discuss the opportunity sets regarding headcount and the targeted areas that you might prioritize, considering what you're currently observing in the marketplace.

Steven H. Gunby, President and CEO

I think our leaders are focused on strategies for growth, and where we believe in those strategies, we support adding headcount. Every part of our business has shown it can grow. When I arrived, I had to address some areas that weren't positioned to grow, but now every one of our businesses and regions is prepared for expansion. However, some businesses initially anticipated more growth last year due to COVID, resulting in hiring for growth that didn't materialize. Consequently, they are adjusting their hiring expectations for this year, particularly in areas that experienced inactivity last year. While some parts of the business were very active and can still increase headcount, overall, every business and region will add headcount over the long term, though the pace will vary by sub-business this year due to the previous overestimation of growth prior to COVID. Does that make sense, Marc?

Marc Riddick, Analyst

Yes, it does. I was curious about the teams and the activities they're involved in. Can you share some insights on the complexity of those large projects? Do you feel that the complexity of the current work is comparable to what you've encountered in the past, or has the impact of COVID introduced additional layers of complexity that require more expertise?

Steven H. Gunby, President and CEO

That's a great question. I'm not sure I have a definitive answer, but I want to emphasize that as we've strengthened our firm recently, we are increasingly handling some of the largest projects in the world, which tend to be the most complex. Our growth over the past few years has been driven by gaining a larger share of significant global jobs and the most complicated tasks. With our enhanced capabilities, we are becoming the go-to choice for these types of projects. While I don't think we've disclosed client names, the global restructuring cases we are managing now are ones we wouldn't have had a decade ago due to a lack of global capabilities. These complex jobs are now within our reach because we can manage challenging situations effectively. Similarly, our technology practice is a high-end global business that is frequently engaged with the most complicated projects. The increasing complexity in the world serves us well, even if it may not be beneficial for everyone else. If COVID contributes to this complexity, it will likely provide additional momentum for our business. Does that provide some clarity, Marc?

Marc Riddick, Analyst

Very much so. Thank you very much.

Steven H. Gunby, President and CEO

Thank you all for your continued attention during this challenging year. I wish each of you good health and the best for you and your families. Thanks.

Operator, Operator

This concludes our question-and-answer session which also concludes our conference. Thank you for attending today’s presentation. You may now disconnect.