Earnings Call Transcript - FCN Q1 2024

Operator, Operator

Good day, and welcome to the FTI Consulting First Quarter 2024 Earnings Conference Call. Please note, this event is being recorded. I would now like to turn the conference over to Ms. Mollie Hawkes, Head of Investor Relations. Please go ahead, ma'am.

Mollie Hawkes, Head of Investor Relations

Good morning. Welcome to the FTI Consulting conference call to discuss the company's first quarter 2024 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, initiatives, projections, prospects, policies, processes and practices, objectives, goals, commitments, strategies, future events, future revenues, future results and performance, future capital allocation and expenditures, expectations, plans or intentions relating to acquisitions, share repurchases and other matters, business trends, ESG-related matters, new or changing laws and regulations, scientific or technological development 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 headings of Risk Factors and Forward-Looking Information in our quarterly report on Form 10-Q for the quarter ended March 31, 2024, our annual report on Form 10-K for the year ended December 31, 2023, and in our other filings with the SEC. Investors are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this earnings call and will not be updated. During the call, we will discuss certain non-GAAP financial measures such as total segment operating income, adjusted EBITDA, total adjusted segment EBITDA, adjusted earnings per diluted share, adjusted net income, adjusted EBITDA margin and free cash flow. For a discussion of these and other non-GAAP financial measures as well as 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 2024 results. With these formalities out of the way, I'm joined today by Steven Gunby, our President and Chief Executive Officer; and Ajay Sabherwal, our Chief Financial Officer. At this time, I will turn the call over to our President and Chief Executive Officer, Steve Gunby.

Steve Gunby, President & CEO

Thank you, Mollie. Welcome, everyone. Thank you all for joining us this morning. As I'm sure many of you saw in our press release this morning, we again delivered terrific results this quarter. In fact, we delivered results that exceeded our expectations and I suspect many of yours as well. What I would like to do is to make 2 points before I turn the call over to Ajay who will, as usual, go through the details of the quarter. The first is to talk about something we have always believed is important to discuss after bad quarters, but also after good ones, which is that individual quarters, while they tend to reflect the core strengths we work every day to create, are often influenced by transient elements as well. And hence, we always urge caution about taking any given quarter, multiplying it by 4, and thinking, 'Wow, that's a great representation of where the company is.' That's the first point. The second point is on a different subject, but one that is, in an important way, tied to the first and is, in any case, something very important that is going on, which is the rich set of investment opportunities that we are seeing right now across our segments and around the world. Let me start with the first point on why quarterly results can deviate from what we would see as the true durable underlying economic power of the business. One reason is that certain P&L elements can sometimes have a somewhat random feel. Sometimes, they happen to have negative FX in the quarter or higher bad debt than is typical, or lower success fees. And sometimes it's the opposite—where those factors in a given quarter cut more positively than we would typically expect. This quarter, the factors we typically discuss didn't all cut positively. For example, as Ajay will talk about, we had some major revenue deferrals in Economic Consulting. However, the factors on average this quarter did cut more positively. For example, our tax rate was significantly lower than we expected in this quarter, we had lower FX remeasurement losses, as well as higher success fees compared to the prior year quarter. So the seemingly randomness of those factors is one reason, I believe, we should never overweight a quarter. The second reason I'd like to discuss is more subtle, but it's also one that has turned out to be powerful in some quarters: the degree to which the business ebbs and flows often coincide. As I think everyone knows, all of our businesses can have substantial real underlying swings from quarter to quarter. Those swings can have various causes; sometimes they reflect overall forces like COVID or geopolitical tensions, and other times they are market-specific conditions that drive our business, such as whether the restructuring market or deal markets are booming. Other times, it can be factors that are more idiosyncratic for us, such as whether business happens to be conflicted out of that quarter's largest jobs, or if the major jobs in any one segment happened to start or end that quarter. We have, across our business, enough disparate businesses within FTI that these business-influencing factors rarely cut all the same way across our businesses at the same time. More typically, if one region or business has a big set of jobs roll off, another may be facing a set of jobs that are just starting. But occasionally, there can be more alignment with those factors—more coinciding, either positively or negatively than is typical. Many of you have been following us for a while. For those of you who have, you might remember the first half of 2017. At that time, we had a whole lot of negative coinciding going on. We happened to swing and miss on some big jobs, we were conflicted out of some others, and some investments we had made had not yet borne out. We were cycling from a particularly strong first half in 2016. Consequently, we had a couple of very poor quarterly results. At that time, however, we were quite confident that the coincidence of bad factors did not reflect the true underlying strength of our business. We reaffirmed guidance for the year, and as you know, that confidence was subsequently borne out by the results in the second half of 2017 and beyond. Nevertheless, it was still painful. We were sitting there in the beginning of 2017 with two quarters that were pretty terrible. That’s negative coinciding. On the other hand, in 2019, some quarters felt like Camelot, where we came closest to everything going right across every business in every region at the same time. When Ajay and I talked about this quarter, it doesn't quite feel like 2019, but it does feel closer to Camelot than typical. We have had so many things go right so far this year. I'll give a few examples. In Corporate Finance, as you know, when restructuring is up, there’s often a partial offset in some of the other businesses. This quarter, all three of the major businesses in Corporate Finance—restructuring, business transformation and strategy, and transactions—grew at double-digit rates year-over-year. In Economic Consulting, we have won some of the biggest jobs that we have ever won. We’re seeing strength not only in non-M&A and M&A-related antitrust, but also in financial economics and international arbitration; not just in the larger regions, but also in smaller geographies such as Asia Pacific and Latin America. I'm sure you saw that Forensic and Litigation Consulting (FLC) had terrific results this quarter, coming from powerful contributions across investigations, disputes, construction solutions, and health solutions. Essentially, almost all of our practice lines pulled in the right direction. Technology is in a business facing industry challenges, yet, in the face of that, we continue to gain market share—winning large M&A second requests for engagements—and we're also seeing the results of forward-looking investments in areas such as emerging data. In Strategic Communications, we also delivered double-digit revenue growth. From a geographical perspective, this quarter we saw growth in all four regions, with North America and EMEA both growing revenues at double-digit rates year-over-year. The strength of this quarter clearly reflects the multiyear progress we have made and the focus we've had on building stronger businesses that are durable and able to sustain growth year-over-year. But I think both Ajay and I feel that in terms of the ebbs and flows of the underlying businesses, it does feel a bit closer to Camelot than we would typically see in a quarter. The consequence of these observations, as Ajay will talk about, is that notwithstanding the strong quarter, we are not revising guidance. We are not assuming Camelot will last forever. However, let me use that to bridge to something I feel is a far more fundamental point. It's nice to be in Camelot and to report these sorts of results in the quarter. But our success over these last few years has not required us to be in Camelot. In fact, our success has had little to do with the short-term factors I just mentioned. It has never involved us trying to ensure that every business only finds the zigs of its business while avoiding the zags each quarter. To the contrary, our success in these last 5 to 10 years has, in fact, been characterized by choppy lines in every business. Restructuring has gone up hugely in some quarters and gone down substantially in others. Transactions experience variability, as does antitrust clearance. We've had testifying business go nearly to zero during COVID. We have faced many ebbs and flows across the businesses. Our success has not been due to trying to eliminate that variability. Instead, what we have focused on is ensuring that variability oscillates around powerful, upward-sloping lines at every one of our businesses. It is the change in the trajectory of those underlying lines—business by business, region by region—that has made the difference. One of the most critical enablers of that change has been that we now have a leadership team at the Executive Committee level and far more broadly throughout this company that is focused not on quarters, but on the fundamentals that over time trump all short-term factors: making a difference for core clients; developing those core clients into deep relationships; attracting and promoting people you’re proud to be associated with so we can build businesses; investing behind those people; and, importantly, being willing to do so even when those investments come at a time that may not be convenient for your P&L. In that connection, let me move on to the second point I wanted to make, which is that right now, I believe we are staring at the richest set of investment opportunities that I have ever seen at this company. The combination of a great set of people we've attracted over time, some of the promotions we've made, the success we're having, and the investments we've shown ourselves willing to make around the world—even when others were cutting back—get noticed by talent and have attracted a great number of potential hires globally. We are having conversations and opportunities that we may not have had before, and it comes at a critical time for us as we have leaders in many parts of the world and across all of our segments. So we have an enormous set of conversations going on. As Ajay points out, one can never know exactly how many of those opportunities will come to fruition. But assuming a good number of them do and then we add junior professionals behind those bets on senior talent, it could hurt our P&L in the second half of the year or possibly into 2025. But it’s the equivalent of the investments we’ve made in the past that have been essential to the core vitality of this company and have allowed us to achieve multiple years of growth. My sense is that the history of the last 5 to 10 years shows that if we have these opportunities and invest boldly, if we execute at the quality and conviction level we have in the past, we might indeed hurt some quarters, but we will be building on and accelerating this powerful journey. This reinforces my conviction that this company, despite our recent success, is much closer to the beginning of a fabulous journey than to the end. With that, let me turn this over to you, Ajay, to take us forward.

Ajay Sabherwal, Chief Financial Officer

Thank you, Steve. Good morning, everybody. In my prepared remarks, I will take you through our company-wide and segment results for the quarter. As Steve mentioned, today, we reported yet another quarter of record revenues with all of our segments growing year-over-year. We experienced 15.1% revenue growth, which outpaced a 13.1% increase in direct costs and a 9.6% increase in SG&A expenses compared to the prior year quarter. As a result, earnings per share grew by 66.4% to $2.23. We are, of course, pleased with these results, which exceeded our expectations as we benefited this quarter from increases in both utilization and average billable rates. However, I must point out that the year-over-year increase in earnings is also partially due to several factors that negatively impacted Q1 of last year, including higher FX remeasurement losses; an investment in our public sector practice, which resides within our Corporate Finance & Restructuring segment, where we did not see significant revenues until the third quarter of '23; and losses within our health care business transformation practice, which we have since realigned within our Corporate Finance & Restructuring segment. Additionally, in the first quarter of 2024, our tax rate of 19.6% is particularly low relative to 24% in the first quarter of '23. Now turning to the details for the quarter. First quarter of 2024 revenues of $928.6 million increased $121.8 million, or 15.1% year-over-year. Earnings per share of $2.23 increased $0.89 compared to $1.34 in the prior year quarter. Net income of $80 million compared to $47.5 million in the prior year quarter. SG&A of $201.9 million or 21.7% of revenues compared to SG&A of $184.2 million or 22.8% of revenues in the first quarter of '23. The increase in SG&A was primarily due to higher compensation and bad debt. First quarter 2024 adjusted EBITDA of $111.1 million compared to $78.4 million in the prior year quarter. Our adjusted EBITDA reflects the effective tax rate of 19.6%, compared to 24% in the prior year quarter. The lower tax rate was primarily due to a decrease in foreign taxes and a higher discrete tax adjustment related to share-based compensation due to the exercise of additional, nonqualified stock options as compared to the prior year quarter. For 2024, we now expect our effective tax rate to be between 22% and 24%. Weighted average shares outstanding for Q1 were 35.8 million shares compared to 35.5 million shares in the prior year quarter. Billable headcount increased by 180 professionals or 2.9% year-over-year. Sequentially, billable headcount increased by 16 professionals or 0.3%. Though our billable headcount increase is small year-over-year and flat sequentially, we expect the most significant additions to our employee base in 2024 to occur in the second half of the year when we expect to welcome approximately 300 campus hires. Non-billable headcount increased by 81 professionals or 5% year-over-year. Now turning to our performance at the segment level. In Corporate Finance & Restructuring, revenues of $366 million increased 16%. Revenue growth was driven by double-digit top line growth across each of our restructuring, business transformation and strategy, and transactions businesses. In the first quarter, restructuring represented 47% of segment revenues, business transformation and strategy represented 31%, and transactions represented 22% of segment revenues. This compares to a split of 45% for restructuring, 32% for business transformation and strategy, and 22% for transactions in the prior year quarter. Year-over-year, restructuring revenues grew 20%, business transformation and strategy revenues grew 12%, and transactions revenues grew 13%. Adjusted segment EBITDA of $75.2 million, or 20.6% of segment revenues, compared to $51.8 million, or 16.4% of segment revenues in the prior year quarter. The increase in adjusted segment EBITDA was primarily due to higher revenues, including success fees, which were partially offset by higher compensation and SG&A expenses. Sequentially, Corporate Finance & Restructuring revenues were flat. Restructuring revenues grew 5%, and transaction revenues grew 2%, while business transformation and strategy revenues declined 8% as we saw some large jobs in that segment conclude. Industries where we have been helping clients with restructuring, where we saw sequential increases in revenues, include diversified metals and mining, chemicals, financial services, and real estate, among others. Adjusted segment EBITDA increased by $9.8 million sequentially, primarily due to lower compensation and contractor costs, which were only partially offset by an increase in business development expenses related to annual client events. Turning to Forensic and Litigation Consulting or FLC, revenues of $176.1 million increased 11.6%. The increase in revenues was primarily due to higher demand and realized bill rates for investigations and dispute services. Adjusted segment EBITDA of $33.7 million, or 19.1% of segment revenues, compared to $21.8 million, or 13.8% of segment revenues in the prior year quarter. The increase in adjusted segment EBITDA was primarily due to higher revenues, which were partially offset by an increase in compensation. Sequentially, FLC revenues increased by $10.6 million or 6.4%, primarily due to higher demand for construction solutions and disputes services. Adjusted segment EBITDA increased by $14.5 million sequentially, primarily due to higher revenues as well as a decrease in compensation and bad debt. In Economic Consulting, revenues of $204.5 million increased 20.6%. The increase in revenues was primarily due to higher demand and realized bill rates for non-M&A-related antitrust and financial economic services. Adjusted segment EBITDA of $14.2 million, or 6.9% of segment revenues, compared to $14.2 million or 8.4% of segment revenues in the prior year quarter. The increase in revenues was more than offset by higher compensation, contractor costs, and SG&A expenses. The increase in compensation was primarily related to higher variable compensation and the impact of a 5.8% increase in billable headcount. The increase in SG&A expenses was primarily related to higher bad debt. Similar to recent years, we experienced revenue deferrals that have resulted 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 EBITDA by approximately $6 million. Sequentially, Economic Consulting's revenues decreased by $1.5 million. Adjusted segment EBITDA decreased by $24.2 million, primarily due to higher compensation and bad debt. Technology's revenues of $100.7 million increased 11.1%. The increase in revenues was primarily due to higher demand for M&A-related second requests and information governance, privacy, and security services, which were partially offset by a decline in demand for investigations services. Adjusted segment EBITDA of $14.6 million, or 14.5% of segment revenues, compared to $15.4 million, or 17% of segment revenues in the prior year quarter. The decrease in adjusted segment EBITDA was primarily due to an increase in compensation, which includes the impact of an 11.2% increase in billable headcount, higher as-needed consultant costs, and an increase in SG&A expenses. Sequentially, Technology revenues were flat, and adjusted segment EBITDA increased by $2.2 million, primarily due to lower SG&A expenses, which were partially offset by an increase in compensation. Strategic Communications revenues of $81.2 million increased by 11.1%. The increase in revenues was primarily due to higher demand for public affairs and corporate reputation services. Adjusted segment EBITDA of $12.4 million, or 15.3% of segment revenues, compared to $9.6 million, or 13.1% of segment revenues in the prior year quarter. The increase in adjusted segment EBITDA was primarily due to higher revenues, which were partially offset by an increase in compensation and higher SG&A expenses. Sequentially, Strategic Communications revenues decreased by $5.4 million or 6.3%, primarily due to lower demand for corporate reputation services. Adjusted segment EBITDA decreased by $3.2 million, primarily due to lower revenues, which were partially offset by a decline in compensation and SG&A expenses. 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 $274.8 million compared to $254.2 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, higher annual bonus payments, and an increase in forgivable loan issuances, which were partially offset by higher cash collections. Total debt, net of cash and short-term investments, of negative $39 million at March 31, 2024, compared to $122.7 million at March 31, 2023, and negative $328.7 million at December 31, 2023. The sequential increase in total debt, net of cash and short-term investments, was primarily due to higher borrowings under the company's senior secured bank revolving credit facility, which were primarily used for annual bonus payments. Turning to guidance, though the end of the first quarter is usually too early to revisit guidance, let me remind you of a few of the determining factors. First, as I said at the beginning of the call, our tax rate was 19.6% in the first quarter of '24, but we expect it to be between 22% and 24% for the full year. Second, I should remind everyone that last year, we had a weak first half, followed by an exceptionally strong second half of the year. Our restructuring business this quarter was even stronger than we expected. Whether this strength will persist through the year may depend on factors that are difficult to reliably predict, such as the availability of funding for distressed companies and the duration of our ongoing matters. Further, our other businesses can also have significant ups and downs based on large new matters starting or ending, as evidenced even in this past quarter in business transformation and strategy where certain jobs ended. Third, we have the appetite and the means to make investments. That said, we cannot say with certainty when such investments will be made or how much impact they will have in this calendar year. Lastly, the fourth quarter is typically a weaker quarter for us due to a seasonal business slowdown and vacations at the end of the year. As Steve mentioned, it is rare that we see the underlying ebbs and flows in our business coincide to the extent they have so far this year. Our current guidance is in a range that encompasses both positive and negative scenarios for our various businesses. At this time, our guidance remains unchanged. Before I close, I want to reiterate four key themes that underscore the attractiveness of our business. First, our results illustrate the growing need for our services as we assist our clients in navigating their most complex challenges, irrespective of the business cycle. Second, our leading practitioners and their continued ability to not only win business, but also attract top talent, is our core strength. Third, we will continue to look to expand our portfolio of services to adjacencies related to our core competencies, including construction solutions, cybersecurity, and AI in FLC; strategy consulting and digital transformation in Corporate Finance; non-M&A-related antitrust in Economic Consulting; blockchain, digital assets, emerging data, and AI-based capabilities in Technology; and public affairs consulting in Strategic Communications. Finally, our healthy balance sheet affords us the flexibility to continue to enhance shareholder value through organic headcount growth, share buybacks, and acquisitions when the right opportunities arise. With that, let's open the call for your questions.

Andrew Nicholas, Analyst

I wanted to start on the restructuring environment. Ajay, I think you said it was even stronger than you expected in the quarter. Obviously, the first quarter, I think, is higher than fourth quarter levels. Just curious if you could unpack the strength. How much of it is the environment and kind of the market staying higher than you had expected versus the company winning a higher share of mandates? It did seem like from some of the things that we tracked down intra-quarter that you guys are doing quite well in terms of winning large deals. So any color on what is and is not under your control in that restructuring business would be helpful.

Steve Gunby, President & CEO

Ajay may have more detailed answers. Look, there have been some quarters where we've been up when the market has been down, which gives you an indication of share gain. I think this market is robust for both us and our competitors. It's not just us that are doing well. But I don't know how to disaggregate the two. Do you?

Ajay Sabherwal, Chief Financial Officer

No, I’m sure you’re absolutely right; us and others are doing better than we expected.

Steve Gunby, President & CEO

Yes, I think that's right. So I'd like to say it's all share gains, and sometimes it has been. I can't claim that this quarter, Andrew, is my sense. But we're feeling pretty good about our competitive position out there. Does that at least respond to your question?

Andrew Nicholas, Analyst

Yes, absolutely. No, it's not an easy question to answer, so I appreciate that. In terms of Economic Consulting, you mentioned the revenue deferrals and that potentially pressuring first quarter margins. Just to clarify there, is the work that you did or, I guess, the expenses tied to that work that you expect to come through maybe in the second half of the year, did that all happen in the first quarter? I guess I'm asking if I can do that math to specifically allocate that $6 million of EBITDA headwind as a one-time item to the first quarter Economic Consulting margins because that is a quite a bit lower margin level than maybe what you've done historically.

Ajay Sabherwal, Chief Financial Officer

You can, Andrew, and that’s exactly right. Just to be clear, the work—there was work last year as well. There's work this quarter as well. The impact this quarter would be that $6 million that we mentioned, and there is work continuing into the second quarter.

Andrew Nicholas, Analyst

All right. Great. And then maybe just one last one for me. I appreciate all the insight so far. I think if it wasn't yesterday, there was some news on non-compete legislation. I know that there's been already some pretty significant pushback from corporations on the new legislation. But if you could speak to either your thoughts on the legislation, the likelihood of it ultimately coming to pass, and the impact on the business, that would be really helpful.

Steve Gunby, President & CEO

Yes. Look, thanks for the question. We're obviously looking at that. We knew that the FTC was considering it, and we've been monitoring it. I think you've got it right; there are a lot of— as my General Counsel, who's a big baseball fan says, 'There are a lot of innings left in this game before it’s over.' But let me maybe talk to the more general point. There are different aspects of that legislation. Some of it appears to be targeting non-competes for people who earn $30,000 a year. We don't do that. We have non-competes for our senior people in important leadership roles to protect significant investments we're making in those individuals. That is important to us. We invest confidential information about us and our compliance, and we put them in positions of trust. In that sense, that's important for us. Even then, when senior people leave, we're usually able to, as long as they are willing to honor their restrictions, make it work. However, it’s hard to say how exactly this will eventually be challenged by this legislation, so we're monitoring it. The other thing I would say is there are some competitors out there who have a history of abusing these sorts of provisions; we do not. When we hire people from competitors, we ensure they honor their obligations. So if this were to go through in its broad form, I suspect we could end up benefitting because the people we hire, who we ensure protect their confidential responsibilities, would not be required to go forward. So there are many factors at play, and I think there are many innings left.

Andrew Nicholas, Analyst

Definitely.

Tobey Sommer, Analyst

I was hoping you could give us some color on the investments and the calls you're getting from interested potential lateral hires across the segments and geographies, and if those investments also include external acquisition opportunities. Any color you can provide would be helpful.

Steve Gunby, President & CEO

Yes. Look, I'm not going to comment on acquisitions we may or may not be considering. But most of the investments we've historically made have been in the one-off hiring of individuals, and we haven't made a dramatic shift in strategy. What I think is happening here is a combination of factors. There's a significant amount of disruption in various marketplaces around the world among our competitors. This is a time when our reputation has grown immensely. Furthermore, leading professionals in many overseas markets are more inclined to reach out to us now if they are considering leaving their firms. So, the disruption in these marketplaces is working in our favor, and it’s happening across the globe and across our segments.

Ajay Sabherwal, Chief Financial Officer

I'd caution, though, there are many conversations that may or may not translate into hires. Sometimes, there are long delays in the process. We have likely hired more people than you know right now because we allow our hires to honor their commitments to their existing firms before we announce anything.

Steve Gunby, President & CEO

So, it’s pretty broad globally, and I think this is the greatest extent of conversations we've ever had.

Tobey Sommer, Analyst

It very much does. And then a related question: What is your expectation for SG&A percentage and investments to support those prospective new revenue generators? Are there consequential economies you may need to enter in de novo, or significant resources you would need to add in existing geographies such that the G&A percentage is likely to tick higher as a function of these investments?

Steve Gunby, President & CEO

It’s not that we are colonizing Mars, and so we’ll need infrastructure there. I think entering new geographies typically requires significant investments, whether in infrastructure or entirely new lines of business. As you saw, we had to do a significant investment in Europe, where we had under-invested for a while. We’re now catching up on some of those countries because we have a deeper commitment to them. However, what is happening here mostly involves markets where we have sufficient presence, and there are just individuals who are now reaching out to us. That said, I believe there is a common misconception in retail that if more stores are added, SG&A costs will decrease. Similarly, in professional services, there is a naïveté that if we add more heads, we can amortize those costs. SG&A is often proportional to the number of heads. Adding many professionals doesn’t necessarily lead to significant economies of scale. However, if you bring people on board who don’t generate revenue immediately due to restrictions, it can temporarily impact your revenue per professional. Does this answer your question?

Tobey Sommer, Analyst

It definitely does. I appreciate that. I had 2 other questions. One relates to Economic Consulting. In non-M&A-related antitrust, do your people tell you that these projects have longer durations than typical M&A-related antitrust engagements, which are subject to set timelines? Secondly, what is your long-term margin outlook there in the segment? I know you have very talented people who generate significant business. So how do you feel about that relative to historic margin norms?

Ajay Sabherwal, Chief Financial Officer

Tobey, I'll tackle both questions. First, the answer is yes; non-M&A antitrust assignments don't have the same defined timeline as M&A projects since they can extend across different jurisdictions. These assignments often entail a more involved process. Secondly, we typically do not provide margin guidance, and that remains unchanged. However, if we look back to last year, our Economic Consulting segment achieved about 15% margin. I indicated in the last quarter's earnings call that we expect to see some erosion in margins for various reasons. Do not take the first quarter margin as the final metric because significant deferrals occurred this quarter and additional factors like bad debt, which we don't expect to recur.

Tobey Sommer, Analyst

If I could sneak in one last one. Ajay, in your prepared remarks, you referenced a lot of new businesses that have been launched in adjacent markets over time. I don't expect you to disclose whatever your nascent investments are, and I'll wait for you to have them mature and then discuss them. However, could you comment on whether you have multiple initiatives ongoing that we may discuss on these calls in a couple of years?

Steve Gunby, President & CEO

Absolutely. We have quarterly strategy meetings, discussing our core team's capabilities. We continuously evaluate whether our current business model has longevity or whether we should pursue additional adjacencies. Three years ago, we didn’t think about AI in a systematic manner, but we've shifted that mindset. New ideas stem from changing geographies, competitors, capabilities, and incoming talent. We didn’t enter the strategy business due to a premeditated decision; instead, it was a result of phenomenal talent approaching us. We are committed to actively asking ourselves where we should be moving—this is an ongoing process. If something significant isn't released in a couple of years, then we haven't been doing our job.

James Yaro, Analyst

Maybe just starting on the Corporate Finance & Restructuring segment. We've seen more challenging M&A trends this quarter for many investment banks. How do you expect a prolonged high-rate environment to impact the growth of your business transformation, strategy, and transactions businesses?

Ajay Sabherwal, Chief Financial Officer

So, the business transformation and strategy work isn't as rate-sensitive. It's a large project business. If you review the last 12 quarters, you’ll see that it can fluctuate—having strong quarters followed by weak ones based on when major projects start or end. I don’t think that the results this quarter can be strictly attributed to elevated interest rates. Regarding M&A, we are hearing that M&A activity is actually picking up, notwithstanding the higher rates. For our transactions business, keep in mind that the majority of our revenues don't stem from investment banking; they come from due diligence, merger integration, and carve-out work, which is largely small to mid-sized transactions. Hence, the business isn't significantly impacted by broader market trends.

James Yaro, Analyst

Okay, that's very clear. Maybe just turning back to Economic Consulting, which was substantially better than what I had forecasted, and with revenue down only marginally quarter-on-quarter. You previously mentioned the Economic Consulting as being back-end weighted for this year, and you noted on this call that deferred revenue could support revenue further into 2024. Should we consider this a solid starting point from which revenue could grow, in alignment with the back-end weighted component of Economic Consulting?

Ajay Sabherwal, Chief Financial Officer

I don’t recall stating that Economic Consulting would be back-end weighted, but we can check on that.

Steve Gunby, President & CEO

It might have been in reference to EBITDA discussing potential deferrals.

Ajay Sabherwal, Chief Financial Officer

This quarter, we are particularly pleased and surprised by the revenue figures from Economic Consulting. Notably, our non-M&A antitrust sector has shown growth. While M&A antitrust is stable, non-M&A is leading the way. We're thrilled and hope to continue this positive trend.

Steve Gunby, President & CEO

Thank you all for your attention and continued support for our company. We're excited about where we are, and we look forward to continuing the conversation with all of you.

Operator, Operator

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