FTI Consulting, Inc.
Q1 2013 Earnings Call Transcript

Published: 9 May 2013

[Operator:]

Good day, and welcome to the FTI Consulting First Quarter 2013 Earnings Conference Call. As a reminder, today's call is being recorded. Now for opening remarks and introductions, I'd like to turn the conference over to Ms. Mollie Hawkes of FTI Consulting. Please go ahead, ma'am.

[Mollie Hawkes:]

Good morning. Welcome to the FTI Consulting conference call to discuss the company's first quarter 2013 results as reported this morning. Management will begin with formal remarks, after which we'll 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 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, business trends and other information or other matters that are not historical, including statements regarding estimates of our future financial results. For a discussion of the risks and other factors that may cause actual results or events to differ from those contemplated by forward-looking statements, investors should review the Safe Harbor statement in the earnings press release issued this morning, a copy of which is available on our website at www.fticonsulting.com, as well as other disclosures under the heading of Risk Factors and Forward-looking Information in our most recent Form 10-K and in our other filings with the Securities and Exchange Commission. 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 adjusted EBITDA, adjusted segment EBITDA, adjusted earnings per share and adjusted net income. For a discussion of these non-GAAP financial measures, as well as our reconciliation of these non-GAAP financial measures to the most recently comparable gap measures, investors should review the press release we issued this morning. With these formalities out of the way, I would like to turn the call over to Jack Dunn, President and Chief Executive Officer of FTI Consulting. Please go ahead, Jack.

[Jack B. Dunn:]

Thank you, Mollie, and thank you, everyone, for joining us today to discuss our first quarter results. With me on the call are Dennis Shaughnessy, our Chairman; Roger Carlile, our Chief Financial Officer; and David Bannister, our Chairman of North America. Earlier today we announced our results, and by now, I hope all of you have had a chance to review them. If not, as Mollie said, they can be found on our website at www.fticonsulting.com. For the quarter, revenues increased 3% year-over-year to a first quarter record of $407.2 million. Adjusted earnings per share of $0.59 were up 37% year-over-year, and adjusted EBITDA of $59.3 million improved 10% year-over-year. Our record first quarter revenue results were driven by a 15% year-over-year increase in our market-leading Economic Consulting segment. We also benefited from the strong contribution of strategic acquisitions in our Corporate Finance/Restructuring practice in Asia-Pacific and our Telecommunications, Media and Technology practice. As is our custom, rather than reprise the press release, I will briefly give a few thoughts on what we believe are the key takeaways from the quarter, turn it over to Roger to discuss our first quarter tax rate and the changes that occurred in our segment reporting structure during the quarter, and then turn it back to the audience for your questions. In Economic Consulting, the story was itself the strong performance, which was spectacular. That performance was also strong across all of our Economic Consulting practices and we have seen this strength continue into the second quarter. First quarter revenues of $115.2 million increased 15% year-over-year and were driven by strong demand and higher average bill rates in our financial economics and antitrust practices, as well as our European international arbitration, regulatory, IP and valuation practices. Most interesting, despite reports of a weak M&A market by most of our competitors, our antitrust practice and competition practice experienced increases in M&A-related business during the quarter, and engagements that we have secured in the past also began to quicken a bit. Our regulatory work remained vigorous and we saw particular strength in our residential mortgage-backed securities engagements. In International arbitration, revenues were driven by an uptick in activity, coupled with some reduction in pricing pressure from the levels we had seen historically, a testament to the first-class reputation of our professionals. We saw a particular strength in the energy and telecommunications sectors, as our Economic Consulting professionals continued to enhance our expertise, depth and global presence in these highly regulated industries. Energy is clearly going to be a growth industry for our firm. In Economic Consulting, we added energy engagements in the United States and Europe. We also benefited from our cross-practice offerings as the professionals of Economic Consulting continued to collaborate with our Strategic Communications and Corporate Finance/Restructuring colleagues to serve this dynamic industry. We have experienced strong demand for our regulatory services in the pipeline space. And in Europe, there is a robust activity around the subject of shale gas. Looking forward, we will shift our focus to policy regulations as there is a tremendous amount of new gas being discovered that needs policy in place across a broad spectrum. Also worth noting, earlier this month, after the quarter, we added to our renowned team with the acquisition of Princeton Economics Group. We have worked extensively with the Princeton Group over the years on a variety of high-profile antitrust matters. This transaction is a marriage of 2 organizations that share the same values and commitment to cutting-edge economic analyses. We are thrilled to welcome such an elite group of renowned economists to our team, including Peter Bronsteen, Kenneth Elzinga and John Bigelow. In Corporate Finance/Restructuring, first quarter revenues of $99.1 million increased 2%. Revenue increases were driven by contributions from successful tuck-in acquisitions in Asia-Pacific, and in our Telecommunications, Media and Technology group and by a great performance by our U.K. restructuring practice. During the second quarter, we also announced the acquisition of Taylor Woodings, an Australian specialist corporate advisory firm focused on corporate recovery, restructuring, advisory and forensics services. Taylor Woodings is an exceptional complement to our existing business and takes us also into the forensic area, which we think will be an important addition to our repertoire as we also develop technology out in Asia-Pacific. In Forensic and Litigation Consulting, first quarter revenues of $100.7 million decreased 3% year-over-year. The segment's global risk and investigations practice and global construction practice remain particularly strong, while we saw lower results from our global data enterprise analytics practice and our core North American practice. In Technology, we not only maintained, but we increased margins despite continued declines in certain large litigation- and investigation-related matters. We also were able to do this despite increasing our investment in our sales and marketing effort. In Strategic Communications, we saw a continued excellent performance in energy, and we are very enthusiastic about our prospects there. The recent acquisition of the C2 Group, a highly regarded bipartisan government relations and lobbying firm based in Washington, D.C., took place after the quarter or at the end. And as the intersection of business, government and regulation continues to accelerate, we believe this acquisition will bear fruit not only in the U.S. but globally as we develop more of a practice. From a geographic perspective, Asia-Pacific revenues increased 23% year-over-year. The increase was largely driven by Corporate Finance/Restructuring. As we mentioned, the segment benefited from the acquisition of KMQ in Australia. More importantly, as we mentioned, the recent acquisitions of KMQ and Taylor Woodings are of broader strategic significance to FTI as we aim to further enhance our presence in this attractive market. We now have Corporate Finance/Restructuring professionals in Sydney, Melbourne, Perth and Brisbane. The footprint will serve as a strong foundation as we build out our Forensic and Litigation Consulting and Technology offerings. The extended network also promotes synergies with our established Strategic Communications colleagues in Australia. In EMEA, revenues increased 4% year-over-year. Revenue was driven by double-digit year-over-year increases in our Corporate Finance/Restructuring, Economic Consulting and Technology segments. Of particular note was the uptick in demand for our Europe-based energy engagements during the quarter. In North America, where revenues increased 2% year-over-year, as I said, Economic Consulting was the story. And in Latin America, where revenues declined 6% year-over-year, we saw a demand for our Forensic and Litigations Consulting services in Brazil be quite solid, and we believe that Brazil as well as Mexico will be bright spots for us in the upcoming quarters. Now, over to Roger.

[Roger D. Carlile:]

Thank you, Jack. Our first quarter adjusted earnings per share benefited from a favorable resolution of previously reserved tax positions which were resolved during the tax audit process during the first quarter. This favorable tax adjustment positively impacted adjusted earnings per share by $0.06 per share. The impact of this tax adjustment was foreseen and was included in our 2013 earnings guidance we provided during our February call. Our effective tax rate is anticipated to return to approximately 37% in the remaining 2013 quarters. Turning to our health solutions practice, which you now notice we're reporting differently, as we have discussed in the past, FTI Consulting is excited about the growing opportunity to serve clients in the health care industry. Our professionals are focused on providing services for providers, payers and physician groups as they deal with the challenges caused by the changing health care landscape, including the current challenges created by the dramatic transformations occurring in health care regulation. In our ongoing efforts to expand our position in this important industry and extend our capabilities to more broadly assist our clients, we combined the approximately 200 professionals serving clients in this industry from both our Corporate Finance and Restructuring, and our Forensic and Litigation Consulting segment combined into one operating practice. Combined, our new health care solutions practice now consist of over 200 professionals dedicated to serving clients in this growth industry. As of January 1, 2013, the company's health solution practice is now included in its entirety in the Forensic and Litigation Consulting segment, including the portion that was previously included in the Corporate Finance/Restructuring segment. As a result, both the current year and prior-year information provided in our press release and the 10-Q that we will file today include all of health solutions in Forensic and Litigation Consulting. Additionally, segment financial data for the years 2010, 2011 and 2012 will be available in a Form 8-K to be filed on or about May 21 of this year in advance of our public registration of our 2022 senior notes issued in November of last year. For the quarter, the inclusion of the health solutions practice within the Forensic and Litigation Consulting segment resulted in a reduction of Corporate Finance and Restructuring revenue for the first quarter of about $17.6 million and an increase in the adjusted segment EBITDA of that segment by 148 basis points. In the Forensic and Litigation Consulting segment, the inclusion resulted in an increase of revenues of $17.6 million and a decrease in their adjusted segment EBITDA margin of 70 basis points. With that, Jack, I'll turn it back to you.

[Jack B. Dunn:]

Okay. At this point then, we'd like to turn it over for your questions.

[Operator:]

[Operator Instructions] Let's take our first question from Kevin McVeigh from Macquarie.

[Kevin D. McVeigh:]

Particularly on the bill rates in FLC and Economics, any sense of just kind of the sustainability, what drove that? And then was there any impact in terms of the recapture from the health care segment that kind of impacted the FLC or Corporate Finance? Just a real nice job there.

[Roger D. Carlile:]

Kevin, with respect to the bill rates for Forensic Litigation Consulting, the increase you're seeing there, for the most part, is a professional mix of hours. While we increase our bill rates each year, those increased on a sort of a rack rate basis and a net rate basis more in the 3% to 3.5% range, whereas the adjustments you see in that quarter-over-quarter rate has more to do with more hours by our senior professionals in the mix as compared to the prior year. And in Economic Consulting, you have a little bit of that, but obviously, as we had mentioned in the past, Economic Consulting does have pricing power as compared to the other segments, and they were able to raise their rates twice in the prior year, so you have more of a rate increase and effect there.

[Kevin D. McVeigh:]

Understood. And then, Roger, I think, over the course of the call, you kind of mentioned Europe positively 3 times. Do you think we're kind of at the turning point in Europe here? Or any sense as to -- it's interesting because it seems like you folks are seeing some real nice momentum there, and that's kind of counter to what a lot of folks are saying. So just any thoughts around that would be helpful, too.

[Dennis J. Shaughnessy:]

It's Dennis. One, it might be positive for us, I'm not sure it's still positive in Europe. Our restructuring group had an outstanding first quarter. And so, clearly, if you want to appear a victory, then I guess, you could turn around and say we are benefiting in that group from the stress that a lot of companies are experiencing now here in Europe. On more of a positive macro note, as Jack said, we have broadened our energy practice significantly and are taking a leadership role with a bunch of petroleum companies in the area of shale oil and frac-ing. And clearly, it has become just as an aggressively argued topic over in Europe as it is -- we're actually sitting in London today -- over here, as it is, over in the States. And so we have benefited by a lot of retained work in those 2 areas. So I would say, good news for FTI, but I think you could call it sort of a mixed bag maybe. If you're looking for us to represent a macro trend here, I would say that it would be hard to read except for the fact that Restructuring had a very good quarter.

[Operator:]

Moving on, we'll take your next question from Tobey Sommer from SunTrust.

[Tobey Sommer:]

What are the trends you're seeing in terms of new business and other kind of domestic restructuring? I'm just curious kind of what the trends are like there, whether you had previously thought we -- maybe we're at a quarterly range that's had some predictability to it. Just wondering if that's still the case.

[Dennis J. Shaughnessy:]

Well, I think, you ended up fairly close to last year's number when you restate backwards for health care, so I think we were -- we're around a sustainable trend. I think, again, it's a global practice, and all parts of the world aren't acting the same. I think, Tobey, domestically, I would say we're seeing restructuring continue on a down trend versus where it was in the last 3 to 4 years. I think the liquidity that's in the market clearly is either delaying or allaying some of the stresses. There are industry sectors that might defy that. But right now, we would view the domestic market as still in a decline. The default rate, I think, are at historic lows. And then I think that's offset by the stress in certain industry groups, for example, in Australia, the extraction industry has come under a lot of stress given the pullback in demand from China and other areas. And as we have already stated, we had an excellent first quarter in restructuring here in Europe. David?

[David G. Bannister:]

Tobey, it's Dave Bannister. The other thing I'd point out, and sometimes we fail to mention this, our Corporate Finance business includes many practices that are not restructuring now. So for example, our TMT business, our Telecommunications, Media and Technology business, substantially all of that business in this quarter had nothing to do with restructuring. It had to do with process improvement. It had to do with post-merger integration. It had to do with services that are not affected by the bankruptcy cycle, and that's a pretty good-sized of business for us now. That's probably a $68 million run rate business. So we have a number of services that are not -- that are housed in Corporate Finance that are not restructuring.

[Tobey Sommer:]

In the Technology space, over the last several quarters, we've talked about how you had a couple extraordinarily large engagements that were moderating. Could you give us some color on where we sit relative to those engagements?

[Dennis J. Shaughnessy:]

Yes, there are 2 large ones. Most of you have read about them. And one, I think, has effectively ended. There may be some very small residual billings, so that would be behind us. The other one is in a precipitous decline. There was revenues in the quarter from it at a much lower rate than we had experienced in the past, and we would expect those revenues to decline significantly quarter-to-quarter for the next 2 quarters to where, at best, you might have some small maintenance charges in there. But those assignments will be over. Our guys have done an excellent job of sort of staying level by replacing what ended up being the largest engagement we ever had with a lot of new work, some of which is now building into some significant scale, not approaching where these 2 assignments were, but they're becoming serious assignments, and I think that we're cautiously optimistic that the business is going to be coming in at a rate that will cushion some of this decline. But we will see a decline here. It is impossible not to see it short of a very sort of serendipitous event occurring.

[Tobey Sommer:]

Just 2 other questions for me. Do you have an expectation for where you'll take headcount this year in terms of growth, whether it's through lift outs of small groups or organic one-off hires? And then do you expect to continue to repurchase shares kind of in the methodical fashion that you have the last couple of quarters?

[Dennis J. Shaughnessy:]

I think you would -- again, I think you'll see headcount adjust and maybe a net addition by the end of the year. As Jack said, we've already this year closed 3 significant acquisitions for us, as far as either broadening geography or broadening a skill set. And so by definition, you're adding headcount there. Econ is extremely busy and they're busy pretty much across all their offerings. And, Tobey, I think as we've consistently said, a lot of the work is prospective deals, and so therefore, if the moons align right for whatever reason, either the markets or whatever fiscal holdbacks might be out there get either diminished, then we would expect a bunch of these deals to mature, in which case, they're going to be very busy. We're looking to add capacity across the board in a lot of these areas. And so I think net-net -- in other words, you may see some segments to stay flat and maybe see a slight decline in headcount while others go up significantly, and I think that's the way the company is structured. It is our plan to continue to use our share repurchase authorization. We have no plans to accelerate that beyond the pace that you're seeing in the market now.

[Operator:]

Moving on, we'll take our next question in from Joe Foresi from Janney Montgomery Scott.

[Jeffrey Rossetti:]

This is Jeff Rossetti on for Joe. Just a question about the M&A life cycle with respect to your business segments. With the strength that you had in the Economic Consulting, have you started to see some of the flow through in Technology with second requests work and has that started to impact your Strategic Communications segment yet?

[Dennis J. Shaughnessy:]

We have some interesting assignments in strategic communications on a few notable transactions that you guys are seeing in the papers. We have not felt an impact yet on second requests. Again, most of the work we're doing on these M&A assignments in Econ have not come to the fruition of actually public announcement, and therefore, you would not have Hart-Scott-Rodino running until the public announcement, and that's when you would get the second request.

[Jeffrey Rossetti:]

Okay. And just on the acquisitions that you've announced so far, I think in the release, you mentioned maybe about $15 million so far in payments. Have you -- are the multiples that you're paying, is it something traditional around onetime revenue? I'm just trying to get a sense for with the Princeton Economics announcement, what we can sort of anticipate going forward?

[Jack B. Dunn:]

The Princeton Economics transaction was more akin to a group hire, and in fact, took that form, so it did not have significant upfront consideration when it adds up salaries, bonuses and other compensation. The other acquisitions done either in the quarter or at the end of the quarter would have purchase prices consistent with our historical experience, probability a little bit on the lower side from a -- a lower multiple side on the earnings side because they're relatively small businesses. But on a revenue basis, they will be consistent.

[Operator:]

Moving on, we'll take our next question from Tim McHugh from William Blair & Company.

[Timothy McHugh:]

First on the Technology business, can you just -- I guess, you gave us some color on the large cases winding off or winding down. Do you have a sense for, I guess, what's the underlying business if we excluded those? Is it seeing decent growth? I know it's hard to maybe just splice them up but just trying to get a sense of the underlying trend there.

[Dennis J. Shaughnessy:]

Well, I mean -- it's Dennis, Tim. We definitely see a decent growth because you're replacing 2 of the biggest pieces of business we've ever had in the history of the company. In fact, the one was the biggest. So just by starting to refill that, you're having to have a lot of new growth. Nothing has approached those 2 in scale. Several are building each quarter and could turn into significant. And a lot of the new ones yet are basically just in their infancy as far as trying to predict the magnitude. But the answer is they're a good new business closing rate, and it remains to be seen, though, how many of these -- it's tough in the beginning of these assignments, when you start going in, to understand the eventual buildup rate of billing and then the duration until you sort of get a couple of quarters under your belt. So the answer of lots of activity, lots of wins, too early to tell what the sort of run rate off of some of them would be. Some of them are looking promising that we wanted to enclose last year.

[Timothy McHugh:]

Okay. And then I just want to dig in on the margins a little. First, I guess, the corporate expenses were down a lot year-over-year. And I know last year was kind of an abnormally high number somewhat. But as we think about the year, I guess, how should we think about corporate expenses for the year? Should -- can they be down for this year on a full year basis?

[Roger D. Carlile:]

Tim, it's Roger Carlile. Essentially, the net answer, because of the acquisitions, is no. As you rightly recall that last year in the first quarter, we were talking about a number of things that we did in the quarter that added to our SG&A expense that would not recur, and of course, it did not recur in this quarter. So in that regard, that's a permanent reduction. And as Jack mentioned in his commentary, we are continuing to analyze how we've integrated our businesses and some of the operational processes looking for cost savings, and we have been successful there as well. However, with the additions late last year of KMQ and Salter and then with C2 and Taylor Woodings, the expenses that we have to support those add to SG&A. So I think that in terms -- I would look at that 2 ways. First of all, in terms of corporate expenses, the way you thought of that, I think we've got -- you're probably going to see that go back up, so that the run rate for the year would be about $2 million less than it would have been if you annualize this quarter -- I think, $2 million more if you annualize this quarter. On a total basis for the company, I think you're looking at a run rate back up to what it was last year for the remainder quarter. So you have everything all in on a consolidated basis of around $103 million. I think you're going to look at around $103 million in total for the forward year. Some of that's up in the segments because of the acquisitions and Corporate would be down about $2 million annually off those run rates

[Timothy McHugh:]

Okay. And then I guess if we look at some of the segments, restructuring, revenue was -- I mean it was up a little or kind of flattish without the acquisitions, what -- but yet, margins were down. I know you moved some things but it still look like margins were down a decent amount. Is that a mix shift or -- in terms of where the revenue was coming from? Or is there something else affecting it?

[Dennis J. Shaughnessy:]

Well, I think, again, I think some of the geographic businesses offshore that are growing, and maturing and getting scale, that they don't have the same margins that we traditionally have in restructuring in the U.S., where it's a more mature business. Secondly, some of the non-distressed work, which is again growing, becoming more important, does not command the size margins of distressed, crisis-driven work, so I think it's a combination of geographic mix against a slow to somewhat declining restructuring market in the U.S., and then the impact on the business from non-distressed work, some of which has extremely high margins, some of which doesn't have as high. And so on average, it might look a little lower than crisis, so that's a long-winded way of saying it's mix.

[Operator:]

Moving next, we'll go to David Gold with Sidoti.

[David Gold:]

So a couple of quick questions. First, on the economics side, with utilization of 89%, you folks are doing a heck of a much better job than many of the competitors, or if not, all of the ones that we're aware of. And just a couple of questions around that. First, from a hiring perspective, it is -- is it as simple as doing tuck-ins there or sort of, presumably, as you said, just finding more of the right people or would you think about doing a larger acquisition given that, let's just say, I mean, your results are much better than some of the of the other industry folks?

[Dennis J. Shaughnessy:]

That's a hell of a good question. I think on a hiring basis, we are benefiting from just, what I would call, just top-of-the-market gold standard intellectual symmetry -- synergies. We feel we have put together the finest group of economists in the world and they are a magnet to attract more people, as Jack talked about the Princeton Economics Group, these are outstanding practitioners and we're delighted to have them become affiliated with us. So I guess, number one, it is a very attractive place to be a partner with the peers that we have working on that. And clearly, there are lots of opportunities that are driven by that peer group for new people to come in and work on. I think this -- you have a halo effect from younger people coming in to support them. I mean, these are the top-of-the-market people here in Europe where we're sitting today and back in the States. And so it has been -- it has not been a challenge for them to bring in the best and the brightest, who want to spend time working with them, supporting them, doing a lot of research and model building. As far as an external move is concerned, we're always interested in value. I think that, as you know, David, we're not afraid to do bigger deals, we've done them before. But I think there has to be a compelling strategic reason and that would have to be a complementary enhancement of quality or possibly taking us into a different aspect of economics, one that we're already very dominant in. It would be a little hard to justify anything but sort of a bargain price to add more capacity.

[David Gold:]

Got you. Okay, fair. But short of that, we should expect a bit more hiring and presumably maybe some more tuck-ins in that area?

[Roger D. Carlile:]

Yes.

[Operator:]

Moving on, we'll take our next question from Randle Reece from Avondale Partners.

[Randle G. Reece:]

Clearly, I'm going to have to start thinking about your Econ business in a different way. Maybe we could just talk a little bit about how the curve works here. When you see these engagements work and how they flow over time, and what indication we get from what's going on now and how it reflects on expectations for future quarters.

[Dennis J. Shaughnessy:]

You've got about 4, and I'm going to try to answer the question for you. We've got about 4 major practice areas that are all benefiting from increased demand. One, I think we've touched on quite a bit, and that's competition. And that's driven by M&A. In this case, it's predominantly prospective M&A, although our guys were involved in 2 of the more notable deals that you've been reading about in the last 12 months that have been somewhat contentious. Competition benefits from M&A but also it benefits from stepped-up governmental inquiry and stepped-up government regulatory efforts. So we are clearly busier here in Europe and also back in the States as a result of increased governmental intervention or investigation and action in regards to a wide variety of competition issues. International arbitration is becoming a venue of choice for many global companies to settle disputes, especially as they pertain to non-U.S. operations. And our economists, I think we have something like 15 of the top-20-ranked experts in the international arbitration panel that's been set up for the big international law firms. And so they are very busy in arbitration work in France, in Singapore, and in the States. And then finally, we are doing extremely well in what I would call high-stakes securities litigation. So as you see, a lot of litigation that has now matured, part of it might be the residual effects of all the mortgage-backed securities, issues, the investigations, and things like that, that are now sort of worked their way through the system to where now people who have lost money on a principle basis are suing civilly. We are in many of those cases. And again, the financial institutions, as you are well aware, have been targets of lots of litigation related to a wide variety of activities and actions. And we are, I would say, at the forefront in a lot of the defense work in those litigations. So it's sort of -- the drivers are on all 4. The duration just changes based on what we're talking about. The litigation could go on for a long time and have a long runway. Arbitration, I think to a certain extent, would track that. It's just different venue. It might be a little shorter. And then the M&A side tends to be much quicker. You're either going to eventually do something or not do something, and then when it does happen, both sides of the deal hope for a reasonably short window of 90 to maybe 180 days of activity to get the deals done. So the M&A side might be as short as 90-day types of assignments to maybe 6 months. And the competition could look more like litigation, to where there might be antitrust pricing issues, competition issues. And again, that could be everything from investigation, long discussions with governmental regulatory bodies and eventually could end up in court. So that would have a longer runway. Shortest would be M&A, longest would probably be the security cases, where everything may be falling in between.

[Randle G. Reece:]

Pretty good. Do you -- let's say, how much of the business do you think is getting out of that rack? It's it been in between having a growth catalyst or having kind of a negative or recession catalyst, where you've been in between and it's not necessarily good for demand.

[Dennis J. Shaughnessy:]

Yes. Well, I mean I think people always ask how we root. We'd rather root for more robust growth because it benefits more broadly everything we do. I think restructuring in the states has been a fairly dormant practice for the last 2 years, and we don't see anything on the horizon right now, short of some specific industry challenges in retail and things like that, that would tell us we should expect any kind of robust restructuring in the States. On the other hand, you're as aware, if not more than we are, of what's going on over in Europe, and there, I think, we'll benefit from the stresses of the economy and the stresses in the lending system over here are having on some of -- corporate clients. And I think we're seeing the same thing in Australia, which is one of the reasons we've made such a commitment to beef up capacity there because we think to demand. So geographically, I would say that if you just simply go by what our biggest market is in the State, we would say that we're not looking for a robust restructuring. On the other hand, we don't see a lot of macro drivers to the positive here in Europe, and the States seem to still be in that 2% type of growth rate. Asia is doing well. Latin America slowed down a little bit, but it snapped back actually pretty quickly the last 2 months. So I'm afraid we still feel that there's a bias more to the treading of water for the world economy, which is probably not the greatest environment to be a consulting company in. But I think we firmly believe M&A is going to shake out. We've said this before and I don't think we've changed our mind. There's too much capital liquidity sitting on the books of these companies. There's the debt. It's at historic low borrowing rates, and most industries are not experiencing much, if any, organic growth. So we think that a lot of the deals we're looking at, some of them are industry-changing potential deals. And if the triggers get pulled on them, I think it's only going to take a couple to start to stampede. I think the other thing to be cognizant of is there are a lot of giant private equity firms that have an awful lot of capital they have to deploy. And some of them are facing use-it-or-lose-it types of clauses in their funds, where they have to put it out or they'll lose the ability to pull it down, and some of them just simply have successful fundraising based on performance and have to get the money to work. So we think the velocity of capital investment should pick up in that takeover area and both would stimulate each other. More strategic combinations, I think, would accelerate private equity investment. More private equity successful deals will stimulate the strategics to pull the trigger. So I think the backlog that we're seeing building, how busy the economists are, is an optimistic note. But again, as of yet, some of the most exciting ones that we're working on have -- they have not pulled the trigger, so we just have to see.

[Operator:]

Moving on, we'll take our next question from Bill Sutherland from Northland Capital markets.

[William Sutherland:]

Dennis, while you're on that thought with the Econ group and M&A, does it feel to you like maybe it's just the scale of some of these, but are they stretching longer than they normally would in this planning process?

[Dennis J. Shaughnessy:]

I mean, I'll ask everybody here to jump in. I think that a lot of it is the -- I think the desire for companies' deals is there and that's why we're being hired. I think the last thing they want to have happen is to be embarrassed and spend a lot of money and they can't get the deals done. So I think they're doing their homework in advance rather than making the assumption the deals are going through and sort of hire us when the deals come to fruition. Your speculation, and I'd ask the guys sitting here with me, about why they're not pulling the trigger, I think we can start with a wide variety of things. But I think there is a reluctance, call it the market; call it fiscal threats to the market; call it an embarrassment factor, where you don't want to see the market sell off significantly and you've got an exchange rate that looked great the day you put it on and it looks terrible 4 weeks, 6 weeks into a deal; call it fear of governmental interference that could screw a market up. I mean, anything else, guys?

[David G. Bannister:]

Yes. It's Dave Bannister. I just had the chance over the last few weeks to spend some time with some of the M&A bankers at places like Goldman, Morgan Stanley and what have you, chatting on just that issue, was they would say from their perspective, and they obviously tend to be involved in these things as well, sometimes at a slightly different level, is that it's hard to get Boards of Directors to pull the trigger right now on transactions that are significant, what have you, because there doesn't seem to be a benefit to hurrying. There's -- the stock markets aren't recognizing the strategic kind of acquisitions in a friendly kind of a way. There's a lot of shareholder activism around returning capital as opposed to growing businesses strategically. And so there's just a bit of a hesitancy to trek ahead on some of these things. Their view would be, at the end of the day, companies need to start growing and doing something when they don't have significant organic growth opportunities in a 2% GDP economy, that eventually, the companies will feel the need to get moving and get some growth in and expand their businesses and expand their capabilities. But there is a certain reticence.

[Roger D. Carlile:]

I think it's -- it's Roger Carlile. Rick Fisher of the Dallas Federal Reserve Bank spoke with us, Fed President, spoke this week and he spoke on this issue. And what he said was that it was his opinion that there's still a fair amount of uncertainty in the business leaders space, notwithstanding we've had some tax law changes in the United States, we've had the sequester occurring. His view was -- is that business leaders are still uncertain as to exactly what taxation and tax rates are going to be in the future, exactly what government spending is going to be in the future, and that all of that creates uncertainty in the market and it's hard for entities to price deals into that uncertainty because you don't want to have overpaid to find out that the markets don't act the way that you expect them to for your goods or services. So he was putting that some of this hesitancy squarely on the laps of Washington D.C. for those issues.

[William Sutherland:]

That's good color. On the last quarter call, you guys talked about the pricing pressures in Europe and you were going -- and the impact of margins, have you been able to offset any of that pressure or are there -- you think you'll be able to?

[Roger D. Carlile:]

I'm not sure I understood your question. Pricing pressure in Europe generally, or for any given service segment?

[William Sutherland:]

Well, I'm trying to remember which group you were maybe directly referring to. I think it might have been Corp Fin. And you did mention that, that was having an impact on your margin [indiscernible]

[Roger D. Carlile:]

I think generally speaking -- yes, with respect to pricing, I think we probably have the same commentary, at least on a global basis for a while, which was that our Economic Consulting group has pricing power for the issues we've spoken about today and in the past, that demand is good, the talent is strong, it attracts the cases that we have, the pricing power there, and I think that's true whether you're talking about the North America or the Europe -- European markets or U.K. It's probably not. It's maybe a little less strong in Europe and U.K. just because of the general economic environment, but still, they have pricing power. When you look at our other services, it varies a bit but there's -- it's certainly very little or no pricing power to slight pricing power in those other segments. And I think that's fairly universal except as we spoke about with Corporate Finance in Europe, EMEA, that region, as Dennis said earlier, they just had a good quarter. They're performing well. And so there is a, I don't know if I'll call it pricing power, but there's probably a little better feel on that issue.

[William Sutherland:]

Okay. That's improved then. And then do you feel like the U.S. Restructuring businesses is kind of in a new normal or you think it could tail off a bit more?

[Dennis J. Shaughnessy:]

Well, again, I would say the classic restructuring would not have an up year and probably would have a decline. The default rates and the liquidity in the marketplace certainly argues that, that would be the result in the States. It's being offset by non-distressed business services that we're offering inside of that group, so a lot of these people can work on, obviously, distressed assignment, as well as non-distressed. And so oftentimes that doesn't yield you the same margin, as you can imagine, as a crisis-type of assignment. But we would not be thinking that in the U.S., barring some unforeseen event, that you would have a frothy restructuring market this year.

[William Sutherland:]

That's okay. And then last. Since you're kind of carving out health care here a bit more, maybe we could talk about how you're see the growth for that group, particular competencies, maybe where you want to expand it?

[David G. Bannister:]

It's Dave Bannister. The health services or health solutions, as we call it, practice, is a very important one for us. We are certainly smaller than some competitors in that business, but a very significant player nonetheless. We have pretty strong plans for that. That's one of the reasons we put the group together and put up a houseful of the people under one leader and a team of folks to really have them collaborate broadly across the service offerings to serve that industry. As you know, it represents somewhere between 17% and 20% of the GDP, depending on what you include in the definition. So -- and it's an industry that is faced with many, many challenges and problems, whether it's Obamacare or Social Security and Medicare or Medicaid, and simply just dramatically rising costs. So longer term, we're pretty ambitious in that space and expect to be doing a number of things to grow that business aggressively.

[Operator:]

Moving on, we'll take our last question from Ato Garrett from Deutsche Bank.

[Ato Garrett:]

Previously, you guys have mentioned a revenue run rate for the Corporate Finance and Restructuring segment being between about $100 million to $110 million. And I was wondering, now given this transfer of the health care business, should we now think about that as coming down commensurately to about $85 million, $95 million?

[David G. Bannister:]

The math would be as follows -- that's a run rate that we've used historically. We've added 2 acquisitions. Between the 2 of them, 1 was in the first quarter, 1 will start the beginning of the second quarter, would add roughly $8 million to $12 million per quarter of revenue. So call it around $40 million a year of an increase in the run rate and a decrease of roughly $68 million or $70 million from the health services business being moved into -- being reclassified into a different segment.

[Ato Garrett:]

And that's on an annual basis that the decline was roughly $68 million?

[David G. Bannister:]

Correct. It was $70 million for the quarter, wasn't it Roger?

[Roger D. Carlile:]

Yes. Exactly, David. One way to think about that is maybe to reconcile it the other way, which is, with health solutions out of Corporate Finance's numbers for the first quarter, they were $99 million in revenue. You add the $17 million to that, you're $116 million. So that puts you right in -- that $116 million, the way to think of that is we had said $100 million to $110 million, we added KMQ, which I think we gave guidance of around $5 million a quarter. So we're saved now $105 million to $115 million. And then if you put Taylor Woodings in that of roughly the same size, you'd say you're around $110 million to $120 million. So that, back in the old reporting format, you would've been $116 million right in the range of $110 million to $120 million. We have not restated what we think that is looking forward given the current basis, but that's where it ran for this quarter.

[Ato Garrett:]

Got it, great. And then looking at the margins within the Technology division, I'm seeing we had a pretty good Q-on-Q decline there. Is that primarily due to winding down of those 2 large engagements or is there additional pricing pressure that might have contributed to that as well?

[Roger D. Carlile:]

Repeat which segment you referred to again?

[Ato Garrett:]

Technology.

[Roger D. Carlile:]

Technology? And you said [indiscernible] you said margins were down?

[Ato Garrett:]

Yes, Q-on-Q, it looks like.

[Dennis J. Shaughnessy:]

I don't think so. I think they're up.

[Roger D. Carlile:]

Yes, we're up. Adjusted EBITDA margin went from 26.6% to 29.4% on the quarter.

[Operator:]

At this time, that will conclude our question-and-answer session. I'd like to turn it back over to our speakers for any additional or closing remarks.

[Jack B. Dunn:]

Great. I just want to thank everybody for being with us this morning, and we'll look forward to speaking with you after the next quarter. Thank you.

[Operator:]

Thank you. That will conclude today's conference. We thank you for your participation.