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Text: A copy of which is available on our website at www.
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.
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.
And I think Steve is muted.
It wouldn't be a COVID event if somebody wasn't muted.
So I'm glad to get that out of the way.
As we're saying all the time during COVID, I hope you and your loved ones continue to be safe.
But at least now, I'm hoping as well that you and they are beginning to see the light at the end of this tunnel and at the end of the scourge of COVID is within sight.
Ajay, of course, is going to give you the details of this quarter.
Now Ajay will be careful.
And he will stress that some of these earnings strength this quarter reflect one-time benefits, stuff you can't count on recurring, things like FX, some revenue deferrals being recognized, a lower tax rate, etc.
But even normalizing for all that, as far as I can tell, it is a great quarter.
And more important to me and I hope you, it's another in a large number of great quarters, which to me is not a confirmation of onetime things or transient things but of the fundamental strength of this company, what our people are doing every day to build this business in ways that allow us to help our clients navigate, not only their greatest challenges, but in many cases, their greatest opportunities.
It's a fabulous quarter.
I want to be clear, however, it is not that we've turned all of our businesses into businesses that go up in a straight line.
As we have talked about many times, each of our businesses and the company as a whole can have huge zigs and zags due to market conditions or the winning or losing of a big job.
We're jumping on an opportunity to invest, jumping on an opportunity to invest in a way that can hurt the P&L in the short term but supports future growth.
And even in this great quarter, we saw some of that.
If you look at our restructuring business, it continues to face widespread market slowdown around most of the world.
And although we benefited from some legacy cases during the quarter, that business is certainly off in a big way, in a big way from a year or so earlier.
Now I don't believe anybody thinks this restructuring market has gone away permanently.
So we're continuing to invest in that business, but that's the zag.
Similarly, in Tech, some of the fuel that ignited the incredible performance in the first half of the year, notably second request activity weakened this quarter.
We have enormous confidence in the multiyear trajectory of that business and more important, the people of that team that is driving that multiyear trajectory.
So we have, in the face of that slowdown, continued to hire.
We increased our head count in that business 12.4% year over year.
So even though the revenue went up, the adjusted EBITDA declined.
That's just an example of investing to support the business over the medium term, something that we have committed to do and we will continue to do.
And even in FLC, where we have great strength compared to last year, we've had pockets of weakness.
For example, Asia because borders remain closed and travel restrictions have been extended, which affected our ability to both deliver certain services and reach clients in the market.
Even if we do the right things, our business has zigs and zags, and some of them can be pretty bad zags.
But what I think we've said many times and what I now believe the data fully support is if we do the right things, although there are zigs and zags, over any extended period of time, each of our businesses are growth engines, not only growth engines, but vital and powerful growth engines.
They allow us to deliver on major assignments that make at least me proud and I think many of us proud.
They allow us to attract great people to build their brand.
And therefore, though there are zigs and zags, they become zigs and zags around an upward sloping line.
It doesn't mean you can't have all the zags come in the same quarter or even the same year, but it does mean that over any extended period of time, the zig zags are around an incredibly powerful upward sloping line.
Now that line, I assume, is important to you, our shareholders.
I believe it's equally important for the engine of the firm, our people.
It's that upward sloping line that gives us, and I hope to you, the confidence to invest in great people regardless of whether it's a good quarter or not a good quarter for a particular business.
It allows us to not do layoffs just because some businesses temporarily slow in a quarter.
The strength of conviction we drew on obviously last year and supported our people and is giving us real benefits this year.
It allows us to promote people when they're ready to get promoted versus when, oh, the numbers happen to be good.
It allows us to hire aggressively when the great talent is available versus when it feels convenient according to the P&L.
It allows us to invest in our people's development when they're eager to grow.
My experience is when you do that, you build a firm, you build -- take a powerful firm and you make it ever more powerful.
And you create businesses that are global and diverse and effective and vibrant for your clients and for your people.
My experience is also when you have great people doing great work who feel supported, you end up with fabulous individuals.
Fabulous individuals who are in an environment where they can develop even further.
And you end up with great people outside your firm who want to join you.
And through that, we create businesses.
Through the zigs and zags become sustainable, powerful, resilient, and exciting businesses, and exciting growth engines.
That's the journey we have been on.
It has been a lot of work.
It always is a lot of work.
There's always daily things to struggle with.
A lot of work.
It's also been incredibly rewarding.
That is a journey we look, this great team that I have the privilege of leading to stay on.
Beginning with our third quarter results.
Revenue grew 12.9% with every segment reporting growth.
And we continued making investments in headcount, adding 346 total billable professionals year over year, including 36 senior managing directors.
Earnings per share were also boosted by FX remeasurement gains and lower weighted average shares outstanding, or WASO, resulting in a 45% increase in GAAP earnings per share and a 31% increase in adjusted earnings per share compared to the prior-year quarter.
Overall, we are delighted with these results, which exceeded our expectations.
Revenues of $702.2 million increased $80 million, compared to revenues of $622.2 million in the prior-year quarter.
GAAP earnings per share of $1.96 in 3Q '21 compared to $1.35 in 3Q '20.
Adjusted earnings per share for the quarter were $2.02, which compared to $1.54 in the prior-year quarter.
The difference between our GAAP and adjusted earnings per share in 3Q '21 reflects $2.4 million of noncash interest expense related to our convertible notes, which reduced GAAP earnings per share by $0.06 per share.
In 3Q of '20, we had a special charge of $7.1 million as well as noncash interest expense of $2.3 million, which reduced GAAP earnings per share by $0.14 per share and $0.05 per share, respectively.
Net income of $69.5 million, compared to $50.2 million in the prior-year quarter.
The increase in net income was primarily due to higher revenues, which was partially offset by an increase in compensation, including the impact of a 6.9% increase in billable headcount and higher SG&A expenses.
FX remeasurement gains this quarter versus losses in the same quarter last year also boosted net income.
SG&A of $138.6 million or 19.7% of revenues.
This compares to SG&A of $122 million or 19.6% of revenues in the third quarter of 2020.
The increase in SG&A included higher compensation, outside services expenses, bad debt, software costs, and travel and entertainment expenses.
Third quarter 2021 adjusted EBITDA of $100.3 million or 14.3% of revenues, compared to $90.9 million or 14.6% of revenues in the prior-year quarter.
Our third quarter effective tax rate of 21.6% compared to 22.3% in the prior-year quarter.
Our tax rate for the quarter benefited from discrete tax adjustments related to the release of a valuation allowance on our Australian deferred tax assets because of sustained profitability.
Fully diluted WASO of 35.4 million shares in 3Q '21 compared to 37.1 million shares in 3Q '20.
Our convertible notes had a dilutive impact on earnings per share of approximately 842,000 shares, included in WASO, as our average share price of $138.83 this past quarter was above the $101.38 conversion threshold price.
As I mentioned, billable headcount increased by 346 professionals or 6.9% compared to the prior-year quarter.
Now I will share some insights at the segment level.
In Corporate Finance & Restructuring, revenues of $250.3 million increased 5.8% compared to the prior-year quarter.
The increase in revenues was due to higher demand and realization for our transactions and business transformation services, as well as the recognition of deferred revenue, which were partially offset by lower demand for restructuring services.
Adjusted segment EBITDA of $55.6 million or 22.2% of segment revenues compared to $56.2 million or 28 -- or 23.8% of segment revenues in the prior-year quarter.
The year-over-year decrease in adjusted segment EBITDA was due to increased compensation, including the impact of a 6% increase in billable headcount and higher SG&A expenses.
In the third quarter, we continued to grow our transactions and business transformation practices globally.
Not only are we growing these practices, but also we are able especially at junior levels to leverage professionals across practices.
This quarter, once again, a number of our junior professionals, who typically would support restructuring assignments, worked on transactions-related engagements.
On a sequential basis, revenues increased $19.4 million or 8.4% as the segment benefited from continued growth in our business transformation and transactions businesses and recognition of prior deferred revenue.
Adjusted segment EBITDA for the third quarter increased $15.5 million.
Revenues of $145.3 million increased 22% relative to a weak quarter in the prior year.
The increase in revenues was primarily due to higher demand for our investigations, disputes, and health solutions services.
Adjusted segment EBITDA of $16.6 million or 11.4% of segment revenues compared to $13.6 million or 11.4% of segment revenues in the prior-year quarter.
The increase in adjusted segment EBITDA was due to higher revenues, which was partially offset by higher compensation, which includes 7.7% growth in billable headcount as well as higher SG&A expenses compared to the prior-year quarter.
Sequentially, revenues decreased $5.5 million, primarily due to lower demand for investigations and health solutions services.
Adjusted segment EBITDA decreased $1.4 million.
Our Economic Consulting segment's revenues of $172.5 million increased 11.3% compared to the prior-year quarter.
The increase was primarily due to higher demand for non-M&A-related antitrust and financial economic services, which was partially offset by lower demand for our M&A-related antitrust services compared to the prior-year quarter.
Adjusted segment EBITDA of $29.9 million or 17.3% of segment revenues compared to $25.7 million or 16.6% of segment revenues in the prior-year quarter.
The increase in adjusted segment EBITDA was due to higher revenues, which was partially offset by higher compensation, which includes the impact of 5.1% growth in billable headcount.
Sequentially, revenues decreased $10.8 million or 5.9%, which was driven by decreased demand for M&A-related antitrust services, primarily due to the conclusion of a large matter in the quarter.
In Technology, revenues of $64.7 million increased 10.4% compared to the prior-year quarter.
The increase in revenues was primarily due to higher demand for litigation, investigation and information governance services, which was partially offset by lower demand for M&A-related second request services compared to the prior-year quarter.
Adjusted segment EBITDA of $7.8 million or 12.1% of segment revenues compared to $11.9 million or 20.4% of segment revenues in the prior-year quarter.
The decrease in adjusted segment EBITDA was due to higher compensation, which includes the impact of a 12.4% increase in billable headcount, as our Technology segment continues to make investments in talent, particularly at the senior levels to bolster our capacity and expertise globally across data risk, compliance, privacy and information governance, as well as higher SG&A expenses.
Sequentially, revenues decreased $14 million or 17.8%, primarily due to decreased demand for M&A-related second request services.
Adjusted segment EBITDA declined $10.7 million sequentially.
Record revenues in the Strategic Communications segment of $69.4 million increased 31.1% compared to the prior-year quarter.
The increase in revenues was primarily due to higher demand for corporate reputation and public affairs services.
Adjusted segment EBITDA of $15.5 million or 22.3% of segment revenues compared to $8.4 million or 15.9% of segment revenues in the prior-year quarter.
The increase in adjusted segment EBITDA was due to higher revenues.
Sequentially, revenues increased $1.6 million, primarily due to higher demand for financial communications and corporate reputation services.
Adjusted segment EBITDA increased $2 million sequentially.
Let me now discuss key cash flow and balance sheet items.
We generated net cash from operating activities of $196.9 million, which increased by $85.3 million compared to $111.6 million in the third quarter of 2020.
The year-over-year increase was largely due to an increase in cash collected resulting from higher revenues, which was partially offset by an increase in compensation-related costs and other operating expenses.
We generated free cash flow of $172.2 million in the quarter.
Total debt net of cash decreased $160.7 million sequentially from $159.4 million on June 30, 2021 to a negative net debt position of $1.3 million on September 30, 2021.
The sequential decrease was primarily due to an increase in cash and cash equivalents and repayment of borrowings under our senior secured bank revolving credit facility.
Turning to our guidance.
In light of our record financial performance during the first nine months of 2021, we are raising the low end of our previous full year 2021 guidance range for revenues of between $2.7 billion and $2.8 billion to expected revenues of between $2.75 billion and $2.8 billion.
We are raising our full year 2021 guidance ranges for GAAP earnings per share of between $5.89 and $6.39 and adjusted earnings per share of between $6 and $6.50 to GAAP earnings per share of between $6.39 and $6.64 and adjusted earnings per share of between $6.50 and $6.75.
The $0.11 per share variance between earnings per share and adjusted earnings per share guidance for full year 2021 includes the estimated impact of noncash interest expense of $0.20 per share related to our 2023 convertible notes and the second quarter 2021 $0.09 per share gain related to the fair value remeasurement of acquisition-related contingent consideration, which are not included in adjusted EPS.
Our updated guidance after our record year-to-date performance is shaped by four key considerations.
First, restructuring activity remains subdued.
As credit markets remain in an accommodative mode and the number of stressed and distressed issuances remains low, Standard & Poor's is now forecasting that the trailing 12-month U.S. speculative rate -- default rate -- corporate default rate will fall further in the first half of 2022, reaching 2.5% by June 2022, which compares to 3.8% in June 2021 and 6.6% in January 2021.
Second, global M&A activity, which drives demand in our Economic Consulting and Technology segments as well as our transactions business in Corporate Finance & Restructuring, has been at record levels year to date.
There is no certainty that M&A activity will continue at this pace.
Third, we are a large jobs firm.
And when large engagements end, they may not be immediately replaced.
As Steve and I have both mentioned today, we saw several large jobs end or significantly wind down in the last two quarters across our Economic Consulting, Technology, and Corporate Finance & Restructuring businesses.
Fourth, the fourth quarter is typically a weaker quarter for us because of a seasonal business slowdown at the end of the year.
Before I close, I want to reiterate four key themes that underscore the strength of our company.
First, our results show that while continuing to dominate our traditional areas of strength, we have demonstrably grown our adjacencies and footprint, which also have the added benefit of making us less susceptible to the business cycle.
Business transformation and transaction services, which represented 36% of total segment revenues in Corporate Finance in Q3 of last year, contributed 59% this quarter.
Non-M&A-related antitrust services have steadily grown to represent 32% of our Economic Consulting revenues this quarter, which compares to 23% in Q3 of last year.
Our Australian business has grown to 31 senior managing directors from 19 two years back.
And our Middle East business has grown to 16 senior managing directors from five two years back.
And EMEA represented 30% of revenues this quarter with us only recently ramping up in Germany and Spain.
Second, we count among our staff, arguably, some of the leading experts in the world in areas such as antitrust, financial arbitration and economic analysis, restructuring, technology and data analytics-based investigations, and corporate reputation and communications.
Third, in many industries around the world, the pace of change is accelerating.
And we have the surge capacity to help our clients when they face their greatest challenges and opportunities.
And finally, our strong balance sheet continues to give us the flexibility to make sustained investments toward growing our business globally.

user
compname reports q3 earnings per share of $1.96.
q3 adjusted earnings per share $2.02.
q3 earnings per share $1.96.
q3 revenue rose 13 percent to $702.2 million.
raises fy adjusted earnings per share view to $6.50 to $6.75.
raises fy earnings per share view to $6.39 to $6.64.

assistant