Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message|
( followers)  

Duff & Phelps Corporation (NYSE:DUF)

Q4 2008 Earnings Call Transcript

February 26, 2009 8:30 am ET

Executives

Jake Silverman – EVP and CFO

Noah Gottdiener – Chairman and CEO

Gerry Creagh – President

Analysts

Tim McHugh – William Blair & Company

David Gold – Sidoti

Andrew Fones – UBS

Lauren Smith – KBW

Eric Berg – Barclays Capital

Operator

Good day, and welcome to the Duff & Phelps Corporation fourth quarter 2008 conference call. Today’s conference is being recorded. At this time, I would like to turn the conference over to Chief Financial Officer, Mr. Jake Silverman. Please go ahead, sir.

Jake Silverman

Good morning. And welcome to the conference call to discuss Duff & Phelps financial results for the fourth quarter and full year of 2008. I’m Jake Silverman, CFO of Duff & Phelps. With me on the call today are Noah Gottdiener, CEO and Chairman of the Board; and, Gerry Creagh, our President.

Before we begin, I’d like to point out to all of you that statements in this call may include forward-looking statements as defined in Section 21E of the Securities and Exchange Act of 1934 and the Private Securities Litigation Reform Act of 1995.

Additionally, these statements involved known and unknown risks, uncertainties, and other factors that may cause actual results, levels of activity, performance, or achievements to be materially different from any future results, level of activity, performance, or achievements expressed or implied by these forward-looking statements.

Therefore, you should not place undue reliance on these forward-looking statements. Please see Risk Factors in our Form 10-K, Form 10-Q, and in other documents we filed with the SEC for a complete description of the material risks we face. We do not undertake any obligation to publicly update or review any forward-looking statement, whether as a result of new information, future developments, or otherwise.

And now, I’d like to turn the call over to Noah.

Noah Gottdiener

Thanks, Jake. It’s a pleasure for me to speak with you this morning to report our full year and fourth quarter earnings for 2008. Today, I’d like to start by recapping key highlights of our results. Then I’d like to discuss the current state of our business, the current market environment, and key growth drivers before turning the call back over to Jake for a more detailed financial discussion.

First, to briefly summarize our 2008 top-line results, the full year revenues increased 12% to $381.5 million, compared to $341.2 million in 2007. Revenues from our financial advisory segment increased 19% over last year, offset by a 12% decrease in revenues from our investment banking segment. During the fourth quarter of 2008, revenues increased 2% to $94.2 million, compared to $92.7 million for the corresponding prior year quarter. Revenues from our financial advisory segment increased 4% over last year, offset by a 7% decrease in revenues from our investment banking segment.

In 2008, we conducted over 4,900 engagements for 2,300 clients around the globe, including corporations, prominent law firms, government entities, and leasing private equity of hedge funds. More than a third of our clients are SMP 500 companies. At the end of the year, we had 975 clients service professionals, representing a 16% increase over last year. This includes168 managing directors, representing a 29% increase over last year. With that said, in light of current market conditions, we remain – we remain focused on tightly managing our headcount.

We believe our 2008 results speak to our balance portfolio businesses, our technical expertise, and our flexibility in responding to client’s needs in any environment. The unprecedented economic environment continues to present us with opportunities and challenges. While our M&A correlated service offerings continue to experience reduced demand, growth in other businesses continue to offset this reduction, with increased opportunities from counter cyclical and non-cyclical services. Counter cyclical services include our global restructuring services, dispute consulting, and goodwill impairment testing in conjunction with FAS 142. Non-cyclical services include portfolio valuations, financial engineering, and transfer pricing.

The secular trends driving opportunities for our services have also continue, and in many instances have become even more relevant in these times. These trends include the need for greater transparency, the application of fair value accounting, demands for independence, and a greater level of corporate restructurings. In addition, the emerging global regulatory and accounting landscape continues to present opportunities for us to help our clients navigate through complex issues relating to valuation and objective presentation of value on their financial statements.

At their core, the challenges that confront our economy and the capital markets relate to issues of valuation. What are assets truly worth? And how should they be reported? As the largest valuation services firm in the world with the highest levels of expertise, we believe Duff & Phelps has been and will continue to be at a great position to be of service.

Let me give you some highlights of our business. I’ll start with our financial advisory segments. Our valuation advisory business, which represents 47% of total revenues, grew 3% over last year. Valuation advisory includes our core FAS 141 financial reporting and FAS 142 impairment valuation practices, our fixed assets real estate practice, and general valuation services.

Over the second half of the year, we saw a significant increase in impairment testing, particularly given the sharp declines in market valuations of net in publicly trade companies. Although our broader valuation advisory business remains solid in today’s environment, our growth has been tampered by the overall M&A environment, and demand for a FAS 141 valuation has declined.

Our corporate finance consulting business, which represents 15% of total revenues, grew 37% over last year. This practice includes our core – portfolio valuation practice, financial engineering, and due diligent services. We continue to benefit from new and ongoing portfolio valuation assignments for private equity funds, hedge fund clients, and other investment vehicles. Over the past several months, we’ve seen a strong level of interest from corporate clients with respect to their investment portfolios and pension funds. And we continue to penetrate the financial institutions’ market. It’s important to note that our portfolio valuation business is not tied to existing M&A transactions, but rather to existing portfolios that our clients hold.

We remain the clear market leader here, and are proactively pursuing immediate opportunities for clients in need of independent portfolio valuation services. Given the increased importance of this segment and the desire for investors to better understand our service offerings, in 2009, we will begin reporting corporate finance consulting as a separate reporting segment. This will allow greater transparency and an increased level of reporting detail.

Our tax services business, formally called specialty tax, is a key growth driver for Duff & Phelps. It represents 12% in total revenues, and grew 80% over last year. About 40% of the increase resulted from the Rash acquisition, which has provided us with a suite of services required to penetrate larger and more complex accounts with regard to property tax services. We also added a team with expertise in corporate tax planning and compliance to enhance our transaction tax advisory services group.

Another notable area that we’ve been investing in is dispute and legal management consulting. Throughout 2008, we announced a number of moves to enhance this business unit’s capability. This business represented 8% of revenues in 2008, and increased almost 50% since last year. In today’s environment, litigation appears to be increasing, particularly with respect to financial services, valuation, and liquidity issues. Our dispute business is participating in this trend. As a specific example, we’ve recently been retained to service financial advisor to the court appointed examiner in connection with the bankruptcy of Lehman Brothers. This significant engagement will draw on our dispute consulting, forensic accounting, financial engineering, and valuation capabilities from across the firm.

Let’s turn to investment banking, we are pleased that the diversity and quality of our services within this segment mitigated the potential revenue decline compared to the general M&A market. In addition, given the dislocation in the broader investment banking marketplace, our investment banking segments is well positioned for the future in terms of commercial and recruiting opportunities.

We are pleased to see that our restructuring business, which represents 5% of total revenue, has begun to experience a notable increase in the number of opportunities and engagements won as the restructuring cycle takes hold. Here in the US, our restructuring business has won a number of significant creditor and debtor assignments in recent months, and the pace of new business continues to accelerate. In terms of restructuring oversees, our Paris restructuring team continues to capitalize on the emerging distress market in Europe. Overall, we believe that the restructuring and the stress arena is going to be extremely fertile ground for the next two to three years. And we have an established global franchise in this arena.

Our middle market M&A advisory practice, which represents 5% of total revenue, is being impacted by the global disruption in the M&A and credit markets. While our cell site [ph] auctions have generated significant interest from strategic and private equity buyers, we’ve seen a delay, and in some cases, cancellation of certain transactions as buyers are unable to secure financing and sellers work to shore up their businesses in the challenging economy. With that said, we were able to advise on a number of transactions that were completed during Q4 in the midst of the early days of the economic crisis, which speaks to the high quality of our engagements.

While our transaction opinion business was down this year versus last year as a result of market conditions during the second half of the year, this continues to be a market leading franchise for Duff & Phelps. The transaction opinion business represents 9% of total revenue, and is a leading national player. According to Thomson Financial, in 2008, we were the third ranked provider of fairness opinions in the US, and thirteenth ranked in the world based on a number of opinions delivered. Perhaps more importantly, we believe we are the number one provider of independent transaction opinions in the US.

Ford and their key advisors engaged us to provide independent opinions regarding fairness and solvency. As a recent example of our market presence and expertise, during Q4, we were honored to provide a valuation report to the US Congressional oversight panel on TARP led by our transaction teams and financial engineering teams. Our report was presented to Congress at early February and is available on the TARP oversight panel Web site. The report highlights our expertise across our broad portfolio of services. We are pleased to have performed this engagement.

Let’s briefly turn to our international business, which continues to be a growth driver to the firm. Revenues from our international business increased 66% to over $39 million during 2008. Almost 40% of our overall growth is being driven from our international operations.

During the year, we formed the restructuring practice in Paris, opened an office in Shanghai, and strengthened our global M&A practice by adding senior professionals in our London office. Given the cross border dimensions of many of our assignments, having this experience on a global scale will allow us to better respond to our client’s need, regardless of location.

All in all, our 2008 results demonstrate our focus on prudent and balanced growth domestically and abroad. While the markets are turbulent and not without significant challenges for virtually everyone, we are seeing numerous opportunities to build our business and enhance the platform. With that, I’d like Jake to discuss our financial results in greater detail. Jake?

Jake Silverman

Thanks, Noah. Today I’d like to discuss our company wide financial results, and then provide additional details on segment specific performance. In addition to GAAP metrics, I will be discussing non-GAAP measures of our financial results, including adjusted EBITDA and adjusted pro forma net income. We believe these non-GAAP measures, when viewed alongside the GAAP figures we have already provided in our earnings release and will disclose in our 10-K, provide a meaningful means of evaluating our company’s performance.

As Noah described, for the full year, revenues increased 12% to $381.5 million, compared to $341.2 million in 2007. For our fourth quarter of 2008, revenues increased 1.6% to $94.2 million, compared to $92.7 million for the prior year quarter.

For the year, we grew 7.4% organically overall, with 13.4% organic growth in the financial advisory segment. The organic growth measure excludes the impact of recent acquisitions to date.

For the year, adjusted EBITDA was $73.6 million or 19.3% of revenues, compared to $68.9 million or 20.2% of revenues in 2007. For the quarter, adjusted EBITDA was $20.7 million or 22% of revenues, compared to $17.5 million or 18.9% of revenues for the prior year quarter. Adjusted pro forma net income per share was $0.28 for our fourth quarter and a $1.05 for the year.

Let me describe what adjusted EBITDA and adjusted pro forma net income are. Adjusted EBITDA represents earnings before interest, taxes, depreciation and amortization, and non-controlling interest as well as the following items, other income, acquisition retention expenses, equity based compensation associated with the legacy units of Duff & Phelps acquisition LLC, and the grant of options made at the time of our IPO.

Adjusted pro forma net income represents adjusted EBITDA less depreciation and amortization, interest income and expense, other income, and pro forma assumed corporate income tax. Adjusted pro forma net income per share consists of adjusted pro forma net income divided by the weighted average number of the company’s Class A and Class B shares outstanding for the applicable period, giving effect to the dilutive impact, if any, of stock options and restricted stock awards.

I’ll now talk briefly about segment performance and our balance sheet. In terms of segment performance, let’s start with financial advisory, which represents 81% of total revenues for the year. During the year, financial advisory revenues increased 19% to $310 million, compared to $260 million in 2007.

For the quarter, revenues increased 4.1% to $74.7 million, compared to $71.8 million in the prior year. The increase in revenue for the year was driven by solid growth from our corporate finance consulting, tax services, and our dispute and legal businesses.

Of the overall increased in revenue, approximately 39% is attributable to a higher number of chargeable hours as a result of the number of increase in the number of client service professionals, 31% to a higher rate per hour, and 30% from our recent acquisitions. For the year, the financial advisory rate per hour increased 7% to $3.44 from $3.23. Utilization was 63%, compared to 69% in the prior year. Revenue for professional was $380,000, compared to $413,000 in 2007. In 2008, the financial advisory headcount increased 13% to 841 client service professionals from 746. Of the increase, 56% resulted from domestic hiring, 15% from hiring in our international offices, and 29% resulted from our recent acquisitions.

Now, I’d like to turn to our investment banking segment, which represents 19% of revenues for the year. In 2008, revenues decreased 12% to $71.8 million from $81.6 million. For the quarter, we reported a 7% decrease in revenue to $19.5 million, compared to $20.9 million in the prior year quarter.

Note that our global restructuring business is showing growth on a sequential basis this year, and the pace of new engagements in our domestic practice picked up meaningfully in the second half, compared to the first half of the year. We believe we are at the beginning of the cycle and expect this pace to continue throughout 2009 and beyond.

Noah previously provided a context regarding the overall M&A and restructuring environment. We feel that we have a diverse portfolio of services in this segment that has helped to shelter us on a relative basis from the broader volatility in the market.

Our balance sheet is strong. At December 31st, 2008, we had $81 million of cash and $43 million of total debt on our balance sheet. We’re just over half the turn of debt to trailing 12 months adjusted EBITDA. It’s important to note that we believe our cash balances are safe. Almost 90% or $72 million of cash is held in US non-interest bearing accounts, which provide FDIC protection until the end of 2009.

During Q4, we made a conscious decision to ensure principal protection versus achievement of yield. We plan to monitor the short term markets and revisit this investment policy on a regular basis. With regard to share account, we have a two-class share structure with Class A shares primarily owned by public investors, Shinsei, the Napoleon recipients of restricted stock awards, and Class B shares owned by the original members of Duff & Phelps acquisitions, the entity which owns our operating business, which are exchangeable into Class A shares.

As of to date, the total number of Class A shares outstanding is approximately $14.7 million. The total number of Class B shares outstanding is approximately $20.9 million. Thus, on a fully exchanged basis, we have a total of approximately $35.6 million shares outstanding.

With regard to outlook, we are not providing quarterly or annual financial guidance for 2009. However, I’d like to turn the floor back over to Noah to provide a qualitative view on 2009 and close out the call. Noah?

Noah Gottdiener

Thanks, Jake. In summary, we’re pleased with the overall growth of our business across services and geographies this past year. Looking forward to 2009, the secular trends that are driving our business continue to bode positively for us. We expect to pick up in restructuring and dispute consulting work to continue in a meaningful way. Furthermore, we see continued growth in non-cyclical businesses, such as portfolio valuation and tax services.

Now realistically, given the current economic environment, our M&A correlated businesses will make it challenging for us to repeat the total year-over-year revenue growth that we achieved in 2008, particularly in the first half of the year. Obviously, to the extent that we complete any acquisitions or significant lift-outs this year, our overall growth rate in 2009 would be enhanced.

In closing, I am very pleased with our portfolio of businesses and how they position us to perform both in good times as well as the challenging times that we are in today. This concludes our prepared remarks. In addition to Jake and me, our President, Gerry Creagh, we’ll now be available to answer you questions. So with that, I’ll open the floor up to questions.

Question-and-Answer Session

Operator

Thank you. (Operator instructions) And we’ll hear from Tim McHugh with William Blair & Company.

Tim McHugh – William Blair & Company

Yes. First, I wanted to ask about the – the goodwill impairment services within the valuation advisory practice. Given that that’s probably a pretty good sized portion of the mix right now, can you talk about if there’s any seasonality? You mentioned it picked up significantly in the second half of the year. I’m just trying to discern the seasonal transfers because obviously the market weakened significantly in the second half of the year. Do you see continued strength? Or should we think of that as more of a second half of the year seasonally, different practice?

Gerry Creagh

Hi, Tim. This is Gerry. The impairment work did increase at the second half of the year because of the deteriorating market conditions and the need for companies to take a look at their assets. That will continue. As you have poor market conditions, you need to – to look at the – at whether or not your assets are impaired. So that will continue for as long as there is goodwill on the books of these companies. So it will continue to – it’s not seasonal. They have to do it quarterly. Ad clearly, at the end of the year, there is increased deficits around it. Did I answer your question?

Tim McHugh – William Blair & Company

Yes, yes. That is helpful. And then the restructuring business, you talked about seeing – obviously doing better there seeing an increased pipeline. Can you talk about where you are relative to your capacity right now? Are you running pretty hot if we look at the fourth quarter run rate in terms of the number of people you have, you make in both the US and where you stand in Paris now?

Gerry Creagh

Yes. I would say, “Listen, we’re definitely running hotter than we were, and we’re continuing to look for opportunities to recruit in this area because we expect more opportunities and more growth in this area. But we’re definitely running hotter.” And you have to remember, Tim, the way our model works, we try to move people across the platform as much as possible. So that’s the beauty of how we’ve designed the structure. So to the extent, we have one hot business and one business that’s not as hot. We can move the people along because they’re at the same core competency. So to the extent that we have senior people that can lead projects, we have junior staff that can participate.

Tim McHugh – William Blair & Company

Okay. And then, the acquisition environment right now, you’ve built up a nice cash balance. I recognize some of that will get paid out here in bonuses in the first quarter. But what’s your appetite in this environment? Are you more apt to wait out the current environment? Or are you out there looking for opportunities?

Gerry Creagh

We’re definitely looking for opportunities. There are terrific opportunities out there, and we’re maintaining relationships with people who’re running these businesses that are potentially targets for us. We’re obviously going to be cautious and prudent. But having said that, we’ve been very effective with the acquisitions that we’ve made. We feel that we’ve really moved up the learning curve in terms of our ability to integrate businesses. And our confidence level is just higher. So it’s sort of a balance between caution given the environment, but a real confidence in our ability to make good acquisitions. Is that responsive to you, Tim?

Tim McHugh – William Blair & Company

Yes. That is helpful. And then the last one, can you give any more color to the extent you’re allowed on the Lehman engagement – bankruptcy engagement that you were hired for? Which practice will that fall under mainly? And what’s the scope of it?

Gerry Creagh

I think that the beauty of that is that it draws across a lot of the surfaces that we provide. Our financial services expertise, dispute consulting, our forensic capability, our financial engineering capability around valuing complex securities, and it’s a real example of where we have an edge in this market for this kind of assignments. Because if you think about it, Tim, the real core issue around an assignment like that really relates to being able to understand what, where the value is, or what securities are worth. And as sort of dominant valuation player, we really play well in terms of our capabilities for that kind of assignment. So the assignment is being bled out of our dispute consulting business, but it’s drawing heavily across many parts of our platform.

Tim McHugh – William Blair & Company

Okay. Thank you.

Gerry Creagh

Okay.

Tim McHugh – William Blair & Company

Yes. That’s great. Thanks.

Operator

And next on the list is David Gold with Sidoti.

David Gold – Sidoti

Hi. Good morning. A couple of questions for you, first off, Jake, it looks like from looking at the average headcount to end of period and looking up the third quarter, it looks like presumably there was some shifting – almost, best I can guess is there was some reduction, and then presumably some hirings, maybe some shifting in the different practice during the quarter. I was curious if you can comment on what practices you might have been adding in and where we might have reduced some?

Jake Silverman

Sure. Dave, this is Jake. It’s really just a question of a constant focus on rebalancing the mix of people to the extent we are able to – it’s actually, we try to redeploy. I wouldn’t say that there’s necessarily one particular area that has been affected the least over the course of the past year with respect to any headcount reductions. We’re constantly focused on managing output performers and making sure that we’re constantly managing our overall past utilization.

In terms of areas that we’re looking to invest in, I think prospectively, Noah mentioned some of the areas that we’re seeing lift, as mentioned, in the cycle. And those would include areas such as dispute consulting and restructuring. To the extent we find ourselves reaching capacity there, we’ll look at people. If you take a look at our overall attrition for the year, it was about 19%, 11% was voluntary, and 8% was involuntary. So we constantly look at our capacity in all of our businesses. As I said earlier, we will move people around. But to the extent that we can’t, this is performance based culture, and we will continue to monitor and address our capacity. So we have been hiring. We have been looking very, very – in a very disciplined way at our capacity. But we continue to try to drive the platform to move people throughout all the different services.

David Gold – Sidoti

Can you give a sense of what those attrition numbers look like for the fourth quarter?

Gerry Creagh

I don’t think we – do we break that out, Jake, at all?

Jake Silverman

Yes. We disclosed those numbers, without–

David Gold – Sidoti

Okay. Okay.

Jake Silverman

And again, we’re typically focused on annual attrition overall.

David Gold – Sidoti

Okay. And then, another question, both cost of comp and G&A, a bit lower than we’d expected, which obviously is a positive. We’re just curious if there were bonus accrual reversals in the fourth quarter.

Gerry Creagh

I don’t know that I would characterize anything as a reversal. We managed our compensation margins very carefully. I think that our compensation margins are recently close to what they were last year. And we’ve just – we’re very tight and very focused on controlling all of our expenses.

David Gold – Sidoti

Okay. So presumably, even just looking at, say, SG&A for the fourth quarter of $23.5 million down sequentially, down year-to-year, is that a good sort of starting point for building out a model? I mean, is that anything–?

Gerry Creagh

Yes. As we’ve said in the past, I wouldn’t derive any specific conclusions from one quarter of our business. We look at our business on an annual basis. There are timing differences in terms of spend. Folks in the call will recall that in Q3, we had higher SG&A expense principally due to – from that conference that we hosted early in the quarter. So there are a number of items that go into the mix. With that said, we are focused on making sure that we manage our discretionary spend, particularly in this environment. We’re focused on maintaining our overall target EBITDA margin or adjusted EBITDA margin of 19% to 20%. And we think we’re in that range.

David Gold – Sidoti

Got you. Okay. Thank you.

Gerry Creagh

Sure.

Operator

And we’ll next move on to Andrew Fones of UBS.

Andrew Fones – UBS

Hi, thank you. I understand you didn’t give these in the press release, but I was hoping you could give us the Q4 operating metrics. I know you gave us the overall metrics for the year. But due to rounding areas, it would just be helpful to get them for the fourth quarter, the utilization and the bill of rights of financial advisers, and the – also the organic growth rate in the quarter, if I could? Thanks.

Jake Silverman

Sure. In Q4, our utilization rate per FA was 64.7%, Andrew.

Andrew Fones – UBS

Yes. Okay.

Jake Silverman

Rate per hour was about $324 for the segment. So those are the two quarterly metrics for Q4, and overall organic growth for Q4 was down very slightly in the low single digits.

Andrew Fones – UBS

Okay.

Gerry Creagh

And Andrew, I would just say on the utilization and the rate per hour, we look at those in conjunction – I wouldn’t – and they will bounce up and down in any given quarter. I would not extrapolate anything necessarily from what we’ve just disclosed to you in the fourth quarter.

Andrew Fones – UBS

Okay. To build on that, I actually wanted to ask, it looks as though you're about flat year-over-year in terms of the rate per hour. I was wondering what we should anticipate for 2009 and whether you put to any price increase on your AG?

Gerry Creagh

I would say overall for this year we will be – we will be having price increases of upwards of 5% on our rate per hour or rack rate. But in terms of modeling that I would say that we will continue to be in low single-digit rate per hour increases, net realized rate per hour increases.

Jake Silverman

Again, let’s put that in perspective, for full year '08, we were up about 7% on a blended realized rate basis. And as Gerry said, we think that it's reasonable to achieve low single-digit realized rate.

Gerry Creagh

And just to give you some more flavor there, at least, market flavor there, we haven't seen material push back on prices. But obviously, in a challenging environment that we're in, it wouldn't be unexpected. Having said that, a lot of the services that we provide are done in a verging environment, in which case our pricing is firm or at premium levels. And the mix of our business also affects our rate per hour. And we're seeing a greater mix of premium services and contingencies, which also have an impact on the rate per hour. So when you factor all those things in, they really translate into maintaining or slight growth in our rate per hour even in this environment.

Andrew Fones – UBS

Okay. Thanks, that's really helpful color. And then, on the disputes business, I think you – did the acquisition of Lumin. And I was just wondering what impact that had on that disputes business in the quarter, what you are seeing in terms of underlying trends? Thanks.

Jake Silverman

We haven't broken out specifically the contribution of revenue from our acquisitions for this quarter. But overall, as we talked about in the prepared remarks, our dispute consulting business is experiencing, and has experienced, meaningful growth. So now we've invested in, not only Lumin, which was a firm that was focused – that is focused on the IP litigation space, but we also acquired Dubinsky in the second quarter of 2008, which is a Washington based dispute consulting practice. And we've hired a number of MDs and staff in the practice as well throughout 2008.

And really, if you think about it that’s all culminating in a significant amount of work coming from the current economic climate. We talked about the Lehman Brother's case, which will draw heavily on our dispute consulting practice. And we see real meaningful growth opportunity ahead for that business.

Gerry Creagh

Yes. And listen, I would say that we're very excited about that practice. We've built out the breadth of capability within the practice. And from our perspective, we've reached past the tipping point in that business and past the critical mass that we have to be at. And we’re very pleased at the growth that we think we can expect to see from that practice going forward.

Andrew Fones – UBS

Okay. Thanks. And just one more, congratulations on winning the TARP advisory role. Can you talk about the work you did in the fourth quarter? And perhaps if you expect some ongoing work to come from perhaps not only TARP, but also generally outside the stimulus package? Thanks.

Gerry Creagh

Well listen, what I would say is, first of all, on the TARP assignment, we were very honored to be able to provide that report to Congress and to be selected to do that type of work. I think it reflects well upon – on our credibility in this space because, obviously, the oversight panel was looking for a provider that would have that very high level of integrity and credibility. And I think that type of assignment, obviously, raises our profile and positions us well for opportunities going forward in the government arena.

Andrew Fones – UBS

Okay. Thank you.

Operator

(Operator instructions) Next we move to Lauren Smith with KBW.

Lauren Smith – KBW

Hi, good morning. And most of my questions have been answered, I guess just one follow – maybe one or two follow up. One, with respect to pricing power, could you give some sort of – And I know you gave us a blended rate, but I'm just curious what businesses you're seeing maybe in a greater pricing power in this kind of environment going forward?

Gerry Creagh

Again, I would say, generally, wherever there are – there is an urgent need, we're seeing good pricing power. Some of that takes place to some extent even in our – in some of the situations we've talked about dispute consulting. Clearly, the pricing power has increased in restructuring as the capacity across that industry is getting used up. When we're called in to provide an opinion on an urgent basis, our pricing power is strong because the clients are less focused on the pricing than they are on the quality of the service. So it's across a number of premium services.

Jake Silverman

But generally speaking, the clients that we're doing work for really appreciate the value that we bring and the need to get it right. And so we haven't seen that level of sensitivity of pricing in the marketplace.

Given everything that’s going on in this world right now, they want to make sure that we do our job. They want to make sure that we're being diligent. And as a result to you, because of those types of issues and because of our position in the marketplace, you see less of a pricing issue than you would normally see.

But we try to continue, we want to continue to elevate that position in the marketplace and our stature with the clients so that our pricing can be maintained, and that's the ultimate goal.

Lauren Smith – KBW

Great. That's helpful. And I guess just lastly, I'm just curious, on the restructuring side because it's a little bit less visibility from our standpoint to track all that's going on. From a fee perspective in that business, would it be typical – like I've seen it – some of the other firms I cover where you might get an announcement fee or some sort of retainer fee. When you begin the transaction you earn – whatever the number is, you’re a thousand, sort of monthly over the life of the transaction, and upon completion you get a success fee? Is that similar to how you sort of how you structure transactions you work on?

Gerry Creagh

Yes. Our domestic restructuring business is based on the type of pricing that you just described. Once we get an engagement, it's usually a monthly retainer that can go on for the life of the case. So it's a real recurring business, and often has a success fee associated with it at the end of the case. Our European restructuring business is based more on a rate – on an hourly time and material type basis. And that's the pricing model.

Lauren Smith – KBW

Okay. Now, great, I didn't realize that. That's helpful. Thank so much.

Operator

And next we’ll move to Eric Berg with Barclays Capital.

Eric Berg – Barclays Capital

Hi, guys. Following up on the SG&A comment, appreciating that we shouldn't annualize any particular quarter, particularly this fairly low fourth quarter, would you actually expect a full year SG&A expense to grow in 2009 over 2008 given your focus on holding expenses under control in this environment? Or could we actually see some margin expansion from that line?

Noah Gottdiener

Listen, I think what we've said in the past, and we're going to stick with it, is that we're going to make our long term goal for EBITDA, margins are in the 19% to 20%. We don't see any reason why we wouldn't maintain those margins.

Eric Berg – Barclays Capital

Okay. Largely the same question on client service gross margin – bumped up from 45% to 47% in the fourth quarter. Again, that’s a single data point, but – we have seen a little bit of a trend there over the last couple of years, rising almost two full percent – percentage points. Is there more room there?

Jake Silverman

Eric, we manage our overall compensation expense when balancing all the components of comp, including grants of equity, and try to manage that to a set of targets. And I think that, as we’ve said, we have targets that have been in the mid 40s or high 40s, depending on the segment, and we’ve been focused on managing to those levels on an annual basis.

Gerry Creagh

We haven't changed those levels and I don't think we expect to change those levels either.

Eric Berg – Barclays Capital

Okay, fair enough. And then following up on the acquisition commentary, are there particular businesses or segments or geographies that you’re looking at for building out from a potential acquisition?

Gerry Creagh

Well listen, I think, what we've said in the past is that with regard to acquisitions, we’re looking at things that are either complementary to what we do or – or within the service spectrum that we're in different geographies.

So we've seen some great opportunities on the operational restructuring front, that's a potential area for us. We have seen opportunities in Canada. We've seen some great opportunities in Europe and other related areas.

Eric Berg – Barclays Capital

Okay, thanks guys.

Operator

(Operator instructions) And we'll take a follow up question from Andrew Fones with UBS.

Andrew Fones – UBS

Thanks. I just wanted to see whether at this junction you think it's reasonable to assume that headcount should remain approximately flattish in 2009 given the current outlook.

Gerry Creagh

I would assume that headcount will probably grow again, low single digits, Andrew.

Andrew Fones – UBS

Okay. Thank you. Obviously, the headcount came down in Q4, and I think you would said that there could be kind of a small restructuring. Was there any severance charges in the fourth quarter we should be aware of? Thanks.

Gerry Creagh

Andrew, we – again, there's no extraordinary charge if that's your question.

Andrew Fones – UBS

Okay. Yes, that was it. Thank you.

Operator

And at this time there are no further questions. I would like to turn the call back over to Mr. Gottdiener for any additional or closing remarks.

Noah Gottdiener

Great. That's all I have, thanks – thanks all.

Operator

And that will conclude today's conference. We thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: Duff & Phelps Corporation Q4 2008 Earnings Call Transcript
This Transcript
All Transcripts