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Executives

Daniel J. Slottje - Senior Managing Director

Jack B. Dunn - Chief Executive Officer, President and Director

Roger D. Carlile - Chief Financial Officer and Executive Vice President

Dennis J. Shaughnessy - Executive Chairman

David G. Bannister - Executive Vice President and Chairman of the North American Region

Analysts

Timothy McHugh - William Blair & Company L.L.C., Research Division

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

Kevin D. McVeigh - Macquarie Research

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Arnold Ursaner - CJS Securities, Inc.

FTI Consulting (FCN) Q4 2011 Earnings Call February 24, 2012 9:00 AM ET

Operator

Good day, and welcome to the FTI Consulting Fourth Quarter Earnings Conference Call. As a reminder, today's call is being recorded. Now for opening remarks and introductions, I would like to turn the conference over to Mr. Daniel Slottje of FTI Consulting. Please go ahead.

Daniel J. Slottje

Good morning. Welcome to the FTI Consulting Conference Call to discuss the company's fourth quarter 2011 results as reported yesterday. Management will begin with formal remarks, after which, we will take your questions.

Before we begin, I would like to remind everyone that this conference call may include forward-looking statements within the meaning of Section 21 of the Securities and Exchange Act of 1934 that involve uncertainties and risks. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events, future revenues, future results and performance expectations, plans or intentions relating to acquisitions or other matters, business trends and other information that is not historical, including statements regarding estimates of future financial results.

For discussion of risks and other factors that may cause actual results or events to differ from those contemplated by the forward-looking statements, investors should review the Safe Harbor statement in the earnings press release issued yesterday, a copy of which is available on our website at www.fticonsulting.com, as well as other disclosures under the heading Risk Factors and Forward-Looking Information in our most recent Form 10-K and in our filings with the Securities and Exchange Commission. Investors are cautioned not to place undue reliance on any forward-looking statements, which speak only as to the date of this earnings call.

During the call, we will discuss certain non-GAAP financial measures such as adjusted EBITDA, adjusted segment EBITDA and adjusted earnings per share. 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 GAAP measures, investors should review the press release we issued yesterday.

With these formalities out of the way, I would like to turn the call over to Jack Dunn, President and Chief Executive Officer. Jack, please go ahead.

Jack B. Dunn

Yes, thank you very much. Good morning, good afternoon or good evening to everyone, and thank you for joining us. With me today are Dennis Shaughnessy, our Chairman; Roger Carlile, our Chief Executive – or excuse me, our Chief Financial Officer; and David Bannister, the Chairman of our North America region.

Today, I'd like to continue our format of giving you 3 or 4 bullet points that we think are significant and then turn it over to your questions. This morning, however, if nothing more than a tribute to the people who produced them, I'd like to take a few minutes to talk about our results for 2011.

Let me begin with a brief overview of our fourth quarter results, which I think validate the strategic imperatives we implemented at the beginning of 2011. For the quarter, the company grew 10%. Our pro cyclical businesses again led the way with an aggregate of 15% growth, driven by continued strength in Economic Consulting, Technology and Forensic and Litigation Consulting. Our activities outside North America continued to be very, very strong. Looking at fiscal 2011, I believe many of the steps that we have taken over the last months, quarters and year came together to demonstrate the power of the platform that we have built and the intellectual capital that we have brought together.

Adjusted earnings per share for the quarter were $0.93, up 79% over earnings per share in the fourth quarter last year. And before the revaluation gain, which Roger will discuss in a moment, we were $0.70, up 34.6% over last year. Adjusted EBITDA was 20.7% of revenues, a 210-basis-point improvement over the same quarter last year, demonstrating the assimilation over the year of our new LECG professionals and the ramp up of expenses associated with their transition and was also a great job of leadership in Corporate Finance/Restructuring, where margins improved almost 3.5%.

With regard to our pro cyclical businesses, as a whole, they grew 15%, and the organic growth for these businesses was 7%. The delta again represented mostly growth from the LECG transactions, which represented $23.3 million during the quarter. Highlights in the pro cyclical businesses include 39% revenue growth in Economic Consulting, of which 11% was organic; 12% growth in Technology, all of which was organic; and 11% growth in Forensic and Litigation Consulting, of which 4% was organic.

In Economic Consulting, strength in M&A in our financial economics practice continued from the third quarter, with Antitrust and M&A matters up 65% and 36% year-over-year, respectively. Looking to 2012, we believe our financial economic practice will continue to experience high utilization rates and increase client opportunities. We also expect to continue to book a meaningful number of strategic consulting assignments.

Technology benefited from a meaningful uptick in M&A work, which grew 154% compared to the same quarter last year, and we continued to see strong momentum associated with our Acuity platform. During the quarter, we launched Acuity in the U.K. and assembled a new corporate sales organization to pursue opportunities for this great new product. We're looking especially at the corporate market.

Top line growth in our Forensic and Litigation Consulting segment was driven by continued strength in our U.S. construction and environmental solutions practices, with revenues increasing 22% compared to the fourth quarter last year in those areas. Geographically, the Technology segment saw a significant revenue expansion in Brazil, Argentina and Colombia during the quarter.

The Asia Pacific region had another strong quarter, with revenue up almost 100% year-over-year, and this growth was led by our BRIC practice, which is our integrity and investigations practice, and our construction and our core practices in the regions. Revenues in EMEA were up 5% year-over-year, with growth primarily driven out of France.

Revenue in the Strategic Communications business slipped 1% year-over-year, although higher retainer business was noticed, but this was, unfortunately, overcome or offset a little bit by a non-meaningful thing, which was a decrease in our reimbursable expense work, which doesn't really have any profit associated with. So overall, that's a very positive development.

Despite the Eurozone crisis, our Strategic Communications division remained #1 in M&A volume in the latest European M&A lead tables. In North America, Strategic Communications experienced improvement in cyclical transactions and restructuring projects, despite the weak capital markets activity. Growth was led by our energy, healthcare and financial services practices.

Strategic Communications had another strong year in Asia Pacific, led by strength in Australia. In Latin America, Strategic Communications experienced success in Colombia and continued to invest in Brazil in anticipation of the economic activity there associated with the World Cup and the Olympics.

Revenues in our Corporate Finance and Restructuring segment were $108 million for the quarter. Over the last 3 quarters, we have stated that we expect this segment to have a run rate between $100 million and $110 million, with the midpoint of $105 million and success fees being something that moves it around that midpoint. In the fourth quarter, we were right where we expected to be. During the quarter, we saw improved margins and marquee client wins on the company side such as MF Global, NewPage, Dynegy and Hostess.

We also saw improvements in our healthcare practice; increased contributions from our European tax group, which was acquired along with the other practices from LECG; and strength in our industry practices, especially consumer durables and apparel, materials and telecommunications.

In short, the fourth quarter capped what was, for FTI Consulting, a spectacular year. For the year, revenues increased 12%, of which 5.2% was organic and 6.8% resulted from acquisitions. Adjusted earnings per share before the revaluation gain increased 11.3%. Growth rates of our operations in Latin America, Asia and EMEA were a robust 60.7%, 74.8% and 24.6%, respectively. In 2011, 24.5% of our business resided outside the U.S. compared to 21.6% last year. Cash generation was strong at $173.8 million, even after $28 million was used in the LECG transactions and was capped by our best cash flow quarter ever at year's end. Total shareholder return was 13.8%. We completed our accelerated stock buyback, which, in total, saw us repurchasing 12.4 million shares at an average price of $40.43. We acquired and integrated the significant business operations from LECG and completed the rebranding of 29 brands into 1 major brand and 2 sub-brands. This, combined with the restructuring of our management systems on a global basis, has greatly enhanced our ability to deliver our services worldwide, with seamless worldwide cost-effective, and has enhanced our ability to collaborate and provide total solutions to our clients.

Results were driven by continued solid execution of our strategic initiatives. Strong performance in our pro cyclical businesses, and the cross segment and cross-border opportunities generated by our new management scheme across our entire geographic footprint drove our top line growth. For the year, Economic Consulting, Technology and Forensic and Litigation Consulting grew revenues at rates of 38.4%, 23.8% and 12.5%, respectively.

Turning to fiscal 2012 outlook. Based on current market conditions, the company estimate that revenues for the year will be between $1.6 billion and $1.72 billion, and diluted earnings per share will be between $2.80 and $3. As always, this is organic growth and does not include acquisitions or share repurchases. Margins are expected to improve, as investments in key personnel materialize, again, partially offset by our continuing investments in our infrastructure to support safe future growth in international markets.

2012 clearly will be another volatile year in the global markets. Our event-driven business thrives in this type of environment, as these conditions bring about more financial restructurings, privatizations, debt for equity swaps, corporate transitions and litigation activity. In 2011, we saw consolidation within our industry, with a number of smaller companies being acquired by larger companies, which we think is very healthy for the market and for us. We expect this consolidation to continue for both structural and strategic reasons. It helps rationalize competition, and it helps standardize how people think about our products. We also think it gives us a better pricing environment. Our successful acquisition of LECG in 2011 demonstrated our strong capabilities in that area.

So in conclusion, the 3 bullet points I would like to leave with you as you consider 2012 are the following: first, no matter what happens, we are extremely well positioned, whether it is a hiring opportunity, an extremely complicated acquisition such as LECG, a relatively simple but larger one involving a company, our own debt as it comes due, I believe, in terms of reputation, financial strength, geographic footprint and human capital. If not unique, we are certainly not unnoticed as being in an excellent position to be a participant and a partner of choice.

Second and somewhat related is our stability given the world's uncertainty. From a financial position, first, we generate cash, in fact, $3.28 of free cash this year even after the LECG acquisition. We have a strong balance sheet, plenty of cash, total availability on our line and a cadre of investment bankers who tell us we are a prime prospect for raising additional capital at any time if a particular project warrants. Also our track record of not only attracting but retaining great professionals who all make it possible is second to none.

Third, our geographical footprint. This allows us not only a competitive advantage in servicing clients but also access to the various markets around the globe as capital migrates. There are many other factors that provide the secret sauce that helps fuel the effectiveness of the platform outlined above: our innovation, not just the fabulous products coming out of our technology R&D, but new practices in areas like insurance and healthcare; our religious adherence to only gold standard people and only gold standard practices; our momentum as the place to be; and our ability after 30 acquisitions to be pretty darn good at pricing them, completing them and integrating them.

So with that, as you can tell, we look forward very optimistically to 2012. And with that, before your questions, I'd like to turn it over to Roger to talk about the revaluation gain. Roger?

Roger D. Carlile

Thanks, Jack. The revaluation gain is a very technical accounting entry, which all companies face now, results from the new accounting standards for contingent consideration, which arises from acquisitions, which are often referred to as earn-outs. Basically, at the time of an acquisition, we are required to record a liability, which is the estimate of future payments under those earn-out agreements. Any subsequent changes to those estimates and the resulting liability are then recorded in operating income.

While our FS Asia acquisition has performed very well, in fact, Asia was up 72% in the quarter as Jack mentioned, we now estimate that we will pay $10 million less on a net present value basis for future earn-out payments, less than we originally estimated due to the finite life of the earn-out and the earnings expectation of certain sub-practices. So we wanted to clearly call this item out because of its nature, we believe the better number to focus on for the quarter in terms of earnings is $0.70 per share, removing the 23% -- or $0.23 revaluation gain from this result. Jack?

Jack B. Dunn

Thank you. And with that, we'd like to -- unless Dennis or David, you have something, we'll turn it over to questions.

Dennis J. Shaughnessy

No.

Jack B. Dunn

Okay.

Question-and-Answer Session

Operator

[Operator Instructions] And our first question will come from Tim McHugh with William Blair & Company.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Just wanted to first ask you about, I guess, some of the, I guess what I call litigation-related business, in general, so the Econ, Forensics and e-Discovery. They put up nice year-over-year growth rates still, but they weren't quite as strong as we saw during the middle of the year, and they were down sequentially. Was there anything in terms of the timing of projects or your indication activity that caused that to happen? Or, I guess, how do you look at the performance of this quarter relative to, I guess, the last few and what you were expecting, at least?

Dennis J. Shaughnessy

Yes, Tim, it's Dennis. I don't -- I mean, we're happy with the performance this quarter. I think, number one, there is significantly fewer billing days just so mathematics works against you, third quarter to fourth quarter. We had more -- a lot more billing days at the end of fourth quarter. And I think to a certain extent, because of still a pretty shaky economy, you didn't see a lot of people flee either for the beach or for the south of France in Europe. They were working in August. So I think we probably had a stronger fourth quarter than normal because of that. And we had fewer days -- I'm sorry, stronger third quarter. We had fewer days in the fourth quarter. So you probably need to average it out a little bit. Secondly, as to litigation and disputes, you do run into a December holiday situation where a lot of judges will slow things down coming into the holidays. And that could be anything from discovery and work or preparation to actual trials where they'll suspend it through the holiday or they'll delay starting it until January. So I think we're happy with where they are. I think, especially on the Econ side in that area, they have never been busier since they've been with us. And it actually gives me -- your question gives me an opportunity, while we welcome all new professionals that join us, I would like to especially welcome Dr. Brad Cornell and his entire group that came over at the beginning of the year. Dr. Cornell is one of the foremost acknowledged experts in complex financial securities litigation. He has hit the ground running with us. We anticipate that he will be a great producer for us and a great asset to an already world-class intellectual team that they have. So welcome, Brad, and all your people.

Jack B. Dunn

Yes. Also, I'd note that when we went over the statistics a little bit, the number of new cases and as part of the budgeting process, Roger and David and I and Dennis always sit down with the leaders. I think we actually picked up a number of cases in the fourth quarter that, generally, at that time of year, don't start hot, but they were also the cases that look like, especially between perhaps FLC and Technology, there might be some good collaborative opportunities there. So we're pretty optimistic about that.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Okay, great. And just in FLC, the revenue being down – or I'm sorry, the headcount being down a little sequentially, was that just turnover, I guess? And, I guess, more importantly, how is, I guess probably across the business, the voluntary turnover rates trending?

Jack B. Dunn

Yes, we didn't see a great change in -- Roger, why don't you do the statistics or the -- and then I'll embellish a little bit?

Roger D. Carlile

Okay. Yes, I think if you look at the tables, FLC had 852 at the end of the quarter and this year and had 806 last year. So I'm not sure, Tim, I show a headcount reduction.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Well, it was down -- I'm talking sequentially. It was down about 20 sequentially. So I mean, it's not a big change, but it's...

Roger D. Carlile

Yes. I think that's not -- I mean, that's just normal activity that occurs in the business from time to time. There's nothing unique happening there.

David G. Bannister

We don't tend to hire a lot of people, Tim, in the fourth quarter as people at other companies would tend to hang around to get their bonuses paid. And so if we just have the normal runoff and then don't have a lot of new hires, that will be a fairly common phenomena. We are looking for increased headcount in 2012 in that segment.

Jack B. Dunn

Yes, we have a couple of -- we always look at the statistics 2 ways. There's the delta about how many more or less, but we also look -- the significant amount of work, as I mentioned in the FLC, has been their transition from a generic damages-type firm to now very specialized. We picked up a couple folks that we'll be announcing in the New Year that we're trading in a lot of places to look at those specialties like insurance, like intellectual property, like the BRIC practice and things like that. So I wouldn't pay scrupulous attention as again, David is the champion of -- unfortunately, headcount times utilization is becoming less of a measure of our business as we go to fix these and as we go to a lot of projects and especially the bigger projects. So I wouldn't read too much into that number.

Dennis J. Shaughnessy

Tim, one other answer to your question, and again, if you go back at $1.6 billion sort of revenue run rate and you take the weekends out and calculate what we're billing per day on sort of an average workday, it's around a $6 million number. And so if you start subtracting workdays out of a quarter, you can easily get the different numbers vis-à-vis your prior quarters sequentially.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Okay, great. And my last question would just be, you guys have always been an acquisitive company and part of the industry consolidation, but I may be wrong. But it seemed like that you were stressing that a little bit more even than I probably would have thought in the last year or 2 here. So are you seeing something out there in terms of the acquisition opportunity or the way the industry is developing that makes you think you'll be able to -- or you're more optimistic about doing some more consolidation, I guess, in 2012?

Dennis J. Shaughnessy

Yes, the answer to the question is yes.

Timothy McHugh - William Blair & Company L.L.C., Research Division

Okay. Can you elaborate on what you're seeing, I guess, that makes you think that way?

Dennis J. Shaughnessy

Well, I think what we're seeing is, it is difficult to create sort of a global channel distribution if you don't have one. And yet your clients tend to drive you -- their problems don't stop at our shores. Your clients tend to have problems that drive you to go offshore or you have to partner or they go get some else. And I think while it's been expensive for us from a point of view of some margin penalty, we have clearly established scale, and it's growing rapidly in a lot of these areas. That makes us a very attractive potential partner for people that are facing the daunting task of trying to do that. And you can take -- when people have extremely good offerings that might be limited by geography but where there's a market for them abroad, it's a lot easier. It has a lot more operating leverage if they could affiliate, merge or be bought by someone like us and then start to distribute those offerings across an already profitable platform. I don't know, Tim, whether it's -- that you have a lot of companies that clearly were very introspective because they had to come through the recession. And it was a traumatic time for, obviously, everybody. But I think as people are coming out of the recession to a certain extent and looking forward and trying to plot out the next 5 years of their life, I think it is hard to escape the global dynamics of the market, the demand curve that we see for these types of services in the developing or newly developed world, as well as just simply the scale, the operating leverage and scale that you get once you pass over your positive cash flow contribution from offices. So I think people are looking hard at it. They're trying to decide they can do it, they're trying to decide what kind of path and future to give their people. I think young people today really are global in their outlook. They want to work on global problems. They want to be transferred and have global postings. They want to broaden themselves through different cultural exchanges. And I think, clearly, if you look at some of the studies, which I know you know intimately because I know you're on top of a lot of it, you realize a lot of the pundits at least, say, you're going to evolve with some large global players who clearly have brought offerings and can address the client issues globally or you're going to see people in much more boutique-y, high domain, industry-driven, very little real estate and they're brought in for their expertise.

David G. Bannister

Tim, it's Dave. We are persuaded, and the evidence would be that our 10 largest engagements last year involved at least 3 of our business units, that there is true benefit in the solutions approach we're taking to our clients' problems. We believe increasingly the folks who we would seek to have join us as our partners also understand that dynamic. And we think there's tremendous benefit for our clients but also for the profitability and success of our firm and the people who join us in that approach.

Operator

And next, we'll hear from Dan Leben with Robert W. Baird.

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

Could you guys talk a little bit, when you're looking within the outlook, how you think about your growth expectations on a segment basis?

Roger D. Carlile

I think, Dan, typically, we don't give guidance on a segment basis. So we give commentary around where -- as we just did, where we performed and how we think we look forward by segment. In terms of actual guidance by segment, we don't do that.

Dennis J. Shaughnessy

Yes. I think, Dan, I think the one thing we would probably say is, we've now seen 4 quarters in Corporate Finance, which is predominantly restructuring of numbers that are averaging between $100 million and $110 million per quarter. Now they're doing it differently. Healthcare is up. Some of our European operations are up stronger. U.S. is still impacted by obviously a slowdown and that, although they have had significant wins lately. So I'd say one prognostication is we are feeling we've hit sort of the new normal there. And we clearly would feel that, at a minimum, they ought to be able to track those numbers, and you wouldn't see the significant decline that you see as a cyclical. Correction comes in and you move from a restructuring environment more to a healthier economy environment. And I think we're cautiously optimistic that the momentum that we have will continue. But as Roger said, we've decided it's better to guide for the whole company rather than each segment.

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

Okay, that's fair. And then when you mentioned the margin expansion on the base, just to clear up, is that on a basis, includes or excludes the revaluation gain?

Roger D. Carlile

That would exclude...

Jack B. Dunn

What I talked about in Corporate Finance is it doesn't include the revaluation gain. That's looking -- and the press release, I think, makes it -- spells it out clear. I think -- so it does not include that. That's apples-to-apples last year.

Dennis J. Shaughnessy

Yes, Dan, you'd have 2 key elements that should contribute to it. Number one, we will lap the LECG acquisition at the end of the first quarter, and that was a pretty traumatic acquisition, it's dramatically outperforming our expectations. And the margin improvement there is faster than we anticipated. It is now fully integrated, so in a way, it's sort of hard to compare apples-to-oranges. But it's doing very, very well. And the margin has moved up faster. And so we would anticipate once we lap that, that, again, you just have sort of a normal operation there and not the margin drag. Number two is, we spent a lot of money in our brand integration. It was a big success. It came off pretty much without a hitch. Our people deserve a lot of credit for it at corporate and down in the bowels. But we wouldn't be spending that kind of money. It doesn't mean we won't be spending significant money in brand, but we wouldn't be doing it in the integration the same way. So I would say you might see a leveling out of general corporate spend, and then we would just get a natural addition from the LECG operation normalizing.

Daniel R. Leben - Robert W. Baird & Co. Incorporated, Research Division

And last one for me, just on the Technology segment, if can you give us an update on the pricing dynamics in the industry, and also if that's any different as you move the Acuity product into the U.K.

David G. Bannister

It's Dave Bannister. I would say the pricing dynamic is more stable than it has been in the past. We would continue to expect to see in core services that are denominated as things such as posting, that over time, those -- under Moore's Law, those costs and therefore, the associated revenue will continue to come down. The consulting side of the business is very stable and, in fact, reasonably strong in terms of the pricing environment as our experts are valued in the marketplace. The Acuity product offering on a blended basis probably has a slightly lower margin than some of the other businesses as it does encompass the review process. And the review process, because it does have some eyeballs on screens and some people aspects to it, had slightly lower margins. On the other hand, it's a segment of the market which heretofore we had not addressed. And it is, by far, the largest segment of the market. We believe it may be 4 to 6x as large as the markets we've addressed in the past. So while the margins may be slightly lower in that business, the scale of that market would suggest a great opportunity.

Operator

And next, we'll hear from Kevin McVeigh with Macquarie.

Kevin D. McVeigh - Macquarie Research

Just a couple of thoughts in terms -- new normal on the corporate fin side on the revenue, any sense of a range of margins as we think about that business on a go-forward basis?

Dennis J. Shaughnessy

I think the margins we're operating in right now are probably what we should expect. I think, clearly, that operation is becoming more and more of a fixed fee, with some degree of success type of operation. I think one, our healthcare business is growing fairly rapidly, that tends to be the model in the industry. And then secondly, I think we're doing more and more debtor-side work rather than creditor-side work where we're in a healthy economy and helping people trying to avoid possibly filing. And so again, you tend to get more of fixed fee and then -- but I would think these margins that we're sitting in now, x the gain would be margins we would sustain.

David G. Bannister

The 27.1% margin in the quarter would be reasonably consistent with the sorts of margin this business produced in the 2006, 2007 period when you add a healthy economy and a reasonably more bond [ph] restructuring market. So I think there's evidence in the past that these are reasonable margins.

Kevin D. McVeigh - Macquarie Research

Super. And then just can you remind us kind of round numbers, your percentages of the verticals across Corporate Finance/Restructuring right now? What percentage is healthcare versus other end markets?

Roger D. Carlile

It's Roger Carlile again. We typically don't break down that segment into its sub-practices for guidance or reporting.

Kevin D. McVeigh - Macquarie Research

Okay. And then just real quick, Jack, you talked about potentially raising capital at some point. How do you think about that in terms of debt versus equity? Any thoughts on that?

Jack B. Dunn

Our standard model is the -- we like to see a transaction where we have a mixture of the stock and the -- talking about a nonpublic company, for example, we have -- where we have a mixture of stock and cash for the company. We typically don't buy things that aren't cash flow positive themselves and help us look at the project. And then traditionally, we use the earn-out, although given the anomaly of the revaluation questions whether how -- the earn-out did exactly what it was supposed to do. We had an uncertain portion of the head value, so we put it all in the future. And it turned out that it worked perfectly. So I would think that we would look at -- we've looked at multiples of 10 or so times EBITDA on the high side. And so I would think that we would look to -- we think -- we aren't all that anxious to use our equity at the current price. So I think we would look at being able to use a combination of the equity and debt.

Dennis J. Shaughnessy

Yes, we have a convert that's due in July. And clearly, we're sitting here with almost $300 million in cash in round numbers. So we would retire the principal of that convert with cash. And we have the option of paying the premium in either stock or cash, and we'll make that decision as it comes in. It would be fair to say that our debt has traded extremely well over the years in the market. And it would be a very popular offering if we went out to either replace, at least the principal side of the convert and maybe even lengthen our maturities. I mean, I think if the markets stay the way they are, they're very attractive to us if we have to finance a deal or just simply to roll over some of these debt.

Operator

Next, we'll go to Tobey Sommer with SunTrust.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Could you give us some color on your hiring expectations for 2012 and what you expect pricing to be like?

Roger D. Carlile

Yes, it's Roger Carlile. I think generally speaking, expect for the Technology business, which is less tied to headcount and/or a business for this year such as Forensic and Litigation Consulting, which has capacity, some capacity, you would generally expect our headcount growth to be in line with our revenue guidance. So I think the midpoint of the guidance is around 6%. So I think you'd expect headcount growth to be around 6%.

David G. Bannister

Yes. It's Dave Bannister. I'll make a couple of other comments. We are clearly, and echoing something Jack has said in the past on this call, we are clearly always in the market for outstanding professionals, particularly experts who bring unusual or unique expertise to the business. And so we would, for all of those of you listening, we would be -- welcome your calls. We've had great success over the years of adding people opportunistically. Dennis mentioned earlier in the call, Brad Cornell and a number of people who joined us recently, truly a world-class economist who will bring a substantial business with him. So I would -- notwithstanding what the guidance suggests or what have you, we will look aggressively for people. As it relates to pricing for 2012, I would say we have modest expectations. We think it's a pretty stable environment we're working in and don't expect significant pricing increases or significant pricing decreases really in any of our businesses. Dennis, I don't know if you have a different thought.

Dennis J. Shaughnessy

No, I think pricing and professional services groups, right now, unless it's under an absolute crisis, clearly, is not giving you the type of pricing power that you might normally see in either a down market or a really big robust market. But there will be price increases. Clearly, there are in some of the areas where we're seeing extremely high demand in economics and -- but I think the headcount growth will also be driven by the growth we're experiencing in Asia and Latin America. As you can see from the numbers, the incremental growth down there is, while it's coming off a smaller basis, we're getting scale into these businesses. Now our run rate in Asia at the end of the year was over $100 million. Our run rate, depending on how we count and give credit down in Latin America, was in the $60 millions to $70 millions. And that's up dramatically. And we are aggressively hiring in some of those markets. And we're trying to get ahead of what we see as demand. I mean, I think Brazil is a fantastic economy, get the velocity of capital that's being injected into it from everything in the extraction industries to maturing servicing and middle-class, as well as what Jack said earlier, this massive infrastructure build that they're having for the World Cup and the Olympics, I mean, you're going to have mistakes there. And it can't be done that efficiently. And we want to be prepared to assist them in fixing and restructuring some of those mistakes. So we are aggressively hiring in that area down there and are doing the same in Asia. So you might see it a little unbalanced where you might see maybe hiring might reflect more the economy in Europe, up in the U.S. and significantly up in the rest of the world.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Roger, in terms of the guidance for revenue, 6% at around the midpoint, is there any carryover impact in 2012 from the LECG hires?

Roger D. Carlile

Yes. We'll have a full year, so that would add 1 more quarter because they joined at the beginning of the second quarter. And that's roughly about $25 million.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

Okay. And then my last question. In terms of your EBITDA margin, you've got some revenue, organic growth going now. And what are the levers that you have to move towards your target of 22%, 22.5% EBITDA margin outside of just kind of better utilization broadly within the firm?

Dennis J. Shaughnessy

Well, I think -- it's Dennis. I think my -- that's obviously a question we ask ourselves constantly. There's a bunch of things that we decided to do. One, because we have the opportunity to attract some unique talent, but where we had to give them time to build practices and penetration, especially in FLC, we have a number of new initiatives. And we're starting to see some payoff and some we're still targeting the payoff to be in the coming year. As that develops, I mean, right now, a lot of those people were carried as just an extra cost. So that pulled your margin down. You just call them in a business development mode. But, I mean, 1 example, for example, is we felt about 3 years ago that our experience in Madoff and Stratford and Dryer and what was happening with the relationship between funds and institutional investors was going to demand a new type of reporting from the institutional investor community from the funds they invest in. And we have been correct in that, and we brought significant resources in to address that on a marketing basis who were very wired into that institutional investor community. We're now seeing the benefits of that. We're now seeing work being generated globally from very large institutional investors in the area of transparency in the areas of complex investigations and due diligence in front of investments and in the areas, to be blunt, of compliance. So that took a while to get together; that would not have had much of a contribution last year. But the size and the magnitude of contracts that we're signing with some of these large institutional investors is giving us good feelings that, that initiative will pay off significantly. We have an initiative at the highest end in the banking community, in the living wills and then helping banks sort through the reaction of Graham/Dodd. We have brought an A-Team in to do that. We have numerous opportunities, and we would hope that some of those will generate significant business again this year. So I think one of the major opportunities is just that simply we made a bunch of investments. And we expect those investments have now had enough time to age in the marketplace to where they'll start paying dividends to us. And some may not. I mean, we're not perfect, in which case, we certainly aren't afraid to try to redirect the resources elsewhere. Roger, anything else?

Roger D. Carlile

Yes. I think that's absolute correct on the investments. In terms of the core drivers, for revenue, it's really price, utilization and leverage would be drivers. And for price, I think you heard David say that it's flattish to up a little is sort of the current market. For that to change and to change margins, you need velocity in that market, you need clients and the demand to be stronger than what it has been recently; that'll drive some price increases. And that would balance off against the salary costs and those types of things. And then leverage, the size of jobs, the types of jobs, the number of staff you have from a junior level to a more senior level also drives margins. So I think as demand continues to firm for some of these areas, some of these business, you would expect to see margins improve as a result of those issues.

Tobey Sommer - SunTrust Robinson Humphrey, Inc., Research Division

If I could ask 1 last question. Could I get your brief comments on any influence you're seeing from the talk of splitting auditing and consulting services in Europe?

Dennis J. Shaughnessy

Yes, I'll start. I mean, it's -- obviously, it's something we are following. Jack and I were in Davos, and we actually spoke to the heads of a couple of the Big 4, some of whom are our clients on this issue. And I think there's a consensus that things will happen over there. I think there's a consensus that you may see tighter restrictions on what the firms can do for their own existing audit clients. So looking more like a Sarbanes-Oxley type of restriction, focusing more on what you can't do, and conflicts and the percentage of consulting fees you can get from an audit client rather than a divestiture of the consulting. I think, clearly, there will be changes. No one really knows it, but I would say that at least at that forum, the prevalence was -- probably look a lot more like what the accounting firms went through here.

David G. Bannister

We have a number of recruiting conversations going on that I would say have been aided and fueled by the confusion that's being caused by this. The specialty practitioners who reside in the Big 4 in Europe are concerned that they could face the same phenomena folks faced here, as a variety of either regulatory initiatives or auditor rotation initiatives or other things cause an operating environment that makes it more difficult for them to conduct their craft. We don't know if or when those things will happen. But clearly, the people working in those businesses in the things that are analogous to the things we do are concerned and are interested in finding a home where they can serve clients well and not have to worry about those confusions.

Operator

And next, we'll hear from Joseph Foresi with Janney Montgomery Scott.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

I guess my first question here is, maybe you can help me reconcile the fact that we're seeing bankruptcies continue to decline and we're seeing the corporate default rate sort of stay at a very low rate versus the waffle in the economy towards last year and some of the larger engagements that you may be involved with, kind of restructuring practice. How do we balance those 2 things? And how should we think about those in 2012?

Dennis J. Shaughnessy

Well, I think going back -- it's Dennis again. I think going back to what David said before, I mean, even the frothy period of '06, '07, '05, I mean, you had secular issues and you had geographic issues. That is the same right now. There are certain parts of the economy where the companies are still under more stress on a relative basis than they were. I think -- so you -- while you have the balance of certainly dirt-cheap debt, a lot of liquidity, you also have stronger bank balance sheets that kick the can down the road. And eventually, you're going to address that. In Europe, there's about $700 billion, where the structured finance sitting on the books of about 5 banks. And they've moved maturity dates. It's covenant-light paper, but it's not very marketable. And that has to get addressed. I mean, I think it'll be addressed sensibly by them. They're much more comfortable doing debt-for-equity swaps than the U.S. banks. But it's somewhat masked by the sovereign debt issues that you see. So I think what you're going to see is -- I mean, I think you're not going to see a change in the liquidity structure in election year here in the U.S. So I would guess you're not going to see, except on a secular basis, any kind of significant pickup in defaults in the U.S. There is the potential for significant pickup in defaults in Europe. From what we're seeing in Spain, for example, some of the large companies may benefit from the kick the can down the road because they're with the biggest of the big banks. But the midsized companies, we think, are under duress. They can't borrow. They're with the smaller banks who have balance sheet issues. And so you may see a pickup in demand there. Asia, I think again, Asia is a little bit like the Brazilian story. It's just the velocity of capital. You can't thread the needle perfectly on every deal, and you generate issues that need to be addressed. So I think maybe it's more secular, maybe it's more geographic. We're not looking short of a significant change in the macro environment for a very robust year. On the other hand, we feel that we have probably corrected out at a new higher floor, and it won't be a drag on the earnings this year.

Jack B. Dunn

I might add that in terms of Europe, we're looking to add capacity there. I think we have a couple things happening. As Dennis said, you have $700 billion or so of acquisition-type related debt coming due this year. You double that for 2013. You have the euro crisis, you have no appetite for lending at all. And you have this -- the kind of the wildcard in there is the Basel Accords, which require the banks to up their capital ratios by -- in 2013. So it's going to be a very, very tight market there. I think we -- I think there's going to be a number of debt-for-equity swaps, restructurings, all that. I would be a heavy better on restructuring in -- as a potential in 2012 and as a real growth vehicle in 2013. I think that's really something. This is not a commercial, but our folks in Europe put together a stunningly good white paper on the euro crisis. And if anybody wants to send us an e-mail or whatever, I highly recommend. And she looks at who's positioned to take advantage of investment in low prices in Europe, who's going to be a beneficiary, who's in trouble, it goes into detail about this phenomenon of the amount of leverage debt that's out there versus the crisis coming for the banks. So I highly recommend it.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Okay. So, I mean, I guess, the net result, I know you talked about this $100 million, $110 million restructuring level. That's probably the standard across the year and then maybe potential upsides coming from some of the larger engagements that you closed in '11. Is that the best way to think about it? That's just what I'm sort of going for [indiscernible].

Jack B. Dunn

Yes, the only thing I'd add to that is the -- if you look at the wildcards out there, there's more opportunity than there is risk, I believe. You have petroleum, plus political upheavals in the Mid-East, which typically for transportation companies and leisure companies and things like that is usually not a good sign. We're seeing the price of fuel skyrocket. You have the political situation in the U.S., and the election for some reason is always a damper on activity here, I guess, because people don't focus on until – and this time, there's more uncertainty, I guess, about tax policy and things like that than ever. And then you have the Europe situation. So depending on how those things unfold, I don't know about people on the call, but I didn't breathe a huge sigh of relief last week over the Greek debt accord. So I think there are more things that would argue for potentially a better year for Corporate Finance than for anything that would be below this current floor that we anticipate.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Okay. Then just my next question, we've seen M&A activity trail off towards the end of last year. How should we think about that and some of the cases that are taking place in the Technology segment and some of the drivers for Economics going forward?

Dennis J. Shaughnessy

I think our retentions are very strong. So again, oftentimes, we get retained early to try to analyze the potential legal ramifications around an acquisition. And they may not come to pass. But the retentions are very strong, and our people are very busy here in Europe. I think the one driver we should remember is, you guys follow a lot of companies and your companies follow even more. I mean, a lot of the growth that we're seeing in earnings is because of operating leverage and cost savings, not because of intrinsic organic growth. Yet the companies are sitting with more cash than they ever have. There's threats of taxes on repatriation of money. And I think you're seeing at least for the first time in a while where the U.S. dollar has a little bit of a currency arbitrage. So I think you're going to still see companies trying to put that cash to work, especially if they have some arbitrage and especially if they have statutorily locked-up capital in different parts of the world to where the tax structure could change on them. And it's better for them to use it and buy producing assets in that part of the world. So I think we're seeing very good retentions. How many of those mature into announced deals, I think, remains to be seen. But our guys are very busy.

Joseph D. Foresi - Janney Montgomery Scott LLC, Research Division

Okay. And one last quick one. You talked about July and the convert. What's built into guidance as far as that's concerned for 2012?

Roger D. Carlile

Yes, it's Roger. Right now, what's built into the guidance is the assumption that we will issue the premium in shares. That's not a huge difference because the way it's accounted for, there's already in the 2011 fully weighted share count about 850,000 shares and the current estimates would be about 1.2 million shares if we did that -- if we took that action. Maybe a few other quickly items just for modeling purposes. I think if you think about SG&A, think of it as being on a percentage of revenue, relatively consistent with '11 and '10 in that range. Amortization of intangibles, relatively consistent to last year, down maybe just slightly but insignificantly. And interest expense, barring some kind of acquisitions that would create additional financings and assuming that we were in a business that [ph] pay off the converts with cash, you would see interest expense be down a bit from last year. And I think you can assume weighted average shares around 43.1 million at this time. Tax rate of 36.5%.

Operator

And next, we'll go to Arnie Ursaner with CJS Securities.

Arnold Ursaner - CJS Securities, Inc.

What onetime success fees for Lehman and General Motors were -- did you have in the quarter?

Dennis J. Shaughnessy

We had a success fee of approximately $5 million on General Motors in the quarter, we have not collected the Lehman Brothers success fee yet.

Arnold Ursaner - CJS Securities, Inc.

Okay. And that is embedded in your guidance?

Dennis J. Shaughnessy

Yes. I mean, we would expect success fees, Arnie, for 2012 to mimic about what they were in 2011, though it is in the guidance.

Arnold Ursaner - CJS Securities, Inc.

Okay. And then you -- I think much earlier in the call, you mentioned you had completed your rebranding and had made, I don't know, the exact wording you -- regarding the ERP, you had basically [indiscernible] the majority of the spending. But then later in the call, I think you indicated you expect to continue the growth in spending for corporate items. Can you quantify the total of those 2 actions you took in 2011 and why it shouldn't be coming down in 2012?

Dennis J. Shaughnessy

Well, I think what I was trying to say is, I think the corporate spend rate will be about the same, if not slightly down. And we will continue to spend aggressively on brand promotion. We won't have somewhat of the bubble that we had in the brand integration. So I think you'll see some operating leverage improvement there, but we're not going to back off on spending on the brand, especially given our global growth.

Roger D. Carlile

Arnie, it's Roger Carlile. I think as I just said, I think overall, you can expect our SG&A to be relatively consistent to the prior year. There's a number of ins and outs in that. As Jack mentioned, we're growing our international platform. There's costs with that. And notwithstanding the sort of the more onetime aspects of the brand, the rebranding exercise have been completed. As Dennis says, there's really the maintenance aspect and the continuing support and build of the value in the brand over time. So all of that essentially keeps us at a pretty constant SG&A rate.

Operator

And in interest of time, I would now like to turn the conference back to today's speakers for any additional or closing comments.

Jack B. Dunn

Okay. At this point, I guess, the -- again, thank you all for being with us this morning. And as I hope you can tell from our phone line, we're very optimistic looking forward to 2012. The work that we've done to build our culture, the work that we've done on our branding, the new products that we have put out there, I think bode well for us. And look forward to chatting with do after the results of the first quarter of the term. Thank you.

Operator

And that does conclude today's conference. Thank you for your participation.

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