FTI Consulting Inc
NYSE:FCN
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FTI Consulting Inc
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Good morning and welcome to the FTI Consulting Third Quarter 2018 Earnings Conference Call. All participants will be in listen-only mode. After today's presentation, there will be an opportunity to ask questions. Please note that this event is being recorded.
At this time, I would like to turn the conference over to Mollie Hawkes, Managing Director of Investor Relations. Please go ahead.
Good morning. Welcome to the FTI Consulting Conference Call to discuss the company's third quarter of 2018 earnings results reported this morning. Management will begin with formal remarks, after which, we'll take your questions.
Before we begin, I would like to remind everyone that this conference call may include forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21 of the Securities Exchange Act of 1934 that involve risks and uncertainties. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events, future revenues, future results and performance, expectations, plans or intentions related to financial performance, acquisitions, share repurchases, business trends and other information or other matters that are not historical, including statements regarding estimates of our future financial results and other matters.
For discussion of risks and other factors that may cause actual results or events to differ from those contemplated by forward-looking statements, investors should review the Safe Harbor statement in the earnings press release issued this morning, a copy of which is available on our website at www.fticonsulting.com as well as other disclosures under the heading of Risk Factors and Forward-Looking Information in our Form 10-K for the year-ended December 31, 2017, and Form 10-Q for the quarter-ended September 30, 2018 and in other filings filed with the SEC.
Investors are cautioned not to place undue reliance on any forward-looking statements, which speaks only as of the date of this earnings call and will not be updated. During the call, we will discuss certain non-GAAP financial measures, such as total segment operating income, adjusted EBITDA, total adjusted segment EBITDA, adjusted earnings per diluted share, adjusted net income, adjusted EBITDA margin, and free cash flow. For discussion of these and other non-GAAP financial measures, as well as our reconciliation of non-GAAP financial measures to the most directly comparable GAAP measures, investors should review the press release and the accompanying financial tables that we issued this morning, which include the reconciliations.
Lastly, there are two items that have been posted to our Investor Relations section of our website this morning for your reference. These include a quarterly earnings presentation, and an Excel and PDF of our historical financial and operating data, which have been updated to include our third quarter of 2018 results. Of note, during today's prepared remarks, management will not speak directly to the quarterly earnings presentation posted to the Investor Relations website. To ensure disclosures are consistent, these slides provide the same details as they have historically and, as I said, are available on our Investor Relations section of our website.
With these formalities out of the way, I am joined today by Steve Gunby, our President and Chief Executive Officer; and Ajay Sabherwal, our Chief Financial Officer.
At this time, I will turn the call over to our President and Chief Executive Officer, Steve Gunby.
Thank you, Mollie, and good morning and thank you for joining us today. I'm sure many of you saw the press release this morning. This quarter, we once again delivered terrific results. I'm pleased to share them with you along with Ajay. It was another record quarter for revenues with revenues increasing 14% year-over-year and all of that 14% was organic growth. That terrific revenue growth translated into earnings per share of $1.14 and adjusted EPS of $1 per share. Ajay will go through those results in more detail shortly. But we thought, I would start by sharing a few perspectives on those results.
As I think most folks on this call know, in this company, and in fact, I believe in this industry, quarterly results almost always reflect a combination of factors, some are the sort of fundamental persistent forces that we've been trying to drive to build this company, the fixes we've made, investments we've made, and the successes we are having on those efforts. But some of them are set of short-term factors that are much more random, factors that can cut substantially one way or the other in any given quarter.
We have, over the last over years, strengthened this company enormously and this quarter's and this year's results reflect powerfully that multi-year trend. But this year, we also benefited from some short-term factors that cut in our favor. I'd like to elaborate on these points a bit. As we've talked about in the past, there are a lot of short-term factors that can influence and over the past several years have influenced quarterly results one way or the other. I'm sure you will recall us talking about the success fees or tax catch-ups or losing or winning some particularly large jobs or surges or lags in expenditures in any given quarter.
From a longer term perspective, none of those things matter. Whether a success becomes in one quarter or another, whether we have seasonal intake of some staff in a month that happened due to depressed (00:06:11) utilization for a few months, whether lateral hires happen by chance to clump in the beginning of a year or later, none of those things makes any difference to our long-term trajectory, thus building the business. But, given our fixed cost structure, those factors can and do influence short-term results. Not in any material way if you look across a couple of years, but in a very material way over a short period of time.
In that connection in some bad quarters, as I'm sure you'll remember, Ajay and I have pointed out short-term factors that we believed were causing the results then to understate the core trajectory of this company. To be consistent, I think we have to underscore that this quarter, and in fact, much of this year has seen as more of the beneficiary of some strong short-term factors, much more than we have seen in some prior years and more than we anticipated this year.
Let me highlight two factors that I believe have been particularly significant. First and most important, we have won an extraordinary number of big jobs this year. And these jobs have, by and large, persisted longer than we anticipated. Now, big jobs to me are very interesting phenomenon. In some ways, they're not just a short-term factor.
When we win big jobs, they make us more well-known, they strengthen the essence of our brand, they reinforce the core relationships we have. Winning big jobs is part of this company's DNA, it's part of our brand building efforts, it's part of the long-term strategy, and thus, I expect the successes we've had this year will have lasting beneficial effects.
But big jobs also have disproportionate impact on the P&L in a short-term way. We have a fixed cost structure. So, if you win a substantial job that extends longer than you expected, it has an incredibly leveraged effect on the bottom line and that has happened this quarter and much of this year.
I believe, I can't prove, but I believe that we have a long-term trend here that we're getting better and better at winning big jobs in the marketplace. I believe, we've been improving that fundamental batting average. Nevertheless, we don't think it's reasonable to expect to sustain the incredible batting average we've been having this year, and in that sense, there's a short-term element to the success.
The second short-term factor this year has been the timing of our investments. As I think everyone on this call knows, the major investments in this company are almost always in people and most of the time, in a short-term way, those investments cost us EBITDA. Now, there's a paradox. Over any extended period of time, our people are the only way we create EBITDA, we're a people company.
The addition of capacity is essential to driving growth. But most of the time, the addition of capacity depresses earnings at the outset, whether it's junior people who come in and are unutilized for a while or senior people who come in who have constraints and who they can call, doesn't matter. They typically aren't running at the rate they're going to run 18 months later. Thus, the timing of those investments can make material difference to the short-term P&L.
This year, we continued to fundamentally invest in our people. We promoted more people this year and last year than ever before. We continued to invest in training, in people's development. But this year as well, some investments lagged, particularly on the hiring front. For example, with respect to our junior hiring, we were, in some of our businesses, just so busy that we got behind in hiring in the first half of the year. We've made real progress now in the second half of this year and we fully expect to meet our original plans, but in a more back-loaded way than we originally planned.
And then on the lateral hiring SMD front, as I think I've mentioned before, we are having unprecedented success in the marketplace. The phone is ringing off the hook. But for random reasons, most of those hires are only starting in the second half of the year. I think we had 8 lateral hires start in the first half of the year, which isn't bad compared to the 11 lateral hires we had for a whole year just a few years back. But it's tiny compared to the 23 or 24 lateral hire SMDs we've already welcomed in the second half of 2018 with more expected to come later in the year.
As you're not surprised, I'm enthusiastic about these investments. Just as the investments we made 18 to 24 months ago have been the key contributors to the success we're having this year, I believe, the investments we've been making this year and now are going to be key contributors to growing our company in earnings 18, 24, 36 months from now. But we need to acknowledge that, in the near-term, the addition of that capacity can depress earnings. In a paradoxical way, the absence of them over the last several quarters, has contributed to the earnings in those quarters.
Let me pause. Why am I saying all this? Some of it is to just continue the process of making sure that all of our core investors have a deep understanding of the various factors that can drive short-term results in this company. We believe in transparency, but important as well, it's also to manage expectations a bit.
Some of the terrific performance this year has been outperformance on the big jobs at a level that, frankly, we're not sure we can count on. And some of it has been the result of, in effect, lags in investment in people, investments that are critical for the long-term growth. The part of the goal of going through this and part of the discussion that Ajay is going to have is to manage expectations a little bit.
At the same time, I'd like to deliver a second message, one that might sound a little contradictory. It is to reinforce the powerful expectations and the lofty aspirations that I hope everyone on this call has for this company going forward in any medium-term. Those short-term flux factors (00:12:19) can fluctuate and they do fluctuate. And this year, I believe, have benefited our financials. If you look through the short-term fluctuations, over any longer period of time, I believe, you'll see a company coming into its own, a company powerfully positioned in the marketplace, growing market share, and increasing its presence in a way that is powerful and is sustainable. These points are beliefs, but they're not just beliefs.
You can see support for them just by looking at financial results over an extended period of time. If you look over any period of time, you frequently see quarters and half-years that have been up or down in significant amounts. For example, even in the last two years, we've had quarters where adjusted EPS was $1.14, we've had quarters where the adjusted EPS was $0.24, – a lot of volatility.
But at the same time, if you look at any medium-term picture, any medium-term picture, it is one of extraordinary sustained performance. For example, we reported adjusted EPS just a few years ago in 2014 of $1.64 which grew to $1.84 in 2015, $2.24 and $2.32 in 2016 and 2017, respectively. And now three quarters through 2018, we've delivered adjusted EPS of over $3. This year, we will have adjusted EPS grow four years in a row for the first time in this company's history and we've done that with out-of-market boom supporting any of our businesses.
Along the way, there have been bad quarters and even a bad three or four quarters in a row and there have been great three quarters in a row. Some of that is noise. And there's always going to be some noise in the short-term, as there's short-term factors. What we try to do is to look through those short-term factors and when we do, we see sustained performance reflecting the fact that our teams are building this company, are building an enterprise, that they're unleashing incredible power of this organization.
I talk about our teams. One thing I believe is critical to building an enterprise is that you have to, in a professional services, build it not just for your shareholders, but for your teams. I believe that's essential for any sort of sustained value creation. You can create short-term value – shareholder value at the expense of your people. But in any great professional services organization, it is not a strategy that will win or create shareholder value over any medium-term.
Medium-term and long-term creation of shareholder value comes by creating a proposition for great professionals that allows them to thrive, to build businesses, to build client relationships, to team with others across an enterprise in a way that makes them more productive, allows them to deliver on their aspirations for their clients, for themselves, for their people. It is through those efforts, that energy that you build a more powerful enterprise for the clients, for the staff. And through that, you can build shareholder value that is real, that is sustainable, that is lasting. That is what we are focused on and that is what we believe we've been building.
With that, let me turn this over to Ajay to give you some more details on the quarter.
Thank you, Steve. Good morning, everybody. I will start by summarizing our results. Then, I will review quarter-over-quarter and certain sequential quarter results at the segment level and key cash flow and balance sheet items. After that, I will discuss guidance for the year.
First, the highlights of the quarter. With 14.3% growth from the prior year quarter, we set a new record for quarterly revenues. Each of our segments grew year-over-year with particularly strong results in our Economic Consulting and Technology segments. We successfully monetized our Ringtail e-discovery software and related business. And with our convertible note issuance, we lowered our future cash interest expense.
Moving onto the details. Third quarter revenues of $513 million, were up $64 million from $449 million in the prior year quarter. Fully diluted earnings per share, our EPS of $1.14 in 3Q 2018 compared to $0.85 in 3Q 2017. This includes the $0.16 gain related to the sale of our Ringtail e-discovery software and related business, which was slightly offset by a $0.02 reduction in EPS from the non-cash interest expense, which represents the amortization of the carrying value of the equity component of our convertible notes.
Adjusted EPS, which exclude the Ringtail-related gain and convertible note non-cash interest expense, were $1, which compares to $0.83 in the prior-year quarter. Third quarter 2018 net income of $44.3 million compared to net income of $32.2 million in the prior-year quarter. The increase in net income was largely due to higher operating profits and the $6.2 million gain, net of taxes, related to the sale of Ringtail.
Third quarter 2018 adjusted EBITDA of $67.4 million or 13.1% of revenues compared to $57.4 million or 12.8% of revenues in the prior-year quarter. The increase in adjusted EBITDA was primarily due to higher revenues, which were partially offset by higher compensation and other SG&A expenses.
SG&A for the third quarter of $117.5 million compared to $104.2 million in the third quarter of 2017. The increase was primarily due to higher compensation and benefits, in part to reflect our strong performance this year. Despite the increase in SG&A year-over-year, SG&A in the third quarter of 22.9% of revenues was lower than the 23.2% of revenues in the prior-year quarter.
On a sequential basis, revenues were up slightly, but adjusted EBITDA was down $5 million, primarily because the growth in revenues was in lower margin segments and an increase in variable compensation and benefits related accruals. Consequently, though very strong, adjusted EPS were down sequentially from $1.14 in the second quarter to $1 in the third quarter. GAAP EPS in the quarter of $1.14 were flat compared to the second quarter.
Our effective tax rate for the third quarter of 31% compared to 22.2% in the third quarter of 2017. We had an unusually low effective tax rate in the prior-year quarter, driven primarily by a higher percentage of our 2017 profits coming from lower tax jurisdictions. Conversely, our third quarter of 2018 effective tax rate includes an unfavorable discrete tax adjustment related to the sale of Ringtail.
Excluding this adjustment, our effective tax rate this quarter would have been 26.1%, which compares to our second quarter of 2018 effective tax rate of 24.4%. For the fourth quarter, we expect our effective tax rate to be between 26% and 28%.
Our total head count was up by 41 professionals compared to the prior-year quarter. We had 96 more billable professionals and 55 fewer non-billable professionals. Sequentially, total head count was up by 87. We had 163 more billable professionals and 76 fewer non-billable professionals. Worth noting, the sale of Ringtail resulted in a reduction of 69 non-billable professionals and 15 billable professionals.
Now, I will share some insights at the segment level. In Corporate Finance & Restructuring, revenues increased $7.3 million or 5.7% to $135.4 million in the quarter compared to $128.1 million in the prior-year quarter. The increase in revenues was due to higher demand for business transformation and transaction services, which was partially offset by lower success fees.
Adjusted segment EBITDA was $26.8 million or 19.8% of segment revenues, compared to $26.7 million or 20.9% of segment revenues in the prior-year quarter. Adjusted segment EBITDA was consistent with the prior-year quarter as the increase in revenues was offset by higher compensation. On a sequential basis, Corporate Finance revenues decreased $5.9 million or 4.2% as we saw the roll-off of some large restructuring engagements that drove record first half of 2018 revenues.
Turning to FLC, revenues increased $8 million or 6.8% to $126.7 million in the quarter compared to $118.6 million in the prior-year quarter. The increase in revenues was primarily driven by higher demand for construction solutions, disputes, and investigation services, which was partially offset by a reduced demand for health solutions services.
Adjusted segment EBITDA was $22 million or 17.3% of segment revenues compared to $22.5 million or 19% of segment revenues in the prior-year quarter. Adjusted segment EBITDA was down slightly compared with the prior-year quarter as the increase in revenues was offset by higher compensation.
On a sequential basis, FLC revenues decreased $6.8 million of 5.1% as we saw the roll-off of some large investigations engagements that drove record first half of 2018 revenues. Our Economic Consulting segment reported near record quarterly revenues of $139.2 million, up $27.4 million or 24.5% compared to $111.8 million in the prior-year quarter. The increase in revenues was primarily due to higher demand for our antitrust and financial economics services.
Adjusted segment EBITDA was $23.2 million or 16.7% of segment revenues compared to $12.1 million or 10.8% of segment revenues in the prior-year quarter. The increase in adjusted segment EBITDA was primarily due to higher revenues and a nine percentage point improvement in utilization. On a sequential basis, Economic Consulting revenues increased $5.9 million or 4.4% primarily reflecting an uptick in antitrust-related activity.
In Technology, revenues increased $14.4 million or 34.1% to $56.7 million in the quarter compared to $42.3 million in the prior-year quarter. The increase in revenues was due to sharply higher demand for M&A-related second request activity. Adjusted segment EBITDA was $11.5 million or 20.2% of segment revenues compared to $6 million or 14.1% of segment revenues in the prior-year quarter.
The increase in adjusted segment EBITDA was primarily due to higher revenues and a reduction in R&D expenses, which was partially offset by higher variable compensation related to as-needed contractors. Sequentially, revenues increased $10.3 million or 22.1% driven by the surge in second request revenues.
It is noteworthy that the M&A-related engagements that contributed to the strength and technology during the second quarter – during the quarter are large jobs that are time sensitive and can begin and conclude in the same quarter. The uptick in M&A-related demand benefited both, our Technology and Economic Consulting segment and allowed us to maintain our streak of record quarterly revenues, even with sequential declines in FLC and Corporate Finance.
Strategic Communications continue to report strong quarterly revenues. Revenues increased $6.9 million or 14.3% to $55.1 million in the quarter compared to $48.2 million in the prior-year quarter. The increase in revenues was primarily due to a $3.3 million increase in pass-through revenues, combined with an increase in project-based revenues in North America, particularly for our public affairs practice.
Adjusted segment EBITDA was $10.8 million or 19.6% of segment revenues compared to $8.1 million or 16.8% of segment revenues in the prior-year quarter. The increase in adjusted segment EBITDA was primarily due to higher revenues, which was partially offset by an increase in pass-through expenses and higher variable compensation.
Let me now discuss key cash flow and balance sheet items. We generated net cash from operating activities of $120.9 million compared to $106.2 million for the prior-year quarter. The increase was primarily due to higher cash collections resulting from increased revenues, which was partially offset by an increase in cash paid for salaries and benefits. Free cash flow of $109.2 million in the quarter compared to free cash flow of $99.3 million in the prior-year quarter.
Total debt, net of cash was $110.4 million at September 30, 2018, compared to $258.4 million at June 30 of 2018 and $307 million at September 30 of 2017. The improvement was primarily due to an increase in net cash provided by operating activities and the $50.3 million in net proceeds from the sale of Ringtail. As I mentioned in my highlights, during the quarter, we issued 2% convertible notes due 2023 in an aggregate principal amount of $316.25 million. With replacement financing in hand, on October 15, we announced our intent to redeem our $300 million of 6% senior notes in November.
We expect this to result in approximately $12 million in lower cash interest on an annualized basis. Concurrent with the offering, we spent $15 million using a portion of the net proceeds from the offering to purchase 196,050 shares of our stock at an average price of $76.51 per share. These repurchases were separately authorized and were not part of our current $300 million share repurchase authorization, of which $99.1 million remain.
Turning to our guidance for the year. Given the strength of this quarter, beyond our expectations, we are raising 2018 guidance again. We now expect revenues to range between $1.96 billion and $1.99 billion, which is up from our prior guidance range of between $1.91 billion and $1.96 billion. Adjusted EPS are now expected to range between $3.60 and $3.80 which compares to our prior guidance range of adjusted EPS between $2.90 and $3.30.
GAAP EPS are now expected to range between $3.53 and $3.73, up from our prior guidance range of EPS between $2.90 and $3.30. This range reflects the improvement in performance and is offset partially by an anticipated fourth quarter charge from the early extinguishment of our high-yield notes. Our updated guidance for 2018 reflects record performance that extended through the third quarter, but assumes moderation in our business performance in the fourth quarter based primarily on historical precedent.
It also considers several specific factors, including, we continue to have an expectations that are intake of and success rate in winning businesses may moderate. We have increased cost related to our increased head count which is being driven both by hires from campuses and the uptick in SMD hires in the second half of 2018.
The seasonal expectation is for professionals to take time off during the holidays and we anticipate the potential impact on utilization of our SMD meeting, which is scheduled to take place in mid-December.
Finally, as Steve said, guidance is also shaped by our relatively fixed cost structure, which means that small shifts in revenues have a much larger impact, both positive and negative on EPS.
Before we open the call for your questions, I'd like to end my prepared remarks by sharing key themes that we believe shape the future prospects of FTI. First and foremost, our people and their relationships are our core strengths. The strength of our franchise is increasingly making FTI a place where the best people want to work, and our brand has only been further enhanced by the quality of the people we have promoted and are attracting.
Second, our bedrock core competencies in areas like disputes, investigations, and crisis are finding even more relevance as we continue to build our adjacent practices in business transformation, cybersecurity, information governance, construction solutions, and public affairs globally.
Third, our performance has been achieved without a boom in restructuring. Obviously, a pickup in restructuring activity precipitated by higher interest rates should greatly benefit FTI.
Fourth, we have delivered these improved results over the last four quarters from almost exclusively organic growth with improved utilization. Not only do we continue to grow head count to support further revenue growth, but also remain focused on utilization.
Fifth, the balance sheet of FTI has never been stronger. We have enormous flexibility to opportunistically buy back shares, to invest in organic growth, and to pursue acquisitions in a disciplined fashion.
With that, let's open the call up for your questions.
Thank you, Mr. Sabherwal. We will now begin the question-and-answer session. And your first question this morning will be from Tobey Sommer of SunTrust. Please go ahead.
Hey, guys. This is Joseph Thompson on the line for Tobey this morning. Thank you for taking my question. First of all...
Good morning, Joseph.
Good morning. I was interested in – you mentioned towards the beginning of the call that you believe you're going to win more big jobs. What – are you seeing a pick-up in prospects for big business? Any additional color on this would be nice. Thanks.
Look, let me – I think, the winning or losing of big jobs is essentially a very random event that effects our financials in a short-term way significantly, and I think that was the main point that I was just trying to underscore. I believe that one of the reasons over the last three, four years we've had sustained growth is because of the talent we've attracted, the way we've been directing that talent, the strategies we've had have allowed us to win a higher share of big jobs in various places around the business.
So, I believe, but it's hard to find the data that there is a long-term trend of us winning more and more big jobs that is driving some of the long-term success. But the other point I was making is that can get trumped by any short-term factors up and down. And in the beginning of, like 18 months ago, we happened to swing and missed out a couple of big jobs and that had led us to have terrible results in that quarter.
And this year, we just seemed to be hitting on everyone. And we don't believe – even though we believe our long-term batting average is getting better, we're not sure – we don't believe it was as bad as it showed up in early part of 2017 and we're not sure that we're yet guiding our sustained batting average to the current level. So, does that give you at least a qualitative sense, Joseph?
Yeah. That's helpful. Thanks. Yeah, I'll jump back in the queue.
Thanks, Joseph.
And the next question will be from Tim McHugh of William Blair. Please go ahead.
Yes. I guess, just maybe following up, Steven on your initial theme a little bit, which was, as you said, kind of temper a little bit expectation. I guess, can you help us more, I guess quantifiably, think about what is normal for or FTI at this point when you – on one hand, I know you're winning more big jobs, but yet, the pace you're saying was higher than normal and you're hiring more. So, the best way I guess, I can think of it, is an EBITDA margin or something like that. What's normal, I guess and what should our expectations be as we think about a year or two from now for what a normal performance level is?
Let me say one thing and then Ajay is kicking under the table, because he wants us to be very precise on what we're saying about the future. Look, I think what I've said over time is, what I believed is, for a while, the company underperformed talent of its – of the terrific talent we have and the positions we have in the marketplace. And that if we just hit some of the right things with the talent we have and the ability to attract talent, we can deliver sustained double-digit growth with a lot of noise any given quarter, which can be, you can be up 100% in a quarter, you can be down 100% in a quarter. That's not the real factors. The real thing is the sustained growth through it.
And I think the data I've seen through now four years or more than four years is that that's true. When we bet on the right professionals, we grow our business. Now, that still can get trumped for any two, three quarters by winning or losing of the big job. But when you bet on the right professionals, you have the hard-nosed right strategies, you grow businesses and when you kid yourself, you don't.
And so, I think, we can deliver sustained, I think we've been saying that's a way, sustained double-digit EPS growth over time. And that's kind of what we have been saying now for a while. Obviously, you can see this year is a very high – is very high compared to sustained double-digit EPS this year and part of that is why I'm underscoring this. Let me see if Ajay wants to add anything?
No, no. I think you've captured it. No. Tim, we'll – we'll give guidance for 2019 in the late February-March timeframe when we announce our fourth quarter results. I'm not going to get ahead of that. We've given fourth quarter guidance, which assumes, as I said, some moderation and so on and so forth. And we've been doing that literally every quarter. And every quarter, we've been pleasantly surprised at the upside. I mean, this quarter, we're absolutely delighted that we did see some moderation sequentially in FLC and CF, but more than made up in Economics and Technology.
So, this is fantastic. We're delighted by it, may it long continue, but our guidance has been on double-digit – sustained double-digit earnings growth overtime through a combination of use of cash and EBITDA growth. This year, it's almost exclusively from EBITDA growth and it's well more than small double-digit, it's very high. So, we're shaping those expectations, without in any way, taking away from the fantastic performance.
Or without taking away from a perception that we believe the – this company is going to continue to grow and develop in a powerful way over the next years. Yeah. Tim, does that...
Okay.
...does our – detailed quantification, does that help a little bit?
Yeah, a little bit. I get you, you want to be cautious about what you're saying about 2019, I guess. But maybe, one other way of asking it is, when you say your response is kind of focused on double-digit growth over a sustained long period of time. Is 2018 a level at which you can grow from? I mean, is that still fair? I mean, if we're using your response or do we have to discount that?
So, again, no. This is a key point and obviously you're hitting on the absolute point that I would expect you to hit on. We're not going to give 2019 guidance yet. We -I'm not going to tell you that one thing and then change it four months from now. We'd like to grow every year, we'd like to grow handsomely everywhere. 2018 is way above our expectations. Virtually, every quarter has been way above our expectations. And we work hard at giving the guidance and we've exceeded that guidance. We don't want to take away from our practitioners from that success, but surely, these are ahead of our expectations.
And, Tim, let me just say one other thing. We had a few bad quarters in a row, maybe the end of 2016, beginning of 2017. And I didn't believe that those actually reflected what was going on in the company. I thought there were a series of short-term factors that were obscuring it and we tried our best to telegraph that in a strong way. And I guess, I was too new as CEO or whatever. I'm not sure the market believed it. And so, the stock was pummeled by that. And no, we went out and bought a bunch of shares, which was good for us, but I was frustrated by the lack of credibility that we had that said the company is going places and yet, people don't believe. And so, I think, one of the things I wanted to do this year was make sure that where those cut the other way, be transparent about that.
So, we're trying to be as transparent as we can be always and where we think some short-term factors have helped our results, we're going to say that. And hopefully, if we have short-term factors go the other way at some point in the future, then people will believe us, when we say, that's not something you pay attention to. So, that's part of the reason we emphasize this year. Does that make sense?
Yeah. That's fair enough. Can I just ask, on the Ringtail divestiture, how we think about the financial impact of that on kind of an ongoing basis?
Yeah. I'll give you more color on that. Completely understand. So, the licensing revenue, Tim, is shy of 10% of our total Ringtail – of total Technology segment revenues. It's between 5% and 10% of the total revenue. And on an EBITDA basis, it was a negative contributor. So, that – what that means is, the R&D expenditure and the other direct cost or other SG&A cost, like in sales, marketing, et cetera, exceeded the revenue.
So, through the divestiture, it's EBITDA accretive, it's even more – somewhat even more cash accretive, because there's also capitalized R&D and that capitalized R&D will go away, because we don't do R&D, it'll be replaced by a license fee that's capitalized and amortized in a year. But that license fee is less than what we were spending in R&D. So, positive on EBITDA just from the divestiture and positive on cash as well, marginally accretive to EBITDA.
Okay. Thank you.
Thanks, Tim.
And the next question will be from Marc Riddick of Sidoti. Please go ahead.
Hi. Good morning.
Good morning, Marc.
I wanted to go back to some of the big picture kind of questions around the beginning of your commentary and I wanted to see if you could put a little more background into it? When you're talking about larger jobs, I wanted to get a sense of when you're talking about, let's say, a comparable large job today versus maybe five years ago, can you sort of give us maybe what you're seeing as to, is it a function of complexity as far as what's leading to these jobs lasting longer and then I know it's kind of a general concept and a bit squishy, but I'm trying to get a sense of what's making a similar job last longer and potentially maybe have a different impact than maybe it might have five years ago?
Yeah. So, I don't know that it has a different impact than it did five years ago. I think what we're really seeing are some more random factors. What makes it last longer is much more – sometimes, you're able to help a client get to a position where they can end the case quickly or settle the case quickly. That's very helpful from the client's point of view, but then your billings – and that's what our job is, but then the billings go away and sometimes the issues persist.
So, the end or not has much more to do with the context of a specific litigation for example, or a specific assignment than it does to anything with respect to macro factors or changes we've made. So, whether a thing ends fast or not is somewhat random, I believe. And the size of the large jobs can vary across the board. They can (00:45:50) vary. But I don't know that the big jobs are bigger now than they were five years ago, maybe they are.
Well, there are more of them.
There are more of them, that's the issue (00:45:57).
So, we would have historically and I've now only been here two plus years. But historically, to have the one big job in one segment and I have big job in multiple segments. Like here, this quarter, we had a huge job for its size in – for technology (00:46:13) in Technology, similarly in Economics. And we had some roll-off of similar jobs in CF and FLC. This is what's truly exceptional that every segment is doing well.
And I would say, actually picking up on that, there is some predictability in the sense that if you have a second request, like one of the tech job here was a second request, that tends to be pretty defined timeframe and it comes and goes pretty quickly and it always has. Investigations are tend to be more complicated. Some of them can be fast, some of them can be short, some of them can be long and so forth. Does that give you a feel, Marc?
Yeah, that's helpful. And I guess, maybe to piggyback on that then, are you getting a sense, because you've always kind of worked with large clients and law firms, what have you – I was wondering if you're getting any sense of, is there any change in client behavior when it comes to their willingness to work with you on multiple things, as far as, not necessarily just from a cross-selling kind of perspective, but also maybe their – how clients are looking at potential, I don't want to call them conflicts, but potential factors in similar industries, if you will? I mean, are they more willing to be more active, even if you're working in a similar area with other competitors or is there any change in that client attitude or behavior as far as how much they're willing to engage with you?
So I'm not sure that there's a fundamental change in the client mental map. I think what has happened are two things. We have, over the last several years through a lot of work by a lot of people, strengthened the individual businesses. And so, we just have more practitioners with – who are at the top end of the game than we did three, four, five years ago. And that means, we have more people who will get reached out to for the largest jobs in the marketplace.
I just think, I mean, that is the fundamental – our – look, we will do lots of small jobs and we'll do everything and we'll do, focus on it. But our brand gets built off of these very large jobs the ones you know about. And we have more and more people in more and more parts of our business that are capable of winning those jobs. So, that's the first point. That's the one where we've made the most progress.
The second place where we've made some progress is more systematically introducing ourselves to our ultimate clients. Historically, we did most of our work through law firms. We still get hired by the law firms. And the law firms are usually interested in a very narrow definition of they want the e-discovery team or they want the damages team.
As we've gotten to know general counsels of major companies, they actually like the fact that they can deal with fewer people on a very sensitive issue, somebody who can help them, not only on their damages, but their investigation, perhaps their external and internal communications. So, we are moving to deal with a latent client demand for much more integrated services that we historically haven't – haven't done.
But I think, that's more future looking, that's been a part of our success over the last few years. But I think, it's more opportunity going forward. I think, the bigger driver of the success over the last few years has been the strengthening of the individual businesses by our leadership teams by the practitioners in there. And then, on top of that Marc, there's always some luck in any given quarter. Does that help?
There's nothing wrong with that. So, I appreciate it. Thank you for the color.
No, great.
Thank you. Ladies and gentlemen, this will conclude our question-and-answer session. I would like to hand the conference back to Steven Gunby for his closing remarks.
Well, thank you all again for your time today and more generally – look, let me just close by reiterating the theme, particularly of this Q&A. There are short-term factors that can affect our results – that affected our results negatively for a few quarters that we talked about that we felt like we need to comment on it.
I believe, that have benefited our results this year. And so, we believe in transparency of doing that. But, please don't misunderstand that. I think, Ajay and I are incredibly proud of what the team has done here and confident that the team is going to continue to go and build our business over any medium-term going forward. And that's the second message that we hoped you took away from the call. So, thank you very much for your support.
Thank you, sir. Ladies and gentlemen, the conference has concluded. Thank you for attending today's presentation. At this time, you may disconnect your lines.