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FTI Consulting Inc  (NYSE:FCN)
Q4 2018 Earnings Conference Call
Feb. 26, 2019, 9:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the FTI Consulting Fourth Quarter and Full Year 2018 Earnings Conference Call. All participants will be listen-only mode. (Operators Instructions)

At this time, I would like to turn the conference over to Mollie Hawkes, Vice President of Investor Relations. Please go ahead.

Mollie Hawkes -- Vice President, Investor Relations & Communications

Good morning, and welcome to the FTI Consulting conference call to discuss the Company's fourth quarter and full year 2018 earnings results as reported this morning. Management will begin with formal remarks, after which we'll take your questions.

Before we begin, I would like to remind everyone that this conference call may include forward-looking statements within the meaning of Section 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 concerning plans, objectives, goals, strategies, future events, future revenues, future results, and performance, expectations, plans or intentions relating to financial performance, acquisitions, share repurchases, business trend and other information or other matters that are not historical, including statements regarding estimates of our future financial results and other matters.

For a 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 Annual Report, Form 10-K, and in our other financial filings with the SEC. Investors are cautioned not to place undue reliance on any forward-looking statement, which speak only as of the date of this earnings call and will not be updated.

During the call, we will discuss certain non-GAAP financial measures such as 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 a discussion of these and other non-GAAP financial measures, as well as our reconciliations 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 includes the reconciliation.

Lastly, there are two items that have been posted to Investor Relations section of our website this morning for your reference. These include, quarterly earnings presentation and an excel and PDF of our historical financial and operating data, which have been updated to include our fourth quarter and full year 2018 results. Of note, during today's prepared remarks, management will not speak directly to the quarterly earnings presentation posted to the Investor Relations section of our website. To ensure disclosures are consistent, these slides provide the same details as they have historically and as I have said, are available on the Investor Relations section of our website.

With these formalities out of the way, I'm joined today by Steven Gunby, our President and Chief Executive Officer; and Ajay Sabherwal, our Chief Financial Officer.

At this time, I will turn the call over to our President and Chief Executive Officer, Steven Gunby.

Steven Gunby -- President and Chief Executive Officer

Thank you, Mollie, and good morning and thank you all for joining us. I'm sure many of you saw our press release this morning. This quarter, once again, we had record results, record fourth quarter revenues, and record fourth quarter adjusted EPS. The record fourth quarter together with record performances in the first three quarters of the year resulted, not surprisingly, in the best year this Company has ever had. In 2018, our teams delivered record revenues and particularly drove double-digit organic growth, which in turn led to record GAAP EPS and in fact, marking six consecutive years of EPS growth and record adjusted EPS, marking four consecutive years of adjusted EPS growth. And important, we also exited 2018 with arguably the best balance sheet this Company has ever had.

Terrific results. Let me take a moment to caveat the results just a tiny bit. As we discussed in the past, our results in any quarter, in fact any year, are driven not only by the underlying fundamental improvements we make in the business, but also in part by something we've called noise, short-term factors that don't necessarily say much about the underlying business. Factors like the timing of success fees, the ending or starting of huge jobs, temporary influencers of cost, or whether we happen to have a particularly high or low batting average in winning big jobs.

Noise, as we've discussed, is not important over any extended period of time, but it can significantly affect quarterly and annual results. You may recall our discussion in the beginning of 2017 when we shared our view that the underlying fundamentals of this Company at that time were significantly better than indicated by the reported results that some of the underlying good fundamentals were being obscured by a bunch of negative noise. In 2018, in contrast, as we talked about during each of our quarterly earnings calls, we didn't have much negative noise. In fact, to the contrary, more things seem to break our way than we expected.

We have, as I am going to talk about in a moment, improved this Company enormously and importantly, the teams involved are continuing to do that every day. But given the event-driven nature of our business, I never expect, no matter what our teams are doing perfectly at a moment, that even if we're doing everything right, that every business and region will be up and, yet, that's what happened in 2018. And, though, we expect sustained double-digit growth in adjusted EPS over time and we have delivered it, we don't expect to be up more than 70% in adjusted EPS, a number that we saw in 2018. So our conclusion is, we're doing a terrific job, but we did have some positive noise in 2018 and that noise contributed to the record financial performance.

To me what is much more important and much more powerful is that when you look below the positive noise, you can see the ways that our folks are building upon a great institution and driving a much more powerful FTI. There are so many ways I don't believe I can do them even partial justice, but let me illustrate a few. Some of these you've heard before, some of these you haven't, but they are powerful things that our people every day are building in this institution. They include the many initiatives driven by our strat comm team, whether you talk about the public affairs side, the comms side, the work we're doing in London, in the US, in the Continent, in Asia-Pacific or Latin America, or in terms of their work, collaborating across FTI and cross segment initiatives, all of those initiatives have allowed a business that was once struggling to soar and to soar not just for a year, but to soar over multiple years.

If you have a moment, go back and look at that business' history and look at the trajectory over the last four years. That team's focus in changing its trajectory, controlling its destiny, building a better institution are, to me, both impressive and inspiring. Or you can look at this myriad of initiatives driven by our tech team in the US and abroad on the software side and the services side, on the e-discovery front, the information governance front, that our team drove these past couple of years to allow a business in a tough market to fix a strategic disadvantage and return that business to growth.

Or you can look at the initiatives that our are our Econ teams have driven to reinforce the strength we have in the US or extend that US leadership position around the world. Or most significant in terms of this year's P&L improvement, you can look at the huge number of changes driven by the teams in Corp Fin and FLC that have allowed these core pillars of the Company to return to be key drivers of our growth. In FLC, those efforts include investing to grow some of our most powerful growth businesses like that global construction business we've talked about a few times or reinvesting to return some core businesses historically back to growth.

Importantly, it's all innovation. For example, combining our historically strong investigations business with a powerful set of new offerings in cyber to allow leadership in cyber crisis response and it's involved geographical expansion. And Corp Fin involves on one hand successful extensions into adjacencies, in business transformation and transaction services, moves that both leverage our core restructuring heritage, but also extend our offerings into new areas such as the office of the CFO or merger integration or performance improvement, but it's not just the adjacencies. At the same time, it included investing behind our core businesses via lateral hires and acquisition, promotions that allowed our creditor rights and company side restructuring businesses, strong businesses, to grow.

Again, we didn't sit on our laurels in those businesses, we built on those positions and we continue to extend our leading restructuring position to new geographies. I think, five years ago many people in EMEA didn't know who we were. Today, we're a credible number one or two player in many places across EMEA. And that's just a quick review of the types of progress our teams are driving and have driven business by business over the last several years to build a fundamentally stronger firm for our clients, for our people, and for our shareholders, and thereby drive growth and opportunity on a sustained basis.

Let me take a minute to share a slightly different lens on that same progress, or a softer lens which is to look at the progress in terms of people and culture. I believe we have been accomplishing what we've been accomplishing for a lot of softer reasons as well, in part because we've turned into a firm that knows how to make record numbers of well-considered promotions and then how to support those promotions, those people then become successful leaders in our firm, and in turn develop other people. In part because the phone is ringing off the hook, some folks wanting to join us in a way that I think is unprecedented in our history, allowing us to be extremely selective in who we take into the firm and yet still have record numbers of senior hires.

This is also in my mind, because, today, I believe we have an Executive Committee that knows its job is to build a brighter future for the next generation and takes it seriously as a personal commitment and because those leaders, the leaders in each of our segments and regions understand, in professional services, you need to lead in part by encouraging others to lead to take advantage of the tremendous professionals we have, the ambitious-driven professionals and support their business building behavior. Those are softer developments. It's hard to put financial values against each of them. But to me, those are critical basis and have been critical basis for the sustained progress.

To close off on the review of the year, 2018's results probably reflected some good fortune. Even Bryce Harper whether he is a Nat or a Philly, will not hit home runs every time. And I'm sure we will have quarters that are impacted by negative noise at some point in the future, but I hope you take away the far more important message, that below any volatility driven by noise, we have a set of teams that have built and are building on a sustained basis an extraordinary firm, a powerful firm, a stronger firm, an important one that knows how to evolve, to grow, to take advantage of market opportunities to make itself better. It is that progress that makes me so bullish on the years ahead.

Before I turn the call over to Ajay, let me give some perspective on the 2019 guidance. First, I am sure you noticed that the midpoint of our adjusted EPS guidance is below what we delivered in 2018. So let me say a few words on that. The midpoint of our 2019 guidance is up more than 60% compared to the 2017 actual adjusted EPS. So if we hit the midpoint of our adjusted EPS guidance, we won't have had sustained double-digit growth. We will have had sustained extraordinary growth. Even at the low end of the adjusted EPS guidance range for 2019, we will have more than doubled adjusted EPS of five years' prior. This guidance range far exceeds what I believe most folks 9 or 12 months ago were expecting for 2019 and in many cases, for 2020. So, I hope we have some perspective. Our guidance is, quote, down only in comparison in a year where adjusted EPS was up more than 70%.

Second, our guidance is also informed by the fact that we are making significant investments in people. We have had a record number of senior hires join us in the 2017 -- the second half of 2018 with some actually coming in at the beginning of 2019. We are excited about those hires. We see those folks helping us drive growth in 2020 and beyond. But we do not expect senior hires in general or this specific group of senior hires to be accretive in our first year, and of course, we are also building our junior headcount both because we got behind in junior headcount recruiting in the first half of 2018 and to support the new senior hires and promotions. Those investments will weigh on 2019 results. Senior talent usually costs you EBITDA in the first 12 to 18 months. But please don't misunderstand what we're saying. We've made those investments quite consciously, and very bullishly. We're very bullish about those hires. Just as we see 2018, as the results of the many important investments we made in several prior years, we see these investments helping us drive the bright picture that we have in our mind for the next several years.

So let me close by reinforcing that bullish note. The last five years to me have proved that this firm, this group of people can be an incredibly powerful growth engine. They show that we can grow a business that supports our terrific people's goals, their ambitions, and at the same time drives work, results that delight our clients, and deliver returns for our shareholders. The last five years have been terrific and, yet, in my view, the next five years look even brighter than the last. I very much look forward to working with each of you to see that potential unfold.

Ajay?

Ajay Sabherwal -- Chief Financial Officer

Thank you, Steve. Good morning, everybody. In my prepared remarks, I will take you through our results for 2018 and our financial guidance for 2019. But first let me begin with some highlights. As Steve just discussed, we had a great year, in fact the record year where every one of our business segments grew both revenues and EBITDA and at healthy levels. Revenues for 2018 of $2.03 billion increased $220.1 million or 12.2%. 2018 GAAP EPS of $3.93 compared to $2.75 in 2017. Full year 2018 adjusted EPS were $4, up 72.4% compared to $2.32 in the prior year. Full year 2018 adjusted EBITDA of $265.7 million grew 38.4% compared to $192 million in 2017. Adjusted EBITDA margin of 13.1% improved 250 basis points from 10.6% in 2017.

Before I take you through the fourth quarter, let me share with you my perspectives on the year. The excellent performance in 2018 resulted from organic growth with strong utilization. Our Corporate Finance, FLC, and Strategic Communications segments grew revenues by double-digit percentages with Corporate Finance up 17.1%, Strat Comm up 16%, and FLC up 12.5% year-over-year. After delivering record revenues in the first three quarters of 2018, we had anticipated a slowdown in the fourth quarter. We did see sequential slowdowns in economic consulting and technology as large engagements that led to strong third quarter results were completed. However, contrary to our expectations, we saw sequential revenue growth in Corporate Finance, FLC, and Strategic Communications. This resulted in the fourth quarter being our third consecutive quarter with revenues over $500 million. In fact, the fourth quarter of 2018 revenues were the highest fourth quarter revenues ever for the Company.

Despite the year-over-year increase in revenues for the quarter, adjusted EBITDA declined compared to the prior year quarter, primarily because of increased compensation and SG&A expenses. In Q4, we trued up bonus accruals to reflect the record year and costs were also boosted by increased headcount in the third and fourth quarters. Through the first half of 2018, our headcount was relatively flat, but in the second half, hiring ramped up. As of December 31, billable headcount increased by 183 professionals, a 5.1% year-over-year increase. Non-billable headcount decreased by 24, primarily due to the sale of Ringtail in September.

2018 SG&A expenses of $465.6 million compared to $432 million in 2017. The year-over-year increase in SG&A resulted from many areas and initiatives including record results that drove higher variable compensation, investments in regional leadership and key account programs, an increase in rent and occupancy costs, and an increase in bad debt proportionate to higher revenues. Having said that, SG&A as a percentage of revenues declined 90 basis points from 23.9% of revenues in the prior year to 23% of revenues in 2018.

I will remind you that, in 2017, we took several headcount and real estate related cuts that resulted in special charges of $40.9 million, but did not impact adjusted EBITDA. Noteworthy, in 2018, there were no such actions or special charges. Our 2018 effective tax rate of 27.5% was almost unchanged compared to 27.6% in 2017, which excluded the $44.9 million discrete tax benefit from the adoption of the 2017 US Tax Act. In 2018, despite US tax reform, which reduced US federal tax rates from 35% to 21%, our tax rate was relatively flat year-over-year as we benefited from a higher mix of earnings in foreign jurisdictions with lower tax rates. Overall, as you might expect, we are extremely pleased with these results.

Now I will turn to fourth quarter results. For the quarter, revenues of $505 million increased $37.3 million or 8% compared to $467.7 million in the prior year quarter. GAAP EPS of $0.61 includes the $9.1 million loss on early extinguishment of debt related to the redemption of our $300 million 6% senior notes, which decreased EPS by $0.17 and a $2.1 million of non-cash interest expense related to our convertible notes, which also decreased EPS by $0.05. This compares to GAAP EPS of $1.78 in the fourth quarter of 2017. As a reminder, fourth quarter of 2017 EPS included a 2017 Tax Act benefit of $44.9 million, which increased EPS by $1.19 which was then partially offset by a $10.8 million special charge related to headcount reductions, which reduced EPS by $0.19.

Fourth quarter 2018 adjusted EPS of $0.83, which excludes the loss on early extinguishment of debt and non-cash interest expense, compared to $0.78 in the prior year quarter. Net income for the quarter was $23.7 million compared to $66.9 million in the fourth quarter of 2017. The decrease was largely due to the $44.9 million discrete tax benefit in 2017 related to US tax reform. Adjusted EBITDA was $53.7 million or 10.6% of revenues compared to $55.5 million or 11.9% of revenues in the prior year quarter. Adjusted EBITDA declined compared to the prior year quarter due to an increase in compensation and SG&A expenses.

Now, turning to our performance at the segment level, in Corporate Finance & Restructuring, revenues of $144.8 million increased 10.9% compared to Q4 of 2017. The increase in revenues was primarily due to higher demand for business transformation and transaction services. In fact, our business transformation and transaction services made up 48% of Corporate Finance's fourth quarter revenues, which compares to 40% of revenues in the prior year quarter. Adjusted segment EBITDA was $24.3 million or 16.8% of revenue compared to $25.8 million or 19.7% of revenues in the prior year quarter. Adjusted segment EBITDA declined as the increase in revenues was offset by higher compensation and an increase in SG&A expenses. Sequentially, revenues increased 6.9% for Corporate Finance as we continue to win an increasing share of restructuring opportunities in the US, even though the US restructuring market remains subdued.

Moving onto FLC, revenues of $132.1 million increased 9.3% compared to the prior year quarter. This was largely driven by increased demand for our construction solutions and disputes services. Adjusted segment EBITDA was $21.5 million or 16.3% of revenues compared to $23.6 million or 19.5% of revenues in the prior year quarter. Adjusted segment EBITDA declined, as the increase in revenues was offset by higher compensation and an increase in SG&A. Sequentially, revenues increased 4.3% as we saw improved demand for our operations and advisory offerings within our health solutions practice and for our disputes services.

Economic Consulting revenues of $128.4 million increased 6.1% compared to Q4 of 2017. The increase in revenues was primarily due to higher demand for antitrust and financial economics services. Adjusted segment EBITDA was $12.1 million or 9.4% of revenues compared to $14.3 million or 11.8% of revenues in the prior year quarter. Adjusted segment EBITDA was down due to higher compensation. Sequentially, both revenues and adjusted segment EBITDA declined as the surge in demand for M&A related antitrust services that resulted in near record revenues for the segment in the third quarter declined, as those engagements rolled off.

In Technology, revenues of $41.7 million increased 2% compared to Q4 of 2017. The increase in revenues was largely due to higher demand for consulting services, primarily related to our information governance, privacy, and security offering, which was partially offset by a $2.8 million decline in licensing revenues related to the Ringtail divestiture. Adjusted segment EBITDA was $2.7 million or 6.4% of revenues compared to $3 million or 7.3% of revenues in the prior year quarter. Adjusted segment EBITDA was down slightly, as the increase in revenues and lower SG&A, primarily related to the decline in R&D expenses, was more than offset by higher compensation, reflecting both increased variable compensation and the hiring of senior professionals in various countries. Sequentially, the declines on both the top and bottom line are related to the roll off of the large M&A-related second request engagements that contributed to a very strong third quarter for Technology.

Lastly, in Strategic Communications, revenues of $58 million increased 6.7% compared to Q4 of 2017. The increase in revenues was primarily due to increased demand for both retainer and project-based services. Adjusted segment EBITDA of $11.3 million or 19.5% of revenues compared to $10.5 million or 19.4% of revenues in the prior year quarter. The increase in adjusted segment EBITDA was due to higher revenues, which was only partially offset by an increase in variable compensation and SG&A expenses. Sequentially, Strategic Communications delivered growth on both the top and bottom line, capping off a tremendous year for them.

I will now discuss certain cash flow and balance sheet items. Net cash provided by operating activities of $230.7 million as of December 31, 2018 compared to $147.6 million at December 31, 2017. Free cash flow of $198.4 million compared to free cash flow of $115.6 million in the prior year. The increase was primarily due to higher cash collections from increased revenues, which was partially offset by an increase in cash paid for salaries and benefits and higher income tax payments.

During the quarter, we spent $26.5 million to repurchase 418,728 shares of stock at an average price of $63.31. On February 21, 2019, the Board of Directors authorized an additional $100 million for an aggregate authorization of $400 million. As of February 22, 2019, we had purchased 6.2 million shares at an average price per share of $40.10 for an aggregate cost of approximately $249 million, leaving us with approximately $151 million available for share repurchases under the program.

Turning to our 2019 guidance, as usual, we are providing revenues, GAAP EPS, and adjusted EPS guidance for the year. Starting with revenues, we estimate that revenues for 2019 will be between $2 billion and $2.1 billion. We expect our GAAP EPS, which includes the non-cash interest expense related to our convertible notes of approximately $0.17 per share to range between $3.33 and $3.83. We expect full year 2019 adjusted EPS, which excludes the impact of the non-cash interest expense to range between $3.50 and $4.

In 2019, we expect our effective tax rate to range between 27% and 29%. Our 2019 guidance assumes lower revenue growth compared to a record 2018 as we continue to have the expectation that our intake of and success rate in winning business may moderate. After a year where revenues grew 12.2% and adjusted EPS grew 72.4%, we believe it is prudent to moderate expectations. Additionally, we have higher costs related to our increased headcount, particularly at the senior levels who, as Steve just said, can often take 12 to 18 months to become fully accretive. At the end of January 2019, we had 513 senior managing directors, which include our most recent round of promotes and lateral SMD hires and compares to the 439 SMDs we had at the end of 2017. And we are finding opportunities to hire more.

Finally, guidance is also shaped by a relatively fixed cost structure, which means that small shifts in revenue have a much larger impact, both positive and negative on EPS in the short term. I want to emphasize, though, that the strength of the last few quarters is continuing in 2019. Our guidance assumes and we expect the first half of 2019 to be stronger than the second half of 2019.

A few closing remarks on why we are confident about our prospects before we open the call up to questions. First, while there is no surge in restructuring or a huge uptick in financial fraud, there is dislocation taking place around the world that creates opportunities for FTI. This dislocation creates a need for our professionals who are the leading experts in their respective fields to help our clients overcome and resolve critical issues. Second, several jobs ending at the same time can cause volatility in our earnings. This is part of the reason we are prudent in our guidance, but let me assure you, our practitioners are working hard to win the largest opportunities in the market. Lastly, our balance sheet has never been stronger. This strength gives us the flexibility to allocate capital and create shareholder value in numerous ways, including organic investments, acquisitions when we see the right ones, and share repurchases. This is the sixth quarter in a row that we have come out ahead of our own expectations, and I hope that we can continue to exceed expectations for our shareholders, our employees, and our clients for many quarters to come.

With that, let's open the call up for your questions.

Questions and Answers:

Operator

Thank you. We will now begin the question-and-answer session. (Operator Instructions) And the first question will come from Marc Riddick of Sidoti. Please go ahead.

Marc Riddick -- Sidoti -- Analyst

Good morning, everyone.

Steven Gunby -- President and Chief Executive Officer

Good morning, Marc. How are you?

Marc Riddick -- Sidoti -- Analyst

Very good. Yourself?

Steven Gunby -- President and Chief Executive Officer

I am great. Thanks.

Marc Riddick -- Sidoti -- Analyst

I was wondering if you could give an update on how you see as far as regionally, especially with so much focus around Brexit. I was wondering if you could sort of give an update as to maybe what you're seeing there and what types of opportunities or things we should be thinking about for the region based on what you're seeing today.

Steven Gunby -- President and Chief Executive Officer

Yeah, Marc, look, I think -- let me answer that in two ways. We feel very bullish about our EMEA region. If you look at -- and I know we don't disclose the way of the details, but if you look at the stuff we do disclose, we have made a major change in that region over the last few years. That business is growing. We strengthened our competitive positions, both in London, but also on the Continent, and we are really bullish about where we can take it over time.

Now, the question you asked about Brexit, I got to tell you, I spend a lot of time talking with people about Brexit. I don't think the people in Parliament in London know where Brexit is going and I don't think anybody actually knows what the implications would be if different scenarios come out and I don't want to pretend I'm smarter than that. I would say that we believe with Brexit or without Brexit, there is huge opportunity for our firm. And we're going to have to sort those out as it comes through. I wish I could give you more specific read on that, but I suspect if you and I knew exactly what's going to happen with Brexit, we would be the only 2 people in the world and we could figure out lots of ways to make money off of that. For us, we're just trying to figure out how to make a business regardless, and I think we can. Does that help a little?

Marc Riddick -- Sidoti -- Analyst

It does. And then I guess maybe we could sort of shift a little bit as to maybe what type of acquisition opportunities that you might be seeing and how you're feeling about valuations and some target areas that might be attractive to you going forward.

Steven Gunby -- President and Chief Executive Officer

Yeah, look, I think as we've said before, we are always looking for acquisitions. I mean, I think the philosophy we have here, though, is that at one point this was a totally acquisition-driven Company and that can't be, I mean, because you never know whether good acquisitions are going to come along and what you have to do is, commit to organic growth day in, day out by betting behind your best people, by attracting people laterally and so forth. So we've committed to that. The acquisition strategy is on top of that and that's opportunistic. It depends on when we find really good opportunities with people who we believe will join us, stay with us, and help us build the institution. We're not interested in temporary acquisitions that look good on the P&L and then people leave after five years. And that takes a lot of work to find those.

And then, as you pointed out, valuations haven't been low in the market. So we've done, one of consequence, since I've been here, but we are actively in the market, always looking at that and I suspect, if the market slows down, if there's recessions in different places around the world, valuations will also become much more reasonable. The last thing I'll say is, we have a balance sheet that allows us to do any acquisition we want. And so we'll actively monitor it, but we're not going to do an acquisition just because cash is burning a hole in our pocket. We will use the cash wisely as we've been trying to do the last five years. Does that help, Marc?

Marc Riddick -- Sidoti -- Analyst

Absolutely. I appreciate. Thank you very much.

Operator

The next question will be from Tobey Sommer of SunTrust. Please go ahead.

Joseph Thompson -- SunTrust Robinson Humphrey -- Analyst

Hi, this is Joseph on the line for Tobey. I just wanted to talk a little bit about big projects. I think you mentioned that you didn't expect as many in 2019, but are you seeing less big projects in the marketplace so far this year and what do you think the effect on productivity will be for 2019? Thank you.

Steven Gunby -- President and Chief Executive Officer

Thanks, Joseph. It is a good question. This is not a market phenomenon and it's not a science. Let me be clear, this is -- I mean, I use the batting average analogy consciously. I think somebody starts hitting .450 in May -- April and May and you say, well, maybe they could continue it for the year and sometimes people do, I guess Rod Carew did for a whole year. I feel like last year there was no restructuring boom in the market. We just swung and hit on so many of the jobs and the same thing across all of our segments. I think when Ajay and I here -- sit here and have visibility always into the first part of the year and you can see whether you think big jobs you have today are continuing and so forth, it's very hard to have visibility into the second half of the year, and it's, therefore, very hard to predict that you're going to have a .450 batting average in the second half of the year. So it's much more of a statistically grounded thing about our swing and hit rate than it is on any prediction of market forces. Does that help, Joseph?

Joseph Thompson -- SunTrust Robinson Humphrey -- Analyst

Yeah, that's helpful. And do you think that -- I guess having won a bunch of big projects recently, do you think that that makes client -- that's going to make clients in the future more confident in your ability to complete projects of scale as they come up? Thank you.

Steven Gunby -- President and Chief Executive Officer

I do. I think -- look, I think what happens here, it's -- you're exactly right, this is what we're doing. That is the underlying phenomenon that has me positive. You just don't know what a quarter is going to be, but what we're doing is, we're attracting better people, we are promoting people, we're winning more big jobs. That enhances our brand reputation, which is the sustainable trajectory that we are writing and that's what I'm excited about. I don't think any of us can know what a given quarter can be. This business is so volatile. But you know what, that's why I'm so excited. When you look over five years, there is no noise in a five-year trajectory. We've more than doubled the EPS in five years and we've more than built this institution and that's because we're attracting people, we are developing them, we're more competitive in big jobs in every segment we're in and the market is noticing. So I think you've got the right point there.

Joseph Thompson -- SunTrust Robinson Humphrey -- Analyst

Thank you. I will jump back in the queue.

Steven Gunby -- President and Chief Executive Officer

Thank you.

Operator

The next question will be from Tim McHugh of William Blair. Please go ahead.

Steven Gunby -- President and Chief Executive Officer

Good morning, Tim.

Timothy McHugh -- William Blair -- Analyst

Good morning. Just wanted to ask for more color maybe on the business transformation side. I know you've talked about building that long term, but seems like you are kind of saying that you took a big step forward in kind of Q4 in terms of contribution. Was there -- is that just big jobs, is there something more tangible, I guess, changing or happening in that outcome?

Steven Gunby -- President and Chief Executive Officer

I think, the team there has done a incredible job of both supporting the people we had historically in that business. As you know, we changed leadership there and Carlyn has done an incredible job of supporting the people there, the existing people, but also attracting talent from outside. And the thing you don't know when you have a bunch of new people and a small practice and you have some big jobs, you have these zero, one variables, the big jobs go away and your utilization can drop and how soon is it going to be to get the next big jobs. So that business has done better than my expectation based on lots of time in history in hitting the ground running and just building itself. It's just -- it's been a constant delightful surprise.

And Carlyn gets all obsessed if we have a month where it's low utilization, but the truth is that business is on fire and it's doing a great job of both delivering on its client work but then extending that via references into other work. So we're excited about that business. There is huge amount of upside to it. I'm sure that business at least as much as any of them will have swings quarter to quarter just because the law of large numbers doesn't yet apply to it, but it's done extremely well. And it's been a -- it was not a positive surprise in the sense of long-term. We have enormous confidence in the long term. The speed with which it's taken hold has been a positive surprise. Does that make sense, Tim?

Timothy McHugh -- William Blair -- Analyst

Yeah, that helps. Let me follow up the senior managing director headcount growth you talked about. I know you probably hired a little bit in every part of the business, but where are the disproportional bets being made as we go here into 2019 with that headcount growth?

Ajay Sabherwal -- Chief Financial Officer

Thanks, Tim, for the questions. Ajay, here. So as you would imagine, success breeds hiring. So outside of the United States, a lot more, well, I think, 51% of them are outside of the United States. Tremendous, tremendous growth. Earlier question on EMEA, EMEA grew year-over-year 24%. So, I mean, we are doing extremely well and we are hiring both there and in the US. In terms of segments, FLC, a little bit higher than the average, CF right at the average, and the others slightly below. I mean, that in technology too, we were able to attract some really good talent in various countries around the world.

Timothy McHugh -- William Blair -- Analyst

Okay. And then maybe related to that. You talked about EMEA, I know it is probably not a driver of historical results, but how are you thinking about the potential changes to audit rules in the UK and the opportunity I guess relative to the big four in the UK market over the next couple of years here?

Steven Gunby -- President and Chief Executive Officer

Yeah, that's a good question here. I mean, I think we like to believe -- part of the reason we're attracting so much talent is because I think we are now seen as a really winning firm in Europe, but I have to admit that some of the reason we're attracting so much talent is some of the dislocation in the big four over there. I mean it's -- as you know, Tim, it's pretty serious and our parts of the big four are the most contentious parts of the big four. They are the parts which have the most conflict, the most chance of conflict, right. It's big litigation, it's big investigations, it's bankruptcy. So the big four are parts that are most likely to get shaken loose by the disruptions over that are the big -- are the parts that we are specialized in. And so it is a very fertile ground for us right now and who knows how this sorts out over the next couple of years, but based on what I read in the paper, it's likely to continue to be that for some time to come. You read it differently?

Timothy McHugh -- William Blair -- Analyst

I know. That seems consistent with what I'm hearing, so I appreciate it. Thank you.

Steven Gunby -- President and Chief Executive Officer

Thank you, Tim.

Operator

And ladies and gentlemen, that will conclude our question-and-answer session and will also conclude our conference call for today. We thank you for attending today's presentation. And at this time, you may disconnect your lines.

Duration: 47 minutes

Call participants:

Mollie Hawkes -- Vice President, Investor Relations & Communications

Steven Gunby -- President and Chief Executive Officer

Ajay Sabherwal -- Chief Financial Officer

Marc Riddick -- Sidoti -- Analyst

Joseph Thompson -- SunTrust Robinson Humphrey -- Analyst

Timothy McHugh -- William Blair -- Analyst

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