- The coronavirus pandemic continues to impact the professional services industry, as firms see decreased demand for strategy consulting and increased need for restructuring services.
- FTI Consulting is expecting the bankruptcy boon to continue, execs said in Thursday's earnings call, and has hired 431 restructuring professionals in the past year in anticipation.
- Firm execs are also starting to see litigation work take off, as more courts reopen and postponed matters move forward.
- FTI's shares dropped nearly 12% Thursday as FTI trimmed its overall revenue guidance for 2020.
- Visit Business Insider's homepage for more stories.
Restructuring work lagged slightly during FTI Consulting's third quarter, but the company is still hedging its bets that its biggest business line will bounce back and is continuing to hire in preparation for an uptick in work next year, executives said on Thursday's earnings call.
Although there was a wave of restructuring work at the start of the pandemic, work in the space has slowed more than initially expected during the last few months due to government stimulus, Steven Gunby, FTI's president and CEO said.
"What has happened here recently is that market forces began to play out to be more in favor of loose money and against restructuring activity than we had expected, not extraordinarily worse, but around-the-edges-worse," he said on the call.
FTI trimmed its overall revenue guidance for 2020, to a range of $2.42 billion- $2.47 billion, down from a range of $2.45 billion to $2.55 billion. The firm's shares fell nearly 12% Thursday to $95.79.
But even as restructuring revenue was down 3.8% in the third quarter compared to the second quarter, FTI executives said they expect restructuring work to continue growing, and they're staffing up in anticipation of the demand.
A firm spokesperson told Business Insider that during the last 12 months, FTI hired 431 restructuring professionals, bringing the group's total to more than 1,600. More than half of the new employees were brought on between the second and third quarters of 2020.
Gunby said that the firm continues to believe that the restructuring market "is going to be here for a considerable amount of time."
Other consulting firms with strong restructuring teams are following the same playbook: turnaround consultant AlixPartners told Business Insider that it is "recruiting like crazy" as its turnaround and restoring group commands a greater share of the firm's overall business.
Read more:Turnaround consultant AlixPartners is 'recruiting like crazy'. Its restructuring group leaders lay out how the firm is prepping for an influx of work and the benefits of virtual war rooms.
Despite the slight downturn from the second to the third quarter, FTI's restructuring revenue surged more than 23% compared to the year-ago period. Income also rose for the firm's economic consulting and tech work.
But litigation consulting and strategic communications brought in less money, with FTI citing lower demand for financial and reputational comms services, and disputes and investigation services.
COVID 19 has continued to impact the business in ways that it had not expected, said Gunby.
He added: "And therefore, we hoped for a somewhat more rapid unfolding of the opening of courts, more rapid derejudification of the legal system, more of an opening of cross-border travel, all of which, of course, would allow a faster return to normal for some of the businesses that were hurt by COVID."
Read more: POWER PLAYERS: Meet 20 top Wall Street restructuring bankers taking center stage as a wave of bankruptcies rocks Corporate America
Marc Riddick, an analyst at Sidoti & Company, said the firm's third-quarter results were strong and in line with expectations and that increased bankruptcy and restructuring activity will likely happen over a long period of time.
"It can take a very long time for a retailer to go bankrupt," he said, explaining that while shutdowns earlier in the year led to already struggling companies filing for bankruptcy, it will take time for the coronavirus to have that impact on previously healthy industries — but the time will come.
"We think it's inevitable," he said.
Moving forward, Riddick said he also expects the litigation space to get even busier as more courts reopen and previously postponed legal matters move forward, and as long as FTI continues to generate a strong cash flow and capitalize on busy segments, they should continue to do well.
"Litigation activity is going to be quite significant, so as long as they're getting their fair share of that growth, they'll be in really good shape," he said.
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