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Navigant Consulting, Inc. (NYSE:NCI)

Q2 2009 Earnings Call

July 22, 2009 10:00 am ET

Executives

William M. Goodyear - Chairman and Chief Executive Officer

Tom Nardi - Executive Vice President and Chief Financial Officer

Sharon Siegel Voelzke - Vice President and Business Unit Leader, North American Business Consulting Services

Jeff Green - Vice President and Business Unit Leader, North American Dispute and Investigative Services

Julie M. Howard - President and Chief Operating Officer

William Dickenson - Executive Managing Director, North American Consulting Operations

Analysts

Tim McHugh - William Blair & Company

Joseph Foresi - Janney Montgomery Scott

James Janesky - Stifel Nicolaus

George Sutton - Craig-Hallum

David Gold - Sidoti & Company

Scott Schneeberger - Oppenheimer

Sean Jackson - Avondale Partners

Dan Leben - Robert W. Baird

Kevane Wong - JMP Securities

Rob Young - William Smith and Company

Andrew Fones - UBS

Toby Summer - SunTrust Robinson Humphrey

Operator

Good morning, and welcome to Navigant Consulting Second Quarter 2009 Earnings Call. (Operator's Instructions). I would like to introduce today's speaker, Mr. William Goodyear, Chairman and CEO of Navigant Consulting. Mr. Goodyear, you may begin.

William Goodyear

Thank you, and good morning everyone. Disclosure-wise, please note the disclosures at the end of our earnings release today for information about forward-looking statements that we might make or discuss during the call this morning. We have, as we have done in the past, posted our earnings release on the website for Navigant, and would suggest that you can review our website postings in addition to our SEC filings for the disclosure factors that may impact the subjects that we talk about today.

We will be discussing, as we have done in the past, some non-GAAP financial measures. Our earnings release and website have the disclosures required by the SEC, including reconciliations that are appropriate. With me on the phone today are corporate teams in Chicago, Bill Dickenson is in London where he has been working on some international energy things; Jeff Green and Sharon Siegel Voelzke are on the phone from D.C. and New Jersey respectively.

Let me start with referencing the bullet points on our earnings release. From a revenue standpoint, 157 down 17% from last year's strong second quarter, that's RBR, 6% down sequentially.

First half we were down 13%, 324 million first half, so 13% year-over-year. If you take out the currency adjustments we talked about in our last call, that is down from the '08 first half, which you will recall was quite strong.

Adjusted EPS; adjusted means excluding our real estate move in New York, which was approximately $0.05 (inaudible). We had a $0.14 adjusted EPS. A comment on the New York, and maybe we can get into this a little bit on the Q&A, but that was an important investment for us. We have consolidated all of our teams in New York, so we have a good solid, long-run investment there in one of our most important markets.

We have doubled our expense initiatives from 25 to 50 million roughly. Tom will give some color on that during his remarks. We have done that given our view that the top line is going to be flat, and that is the way we are going to run our business model for the second half of this year. In any revenue relief or revenue lift that we get now, we are saying is not going to come, or we are not planning for it to come anytime before 2010.

I think the shorthand for that is instead of anticipating recovery, we are going to report about it after it happens and we will have a little more detail on that from a granularity standpoint in a minute.

We have good financial liquidity. We did reduce our bank debt another 20 million, down 70 million from a year ago when we did the Chicago Partners investment. We have good flexibility from a financial standpoint. That should be our friend as we play a little offense over the next 12 months.

We will come back to guidance in the wrap-up, but if you look at what we said in the release, we have basically taken $50 million out of full-year revenue guidance, and as you can see, we have lowered EPS to adjusted EPS, excluding severance and real estate to $0.60 to $0.70.

From a high level standpoint, let me just say this: Our sense is that we have probably troughed, probably bumping along the bottom a bit the last few months. The trough is certainly lasting longer than we would have expected at the end of the first quarter. There are some hopeful signs and we will comment about those later, but the way we are going to fund the business is to balance having a good solid second half but not give up any opportunity for 2010 from an overview standpoint.

We noted in our release that we completed our internal strategic review that we had been conducting, as many of you know, during the last 12 months. We have talked about that a bit. There will be more on that as this year progresses. We looked at each market that we serve. We looked at each practice strategy, our competition, our skills, where we see those markets going. We looked at all of the investment requests that came in, and we have made some decisions. We feel good about those, and I do not think any of those are surprising.

From a high level standpoint, we are going to target our incremental investment, and we certainly are going to generate some capital to do that where we have competitive strength, existing scale, and big attractive growing markets over the next three to five years. We want to match our skill set to the big growing markets.

Not surprisingly, that means that we are going to be investing, and we have some interesting plans in our dispute and litigation space, that includes Chicago Partners, that includes our global construction dispute practice, our energy and healthcare practices. Those are the areas where we see a very virtuous circle of good demand and prospective demand drivers, big markets, good Navigant skills.

We are getting good feedback from our clients that where we have that deep expertise is being rewarded with consulting spend. I think it was fortunate that we went through the strategic review in a difficult trading market because it helps you sharpen your focus and face the new realities, if you will.

We are being successful in increasingly combining out cross pack to strengths to create these compelling client solutions. We will talk a little bit more about those this morning, and our review was conducted within two big macro trends that we see impacting our space and the professional service space over the next three to five years — those being reregulation, energy, healthcare, financial services, and declining leverage at all levels in the economy. Declining leverage causes great stress, which in turn leads to litigation, so all of our strategic thinking has been within that framework.

Back to the second quarter, our obvious goal is a balance second half aligning our costs with what we see is our continuing run rates from a revenue standpoint, but preserving key capabilities for 2010 and beyond.

I think the good news as we look out is that with any revenue lift we will have what I would characterize as a bigger and outsize impact or boost to our profitability. As you know, our business model is sensitive on the down side, I think we have demonstrated that, unfortunately, but equally sensitive on the upside. That is really where we are at, the reality that we are looking at.

Recall that we said during our last call at the end of the first quarter that we expected revenues to be at the low end of our 700 to 775 range, and that we were taking cost actions to protect EPS. The second half recovery, we did have that built into our expectations; not a lot, but we clearly had it built into our expectations. That is not happening. It certainly did not happen during the second quarter, so we are not planning for a flat second half from a revenue standpoint, and that is why we are taking the incremental $25 million of costs out that were auctioning in July; a little but of that might slip into August and then we will be done.

I would describe the quarter to some extent as what we would call a conversion miss. There is no question that sale cycles are being extended, and further, once you have that engagement and backlog, it takes it longer to convert into P&L revenue.

That is the reality that we face, and the consequences of that reality are a bit lower utilization — I think we were down two points in the second quarter, and top line slippage. That said, we are winning great new business. We had some excellent second quarter wins, started off July with some addition wins, but we now have to build longer conversion timeframes into our forecasting, which we are trying to do.

I would also say that it is attended upon us to recognize that we need more in the backlog to get to the old levels that we used to enjoy, so we are going to be putting more resources into market basing activities; we are doing some hiring' we have added people to our business development team. They are doing a very nice job. We need to recognize that we need to play offence while we are paying defense, and we tend to do that.

Some color on the second quarter: our dispute and litigation business was basically flat; total revenues were flat' RBR was down about 2%. We are still not where we want to be in that dispute channel, and as you know, that is a very important channel for Navigant.

We are still light on investigations. We have some old work that is running off. We have added a bit new work, but not what we had hoped for or frankly what we had expected. We can talk a little but more about that from the regulatory standpoint, what is happening with the DOJ and the SEC.

Our capital markets' sub-prime litigation engagements have significantly assisted in offsetting what I would call the investigative slowness. The basic commercial litigation is okay and chugging along, actually probably getting a little bit better. We had 76 active engagements in the subprime capital markets area in the second quarter. I think I said we had 66 active engagements in the first quarter, so that continues to trend nicely. A year ago we had 28, so 28 versus 76, we have 128 total wins now.

The engagements that were born out of the credit crisis are starting to come of age, they are starting to mature, and we expect that is going to be our friend for many quarters and years to come. We did, also, get some benefit in our litigation area and our construction area. Troubled real estate, specifically troubled commercial real estate is definitely starting to heat up.

The spew channel, flat, down a bit. I think we have troughed. Capital markets, subprime is our friend, those things are starting to mature.

Business consulting segment is down 13% sequentially quarter to quarter. Energy was actually up modestly. Bill may comment a little but later on this, but a number of efficiency engagements. We had thought there was going to be some stimulus impact quicker than we have benefited from. Clearly, the stimulus program from an overall standpoint in terms of its impact on the economy and the money freeing up has no happened, and that has impacted us from an expectations standpoint, so that is still out there.

Financial and insurance services down again, there is no discretionary spend left in these areas, and that surprisingly one of the things we that we look at a little bit as a proxy in terms of financial – the risk management area in these practices is Protiviti and Robert Half Resource Connection, so I do not think there is anything surprising there.

I will say that I do not think, given where we are running in these areas, that they will be impactful or moving the needle on the downside as we go forward.

Healthcare started slow in the second quarter but finished very strong. There was a lull, but clearly something has happened. We have had a number of successes in June, and those have continued into July in terms of multiyear multi-million dollar assignments, so there is clearly something happening in the healthcare space. We can do a little more on that in Q&A.

Economic consulting, Chicago Partners has steady, solid quarter. The backlog in the flow of antitrust cases remains strong. We have several engagements that are going to trial or to report stage in the second half.

As we have said, our team at Chicago Partners and our economic consulting segment is very much involved in a lot of our capital markets subprime litigation, so that is a joint initiative.

International was up quarter to quarter, and importantly, we have had some nice construction dispute wins, big ones in the Middle East, and more recently in our financial services team in London as the restructuring and the issues that we have been dealing with in North America are clearly center spotlight in London.

Recall that one of the first nationalized institutions in Britain, in London, was the Northern Rock, the big mortgage bank. The government's central objective is to get that restructured, get it back out into private hands, and our financial services team is in the middle of that effort with some very exciting work, and really reinforces the special space that we are occupying in the whole mortgage securitization disintermediation if you will. It is a very exciting assignment for us.

I am going to comment a little but I do not know if George Sutton, if you are on the call, but you commented to me on time that you look forward to receiving an update on the metrics that we shared at the first quarter, and so here goes.

We probably had some false positives, but not bad backlog. Backlog at the end of June is actually up further from first quarter end levels. Recall, I said conversion slowed but backlog is up. Conflict checks, which had had a steady upward of movement during the first quarter, actually rolled over. We were down in April and May, bounced up nicely in June, still a bit lower than they were running in March, but much better than April and May.

The dollars of project acceptance forms, and those are the forms that come in when you are well down the road and just getting ready to sign an engagement up, the dollar of project acceptance forms dollar totals, which had been building nicely through the first quarter, actually followed through and continued to build nicely in the second quarter, so that trend remains intact.

A number of projects over 10,000 on a monthly basis, that gets into your 100,000, to 150,000 engagements, which are important to track. They build nicely through March on a month-to-month basis, rolled over, were down in April and May, but we are back up solidly in June, actually reaching March levels, so some ups and downs there.

Some conflicting SG&A's: relative to what were basically the universally positive March readings, but relative to earlier trends still actually solid and encouraging. It does suggest that we have certainly troughed, reached the bottom, but we are certainly, not after our first quarter, we are not prepared to call a turn yet.

Our discovery team, which is a quasi-leading indicator, was certainly busier than they have been anytime, and our business development team in June actually had a record month. There are some conflicting SG&A's, but they are on balance. We would characterize the metrics as quite encouraging.

I am going to comment a little bit on guidance and then I am going to turn it over to Tom for some granularity.

As I said before, we basically said we are going to run at the levels that we are at for the second half, and that is the way we are going to plan, staff, and spend money.

We have taken $50 million out of our RBR, so our new range is the 630 to 670 number, 60 million of reimbursable, so that gets you to 690 to 730 total revenues for the year. EBITDA 95 to 115, and then that is $0.60 to $0.70 of adjusted EPS.

We are going to be solidly profitable in the second half. We are going to have some nice cash flow. As we reflect back on our first quarter where we thought we could hit that lower end of that 70 to 75 range, the conversion thing will just not allow us to that, nor will it allow us to get to that $0.85, $0.85 to $1.00 that we were hoping for, and that is why we are auctioning some additional costs.

What I want everyone to understand is we really are working on a favorable mix, the right balance of the rest of this year while we are building and positioning the firm for the future. We are trying not to impact our 2010 opportunities with our expense initiatives this, and I think we have done a nice job on that. I am comfortable with our initiatives.

We are taking advantage of the human capital markets, if you will, to add senior revenue generating professionals, simultaneously with these expense initiatives.

We have added key hires since we last talked, in healthcare certainly, in London, and our structured products and derivatives team, distressed real estate, energy, and in our dispute channels. We have additional recruiting efforts underway, so we are trying to balance our current reality and run rates with the opportunities that we see longer run as we push our horizons out into 2010.

With that, I am going to ask Tom to provide some granularity, and then we will go into Q&A.

Tom Nardi

Thanks, Bill, and good morning. Earnings per share for the second quarter, excluding other operating costs and severance, totaled $0.14 compared to $0.16 in the first quarter and $0.26 a year ago.

Other operating costs, which included office closures and relocations that Bill discussed, totaled 4.6 million or about a $0.05 per share impact, reflecting the long planned relocation of our New York office.

Severance costs related to employee reductions about $1.3 million pre-tax, or $0.02 a share.

Including these costs, earnings per share on a GAAP basis totaled $0.07 compared to first quarters $0.11 and 2008's $0.21.

Let me now recap some of the key metrics from our second quarter earnings release. Second quarter revenues before reimbursement, or RBR, totaled 157 million, down about 6% from first quarter, while down 17% from very strong 2008 levels. For the six months ended June 30,2009, RBR declined 13%, or about 10% absent to adverse currency impacts to approximately $325 million.

Utilization for the second quarter declined to 73% from the first quarter's 75, and year ago 79%.

Average full time equivalent employees declined about 4% from last year's levels, reflecting staff reductions that took place during the first half of 2009.

Not surprisingly, voluntary attrition declined to 4% in the quarter, producing a trialing 12-month rate of about 15%.

Lastly, our average bill rate of $250 remained relatively stable to first quarter levels, down about 5% from year ago.

As expected, currency exchange movements negatively impacted RBR year-over-year by about $5 million in the quarter, and $13 million on year-to-date basis. However, they were modestly favorable compared to first quarter as the dollar weakened compared to the pound.

As Bill discussed, these lower revenue levels are reflective of the continuing weak economic environment, and delays in both the sales cycle and the initiation of activity on sold assignments.

The majority of first to second quarter decline in RB was attributable to continuing depressed discretionary consulting spend, most notably reflected in our business consulting segment results.

On the other hand, our dispute and investigations, RBR was down modestly from the first quarter, while both the economics and international segments were up slightly over first quarter levels.

An encouraging sign was improved operating margins in every segment compared to first quarter as expense management efforts took affect.

Let me now turn to the cost side of the equation, where as discussed last quarter, we have taken swift and substantial actions to reduce costs and protect profitability. The results of these expense management efforts had a significant impact in the second quarter, as cost of services and G&A expenses in total declined $19.5 million, or 13% from last year's second quarter levels, and were down 25 million, or 8% on a year to date basis.

These amounts equal the full year savings estimate that we conveyed last quarter. Let me now recap these savings estimates for the full fiscal year.

In the first quarter call, I discussed plans to reduce costs 25 million from 2008 levels. As it became more likely during the second quarter that the demand environment would continue to be challenging, we have and are taking additional actions to reduce costs, and we now estimate that our total cost of services in G&A will be down about $50 million, or 8% from 2008's actual levels. These amounts are double the levels we discussed last quarter.

We are utilizing a variety of expense management programs to align our expense base with revenues. These include staffing reductions, salary freezes, reduced workweek programs, lower performance based incentive compensation accruals, and reductions in discretionary spending in virtually all G&A areas. The fact that we tackled these issues very early in the year has helped ensure that we can realize some sizable savings in fiscal 2009.

As of the end of the first quarter, we discussed our staffing alignment actions, which totaled about 200 involuntary terminations, some of which had not been completed by the end of the quarter. We now expect to realign our staff by an additional 100 to 125 positions, which puts our year-end estimated billable staffing level at between 1700 and 1800 consultants.

Total severance costs related to these actions are estimated to be about $5 million for the full fiscal year of 2009. With that said, as Bill indicated, we are also continuing to hire in our key practice areas where we have strong market demand, and the environment is right to seize opportunities to add key senior level talent.

Inaudible) expense increased $3 million in the second quarter compared to last year's levels, when some sizable reserve adjustments were made. However, we continue to estimate that higher than normal reserves will be needed to reflect today's economic conditions.

As I also said in the first quarter call, we expect to benefit from lower interest expense and amortization compared to 2008, and those projections are holding. On a year-to-date basis, these costs declined about 3.7 million from last year, and we expect them to be 5 to $6 million lower for the full year compared to 2008. iscussed earlier.s taht ed to 2008. we expect them to be 5 to $6 million lower2008, and those projections are holding. cruals,These savings are on top of the $50 million savings that I discussed earlier.

To recap, when taken together with anticipated lower amortization and interest, our total cost reductions are expected to offset about 70% of the anticipated year-over-year revenue declines.

In the second quarter, we also approved 4.6 million related, in other operating costs, related to primarily to a planned relocation of office space in New York that Bill mentioned earlier. These costs were in line with those that we had disclosed in our first quarter 10Q.

Turning to our overall balance sheet and liquidity position, they both remain in good shape. June 30 debt levels totaled 240 million, about 20 million lower than March 31, and 70 million below last year's levels, which peaked after the Chicago Partners acquisition. We continue to expect that we will end the year with lower debt levels than 2008, assuming we achieve our updated financial targets.

To sum up, we have continued to aggressively manage our cost structure and spending during 2009 to match the lower than anticipated revenue levels, while at the same time ensuring we maintain our foundation and readiness to capture growth opportunities when the market turns.

At this point, as Bill indicated, our outlook anticipates continuation of first half business activity and revenues, and we are not projecting any meaningful improvement in top line performance over the last half of the year.

To recap our updated outlook, this results in an RBR estimate of 630 to 670 million dollars and adjusted earnings per share between $0.60 and $0.70. Adjusted EBITDA is now estimated to be in the range of 95 to $115 million.

While this lowered outlook is naturally disappointing, we have quickly adjusted our cost structure to fit the lower revenue environment and we are positioned to rapidly benefit from even modest top line improvement as we look to 2010.

Our balance sheet remains strong and liquidity excellent, both of which will allow Navigant to begin to play offense and take advantage of growth opportunities that fit the strategic direction Bill described earlier.

With that, let me turn it back to Bill to wrap up.

Bill Goodyear

Tom, thank you, let me just make a couple of overall comments and then we will open up for Q&A.

One of the big issues for us, big opportunities, will be regulatory initiatives coming out of D.C., and our sense is that the re-staffing and the administration changes are finally being completed. Shapiro really has the team in place in the SEC, Justice, Christine Varney, the new anti-trust chief is clearly driving things. I think the derivatives investigation and all of the subpoenas that went out last week reflect that.

Since we talked last you have the Fraud Enforcement Recovery Act passed, which gives new tools for prosecutors targeted at trying to capture any fraud from stimulus or tarp. The FBI Priorities Act, the proposed Hedge Fund Transparency Act with some interesting AML implications are working their way through Congress, so you have to think that there will be regulatory activism. It would be inconceivable if there was not. We just do not know when, so that just sits out there and we can try to address that, but all we are going to able to do is react to it as opposed to trying to anticipate it. We have watched all of these events in Washington with great interest. I think that would be from a summary standpoint.

One comment on the law firm channel, which is important to us because some not insignificant amount of our sales is jointly with and through the law firm channel. We continue to see the law firm channel, not necessarily the parts of the channel that we deal with, but the law firm channel is challenged. You see some of the major firms, I think Whiten Case and Wild (ph) just this week deferred their new hires, their 2009 new hires out into 2011 and 2012, so I think that that is something we need to continue to recognize that that is out there.

From a summary standpoint, I would say that we like the fact that we have good expertise in the areas of the market that are certainly going to generating demand. We like the fact that we have a unique market position relative to financial litigation.

We like the fact that we've got a unique market position relative to financial litigation. We like the fact that regulatory actions must and in all likelihood will increase, we're just not sure when. We don't like the second quarter results, but we very much like the future, so that's the message that we wanted to relay; protect this year's second half and get ready for more opportunity in the future.

And I wanted to point out, though we didn't put it in the press release because we had enough in there, but Mike Tipsford, the Vice Chairman at State Farm is joining the board effective next — well, he's joining the board, but he'll be at our board meeting next Tuesday. And that follows on Steven James who was the retired Vice Chairman at Accenture who joined earlier this year. So we're getting some great new board members that add perspective and breadth to our board and we're real pleased about that.

Okay, with that let's open it up for Q&A.

Question-and-Answer Session

Operator

Thank you. (Operator's Instructions) And our first question comes from Tim McHugh. Your line is open.

Tim McHugh - William Blair & Company

First question, just bigger picture Bill, is it fair to say that as you look out over the potential work over the next few years that basically what you're saying is that you don't think the amount of work has changed, it's just the timing of it or has your view of the potential work that's coming out of the administration and the litigation world changed at all as you've seen the cycle play out?

William M. Goodyear

No, Tim. It hasn't changed, but the question of when is it going to hit — I mean candidly we think it's probably — let's just take the subprime in the credit-crisis litigation and as the team met and we've been discussing this the last couple of weeks, we underestimated the size of the opportunity probably significantly so that's good news.

We also overestimated or were too optimistic about the timing of the opportunity. It's just these cases take a long time to mature and there's something that's happening out there which is quite interesting and just sharing some anecdotal evidence which is always you have to take it for what it is, but I have had this week just this past five say business days, a number of conversations where the litigation has moved into a more active phase and one of the things that surrounds that more active phase is with the stabilization of the financial markets and a lot of the prices and the assets that are in question and just kind of the whole capital markets recovery to some extent — these parties to the litigation now are able to actually take a view on what the damages might be.

Before it was like everything was in free fall and it was very difficult. So it kind of put the marker down. That seems to be moving into another phase. Now we'll have to track that, but in terms of the overall — our overall view in terms of the regulatory opportunity here, there's nothing that we've seen that would diminish that, but clearly the timing of it keeps getting pushed up.

Tim McHugh - William Blair & Company

Okay. And then I wanted to — the other kind of longer-term question would be related to this strategic review or refresh as you called it. You didn't mention financial services and insurance on the business consulting. I just wanted to know how that fit into the review and then it kind of sounded like acquisitions would play a role in kind of that longer term goal and you are going to deploy some capital there. Just if you could comment on any divestures or acquisitions and how significant that might be in terms of your planning for that.

William M. Goodyear

Those are good questions. We're fairly early in the execution stage, but just let me comment on that. From an acquisition standpoint, acquisitions are clearly going to be part of the company strategy as it has been in the past. And if we run the company properly through any kind of a cycle, we should be able to generate and invest off our own bat without any incremental financing externally 50 — probably closer to $100 million a year.

So we start there. Then we took that capital and we said okay, where are we going to put that capital and how are we going to allocate that capital at high level between organic tires, and if you will, investments, and external acquisition? And so we've actually taken the three big gross areas and we've looked at that. We've, at a high level allocated the capital on a what-if basis and also we've sub allocated between acquisition and organic hiring just to see how that plays out in our financial model. And we've got all the metrics and we played it.

Now I'm reminded of what Eisenhower said about planning. And he said he'd never seen a plan that was worth the paper that it was printed on, bu the planning process he found to be indispensible. So believe me, we've put a lot of elbow grease into our process. We've really sharpened our focus and we've got some pretty detailed plans. Now exactly how they play out over the next three to five years, the market will determine that and our ability to execute will determine that.

Now in terms of where we're going to put the capital, I said in my opening remarks if you'll recall where we have competitive strength, existing scale, big attractive growing markets. Okay, so now let's translate that. Big attractive growing markets where we have scales and skills — there's food, energy, and health care. I mean these are not surprising conclusions, so where does financial services or insurance services or some of the other things in our business — we have got some great sub practices. They're successful. They're great people.

But in terms of financial services right now, we would view those capabilities — retain the capabilities as they fit into the strategy that we're deploying in the litigation in the capital markets area, and for that matter in energy and health care. So it's a retain, but would I expect to put a huge amount of resource into the practice so that we would compete with a productivity and risk management and that kind of stuff? No. We think we're getting a higher return in some other areas. That doesn't mean that we're not going to retain those skills.

Tim McHugh - William Blair & Company

Okay. That's helpful. Thank you.

Operator

Thank you. Our next question comes from Joseph Foresi. Your line is open.

Joseph Foresi - Janney Montgomery Scott

Bill, I was wondering if you could talk a little bit — I think you said in your opening comments that originally there was a recovery built into the back half of the year. To start off here, maybe you could just talk about why that recovery was built in and what changed?

William M. Goodyear

Well, we got optimistic and enthusiastic as the first quarter progressed and it actually started probably if we went back and looked at trend lines, it might even have started late last year. But when we looked at all of the metrics that historically have helped us forecast and understand where the company's going, the trend lines January, February, March, were universally sending very positive signals. In fact, I don't think we had a single metric that was not encouraging us to be successful and the things were going to definitely get better. So we got carried away with our metrics. Unfortunately the real world, some of the stuff didn't follow through.

Now when we look at the company's operations right now and kind of the demand drivers, are they better than they were say last November or December in the early end of this year? Yeah, absolutely. But we got more enthusiastic in hindsight than we should have, and so we've taken that enthusiasm out of our forecast. That doesn't mean that we're not optimistic about the future.

Joseph Foresi - Janney Montgomery Scott

Okay. And just you talked I think in the beginning of December — I think you said something to the effect that you'd be surprised if there was any discretionary business left in the numbers. I'm wondering, what metric do you track or what do you look at when you talk about discretionary business, and maybe having gone through sort of the first three months of the year and things looked a little more positive, maybe what you've done to look at it differently now that we've reached sort of June?

William M. Goodyear

Well one thing that we've done is we've said that ultimately everything's discretionary. I mean you got to redefine what's discretionary and not discretionary. In our litigation is an example. We felt — I think to some extent accurately that the litigation matters that we get involved in ultimately are nondiscretionary. They have to be dealt with. But what we didn't understand or maybe we understood, but we didn't understand the severity or the impact, is that as every client that we deal with had their own budgetary problems and issues and their financial models were all under stress, the whole concept of litigation and the timing of litigation slowed down. Here's your budget, keep this thing on the backburner for awhile. We can't spend any money now, we'll work on it next quarter, and so forth and so on. That was very significant. That's when I get back to the conversion timeframe.

When we look at our forecasting and we look at backlog and then we use different modeling tools and say okay, what's this backlog mean in terms of revenue? It fundamentally changed and was impacted in a way certainly in the last decade that hadn't existed. So I think that was — that's not insignificant.

Now I think a follow-on question is will you go back to the old conversion rates, yes or no and when? And those are questions we can't answer at this point in time.

Joseph Foresi - Janney Montgomery Scott

Okay. And then just kind of looking at the —

William M. Goodyear

I will say this, if we ever get back to the old conversion timeframes, there's going to be a quarter or two where we look like we're a lot smarter than we probably are.

Joseph Foresi - Janney Montgomery Scott

Okay. I think just one last question just dealing with the subprime SEC litigation. I guess my first question is if you're expecting a flat back half of the year, should we take that to mean that you're not expecting the ramp in that type of work until 2010? And then secondly, looking at that revenue, do you consider it to be incremental, significantly incremental, or maybe a backstop?

William M. Goodyear

Well, to date it's been a backstop and I think to some extent it will continue to be. That capital market subprime litigation is ramping. I mean if you think about what I said earlier, in the second quarter we had 76 active engagements. That's engagements where we billed during the quarter. A year ago that was 28 engagements. So I mean you're up almost three times. I call that a ramp.

And then we went from 66 to 76. I don't know if that's 15% or whatever quarter-to-quarter, so that's ramping, but what that was doing is replacing other run-up and some of our old investigative cases that continue to — I mean all investigations end, right? What we need is a little left out of that.

So it is ramping. To date it's largely been offsetting, other declines.

Joseph Foresi - Janney Montgomery Scott

I guess just given the flat guidance, does that into account the continuous ramp or is that sort of an indication that you're not expecting anything until 2010?

William M. Goodyear

Well Jo, here — let's get into our reality here. We got too optimistic in the first quarter call and we didn't deliver. The revenues didn't come in. We did a great job on the cost. I think we've done a good job in terms of our strategy and our resource deployment. The revenues didn't come in. So you're not going to get this management team right now to start chirping about second half growth because if it's there we'll report if after it happens.

Joseph Foresi - Janney Montgomery Scott

Okay, fair enough. Thank you.

Operator

Our next question comes from Jim Janesky. Your line is open.

James Janesky - Stifel Nicolaus

Bill, I wanted to drill down more into the business consulting area specifically. I understand the comments you made about energy. Within financial services you mentioned a productivity and a resources connection. I mean is that the type of work that you're now competing against or can you give us an idea about what projects that you have in there now and what could be expected down the road?

William M. Goodyear

Well, the reason — and they're not totally — Jim, as I think you know they're not identical, but a lot of the work that has run off in financial services has been what we would call risk management disciplines where you're helping the client reset some of their processes, trigger early warning things, and that's sort of work on risk processes.

Now if you're in New York City or you're one of the Wall Street houses and you've lost billions of dollars, you kind of say alright, we'll deal with that stuff next year when we have budgets. Those budgets have kind of gone away so that's the only reason. So when I see — and we were down as I said in the quarter in those areas, but when I look at — so are we worse, better, or equal to kind of the big macro movers in that space? I look at Resource and they were down 4% year-over-year and 15% sequentially and then we checked productivity inside of Robert Half and they were down 36% year-over-year and 11% sequentially.

Now the good news for us is that these practices are not that impactful now in terms of moving the needle. So there we are.

James Janesky - Stifel Nicolaus

So with the subprime financial services work that you would expect the timing — except you're uncertain about timing, expect out of the government broadly defined — would that flow through that financial services segment the most? That's what would be the most impacted, you think?

William M. Goodyear

Well not really. The subprime litigation team to date — like those 76 active engagements that we had in the quarter would be you're deploying a combination of our litigation team — the Jeff Green squad in the dispute and litigation area, and the economist and the Chicago partners capabilities. And with some resources pulled from financial services.

James Janesky - Stifel Nicolaus

Gotcha, okay. Now switching gears to health care, finished the second quarter strong, could you give us some reasons why that happened? I mean is it because hospitals have further come under budgetary pressure and what types of engagements are you winning in that health care segment?

William M. Goodyear

Yeah. I'll give a quick response and then I'm going to ask Sharon Siegel Voelzke to comment maybe with a little more granularity. But there was, at least in the conversation that we were having — we marketed and were working very hard in March, April, May, and we weren't getting a lot of lift. There was clearly a lull as our big hospital clients were trying to assess what might come out of Washington. That's the way we interpret it whether that's right or wrong.

In June and July somebody flipped a light switch and a lot of the hard marketing and sales work that we'd done led to some significant multiple conversions relatively quickly. You can't plan these things, but it really happened. And I think what's happened — and as you know I'm on the board of Rush University Medical Center — here's a billion dollars, chair the finance committee.

And I think what's happening is that the management teams in these hospitals have said okay, we're really not sure what's going to come out, but it's going to hurt — full stop. So we have to get after efficiency, patient flow, the relationship between our physician practices and our major hospitals. We got to get on with that right now because whatever comes out is going to hurt us. There's going to be no gives here. It's all going to be takes.

So I think they kind of concluded collectively, we've got to get on with it. Sharon, why don't you give a little color to the types of engagements that we've been winning?

Sharon Siegel Voelzke

Sure. Thanks, Bill. And I think, Bill, you mentioned if we look at the past six weeks and asked ourselves why has that changed, what we're seeing are hospitals who are now — and some of these are in what we thought was our pipeline — a strong pipeline in Q1 and Q2 that are now just converting, and others are brand new opportunities that have just been brought to our attention.

And they range from modernization of hospital systems to restructuring work, either out of necessity due to our clients tripping bond covenants, or related to them wanting to be strategic and taking advantage of market opportunities. Strategic reviews strengthened by — you know we did our Bard acquisition at the end of last year which really brings us neat and unique expertise related to physician hospital alignment from a compensation infrastructure — entire interworking perspective.

So a lot of strategic reviews, performance improvement reviews focusing on either on kind of very direct supply chain discipline, revenue cycle discipline — so it's rather diverse projects we're seeing and our clients are ranging from academic centers, small independent hospitals, to large regional health systems to integrated delivery systems.

And when we talk to the executives in our client base, what we're hearing is, and I think Bill mentioned this, is just really a not knowing how reform will end up, but a unanimous belief that it's going to continue to put more pressure on their financial system. So even though Medicaid is increasingly being funded, they believe it's not incremental funding. It's hurting Medicare and that while there are grants and incentives being put forth through the $150 billion of stimulus money, that it's going to be really tougher to access that funding. And they want to stand in line to get that funding so we're helping them right now and clearly seeing some relief in that lull we felt in Q1, Q2, we're helping them deal with the uncertainty and perhaps even more relevant, the reality that's caused by the unknown right now and their need to focus on reducing waste and inefficiency, focusing on quality of care, prevention, wellness, and most importantly care management. And all of —

William M. Goodyear

Okay, Sharon. That's good (laughter).

Sharon Siegel Voelzke

It's in our sweet spot.

William M. Goodyear

Yeah. That's good. But, Jim, some things definitely are moving from analysis to action and we're definitely going to be favorably impacted and have been with that so that's encouraging from our standpoint. Maybe not from the hospital's standpoint.

James Janesky - Stifel Nicolaus

And then, Bill, when you look at the regulatory or I guess lack of regulatory activity coming out of Washington right now and certainly there's been — the bark has been a lot worse than the bite. And although there's been stability in the financial system I think it's far from being anywhere near in good shape no matter what the politicians want to say. How do you balance that with the size or the amount of activity that we may have it the economy continues to be unstable? Do you think it's going to take real stability in the economy, not just politicians talking about it, before we see a lot of disputes and investigate work?

William M. Goodyear

Well Jim, I think that's a very, very good point because we've done our — I mean we have at any one time, a significant number of active engagements that touch many parts of the economy. We had over 900 jobs as an example in June that we were billing material amounts on. So I mean we really have a pretty good pulse on things. And when we sit back and assess that pulse, we're not very optimistic about the economy for the foreseeable future so I think your point is well taken.

If you look at what the Chief Executive Officer of Hong Kong Bank came out and said last week that his perspective is — and remember, they were the first one to call out the subprime thing like two years ago — he said this thing is far, far from over. You've got the cold commercial real estate thing overhanging the economy and that may be good for now, but it's not good for the economy. You've got the job market flashing a dozen cautions — June's 467,000 jobs. Small businesses are 50% of this economy and they're not getting any help out of this stimulus thing so we think that the economy is not going to be anybody's friend here for awhile. And that may, in fact, have some impact on how aggressive the regulators are prepared to be or are told to be or some combination thereof. So I think you put your hand on it. We do know now that the DOJ and the SEC are staffed up. Your comment about bark is — Jeff Green, what was Mary Schapiro's speech July 14th? Give us a quote out of that.

Jeff Green

Yeah. Mary Schapiro appeared before Congress, I guess it was last week, and just underscored the sense of urgency that the Commission is feeling right now to implement changes and to take action. And part of that is reinvigorating the enforcement division of the SEC and having the resources to do exactly that, which as you know, is in the pipeline.

William M. Goodyear

So somewhere in there, Jim, is the answer to your question, but I think it's a good one.

James Janesky - Stifel Nicolaus

Thanks, Bill.

Operator

The next question comes from George Sutton. Your line is open.

George Sutton - Craig-Hallum

Since the call is moving towards quotes, and I appreciate your Eisenhower quote, I will give you one as well from another esteemed American, Britney Spears. She said — (laughter) — "Selling 5 million records is still, like, good. I don't want to get jaded thinking I have to sell 10 million every time." And as you're going through the strategic review and you have, for a long time, talked about a portfolio of service areas, are there areas within that traditional portfolio which don't necessarily meet the prior criteria that you had that ultimately could be exited and are there areas that you feel you don't have today that given that things have changed, might be opportunistic?

William M. Goodyear

Well we like what we've got today, but I'm sure there are areas that we can — some skills and things that we selective would like to add and we're constantly surveying the world in that area. But I mean, George, last year's strategy for next year doesn't work. I mean that's why we did the whole review. So unquestionably there are going to be some things that we're doing now that we will not do. There'll be some areas that we've been active in that probably don't have a high enough return and we're reviewing all of those and we'll action those over the next 12 to 24 months in a steady and hopefully a thoughtful basis.

As we do that, those investment dollars will flow into the dispute and the health care and the energy channels.

George Sutton - Craig-Hallum

Okay. So it doesn't sound like any major change in terms of service areas is what I am reading from you, correct?

William M. Goodyear

No, but we will make appropriate adjustments to our investments and to our activities and make sure that we're as disciplined as we can about that. Now are we going to sell half of the company or something? No, absolutely not. Nothing like that, but we'll be looking, scanning, and trying to be as smart about this as we can.

George Sutton - Craig-Hallum

One thing, I don't know if Julie is on the call, but traditionally at this point we talk about your Q3 hiring, particularly campus related hiring. Is that still an agenda for you this year or has that been toned back quite a bit?

Julie M. Howard

Hi, George. Yeah, I am on the call. No, we have essentially postponed all of our campus hires until the January timeframe. That said, we will be doing selected hiring at very senior levels in certain specific areas and opportunities that we think are growth potentials for us. But you won't see as significant a Q3 staffing ramp up as you would in prior years.

George Sutton - Craig-Hallum

Okay, perfect. Thank you.

Operator

Our next question comes from David Gold. Your line is open.

David Gold - Sidoti & Company

Hey, good morning. So, Bill, I'm not astute enough to quote Britney Spears (laughter), but I'm happy to quote another great American. We go back a quarter ago to the conference call and on answering questions on the litigation front you had commented when I asked about your confidence that dates have been set in courtrooms and regulators want answers.

Obviously still sort of the case, but I guess if we go back a quarter ago we were hearing that business was deteriorating at the law firms, presumably it has. As we get to now, what we're hearing is the business has sort of stabilized there, yet your tone is a lot more down than it was a quarter ago. So just wanted to get a little more color on maybe what you're seeing out there now that gives you a lot more reason for pause than maybe a quarter ago. Essentially I mean it feels like things have stabilized out there, but I guess you're a little more conservative.

William M. Goodyear

Well, we missed a quarter. Remember, you're always as confident as you're most recent quarter. I mean that's human behavior, but I don't want to be trite about it, David, it's a good question. I'm staring at my quote as you reminded me and I'm not going to do any quotes in the next call because I've started something hear that I don't like (laughter).

But basically it does take us longer — look, court dates are being set and certainly on the capital markets litigation that stuff is starting to ferment and move through. We had — you don't have 76 active engagements in that area up from 66 or up from 28 if the judges are not calling everybody in to say hey, we're going to get started on this stuff. So that definitely is happening. Now is it happening as quick, probably not, but it is happening.

So I'll stand on that statement, the front half of that anyway. The back half in terms of regulators want answers, they ask for a few answers, but not as many as we wish they would have. This Justice Department investigation into the derivatives pricing that started last Thursday when all the subpoenas went out — that's a brand new deal. It's right in our wheel house and that will have some impact on us. That's just kind of the first one as I would characterize it.

David Gold - Sidoti & Company

But I mean I guess the question is does it feel much worse to you today than it did say a quarter ago on a legal/litigation/enforcement side?

William M. Goodyear

No. It doesn't.

David Gold - Sidoti & Company

It doesn't. Okay. Alright, perfect. And then just one other minor — I know we're running long so I'll try to be quick. On the cost cuts can you give a sense, and maybe it's for Tom, for a percentage of the incremental $25 million that's coming out of just chopping down the bonus accruals?

Tom Nardi

Somebody asked that question last quarter I think, David. We're not going to get that granular. It's about two thirds out of the cost of services line, one third out of G&A.

David Gold - Sidoti & Company

It may have been me last quarter, sorry (laughter). It probably was. Fair enough. Thank you.

Tom Nardi

That's total cost, not bonus accrual. That's total cost reduction.

Julie M. Howard

David, it's Julie — relative to bonuses I think we've discussed consistently that our bonus pools are driven on the performance of the organization and the firm. So they naturally ebb and flow with our performance and if we're having a down quarter they reflect that and certainly if we would see upside or pickup, they would reflect that as well.

David Gold - Sidoti & Company

Got it. Perfect, thank you all.

Operator

Our next question comes from Scott Schneeberger. Your line is open.

Scott Schneeberger - Oppenheimer

Thanks, good morning. First question, could you guys speak a bit across the segments with regard to bill-rate pressures? I saw it slid a little bit in the quarter, but could you just get a little more granular for us please?

William M. Goodyear

Tom, you want to do that one?

Tom Nardi

Well overall our bill rate has hung in there. We're pleased to report as I said, first quarter relatively stable at $250 down about 5% from a year ago. So we're pretty happy that that's hung in there. I don't know that there's any real differences among the segments.

Scott Schneeberger - Oppenheimer

Is that currency adjusted?

Tom Nardi

No, so there is some currency impact there.

Julie M. Howard

It is relatively stable.

William M. Goodyear

We've held in there pretty well, but that's a good question and historically where pricing was not necessarily a big part of the discussion of the kind of work that we do — it's part of the discussion now and so I wouldn't see any good news on the pricing front, but we've done quite well.

Scott Schneeberger - Oppenheimer

It does sound very stable there. In the pricing discussions you're saying that's increasingly creeping in. Just looking ahead it sounds like a bit of a bias for that to slide, or is that something where you'd like to just hang in and maintain discipline?

William M. Goodyear

Well we're trying to maintain our discipline and we're trying to make sure that the value that we deliver is appropriately priced and I think we've done a good job on that and I would expect us to continue to do that, but it's not going to be — you won't see any memos coming out that we're increasing our prices 10% across the board or anything like that because that's just not going to work in these markets.

Scott Schneeberger - Oppenheimer

Sure. The reimbursements are a little bit higher than I guess I expected for the quarter, anything to read through there or was it as you expected?

William M. Goodyear

No. It bounces around a little bit, but we've said kind of $15 million a quarter so give or take a million. It's a little bit higher than we conveyed last quarter, but it's not out of line with where it typically is.

Scott, just to remind you, on our data sheet that's on our website we include the bill rates by segment in that data sheet.

Scott Schneeberger - Oppenheimer

Yeah. I just didn't have it handy, but I'm aware of that. Thanks so much. That's all from me.

Operator

Sean Jackson, your line is open.

Sean Jackson - Avondale Partners

Thanks. Real quick, the cost savings that you mentioned, can you remind us again the timing of the incremental $25 million?

William M. Goodyear

Well, as soon as possible. I said July and August we're going to action that.

Sean Jackson - Avondale Partners

Okay thanks. And lastly, the backlog metrics as well that you mentioned; conflict checks, et cetera. If you were to do that separating business consulting versus disputes, would it look any different?

William M. Goodyear

No.

Sean Jackson - Avondale Partners

Okay. Alright, thanks.

William M. Goodyear

I mean interestingly enough it's quite a good question. We actually looked at that. I'm doing big — within business services you've got different practices, but on a balance it's been pretty consistent.

Sean Jackson - Avondale Partners

Alright. I appreciate it. Thanks.

Operator

Thank you. Our next question comes from Dan Leben. Your line is open.

Dan Leben - Robert W. Baird

Thanks, two quick ones for me. Just first on the strategic review, some of the areas where you're deciding not to make incremental investments, how do you feel about your comfort level and your ability to retain those people and those practices? It may be good practices and their profitable, but just aren't the areas of focus for growth?

William M. Goodyear

Well Dan, that's a very good question and that's part of management's job is to balance that reality. I mean every company, let's be honest, should be prioritizing and allocating capital given their best view of the market at any point in time so we're doing what we should be doing.

Now when we say — there's a difference between incremental investment and incremental supportive investment to kind of keep your business healthy and running. So our big priorities are the ones I articulated. That doesn't mean if you have a really good opportunity or something that you should be doing to maintain an existing practice's profitability and sustainability — well you would do that one. So it's not like an all or none, but we have prioritized and we're going to go after it.

Dan Leben - Robert W. Baird

Great. And we've talked a lot about the metrics and some of the things on the front end of the pipeline trying to bring things on as new engagements. Could you talk a little bit about the runoff and how that looks through the year? Are there any periods where we have a significant number of engagements that are running off as we look over the next six months or so?

William M. Goodyear

I don't think there's anything in the next six months that would be radically different that we typically have. You always have things ramping up, slowing down — you'll get a surprise, you'll start one faster than you think and then you'll get one that surprises and it's pencils down. But as we look at it, our best guess and our best judgment from the field up is kind of how we see things right now.

Dan Leben - Robert W. Baird

Great. Thanks, guys.

Operator

Thank you. The next question comes from the line of Kevane Wong. Your line is open.

Kevane Wong - JMP Securities

In the interest of time, just two quick ones that are hopefully quick. First, law firm relationships, you mentioned how that channel is obviously difficult. Are you having any issues as far as people are hopping firms or being pushed out and that's impacting your flow of business from law firms?

William M. Goodyear

That's a good question. We have filed some of our relationships from law firm A to law firm B. A s you know there has been some movement between among the firms, but those relationships move kind of with the partners. So there could just be a little timeliness while the partner moves and sets up shop at the new firm, but I wouldn't view that as a negative or a positive. It's kind of a neutral.

Kevane Wong - JMP Securities

Okay, that's good. And then maybe a little better one, competitive landscape, there seems to be a lot of interesting sort of movements, people — retention factors with different places. Obviously (inaudible) positive from what I'm hearing for you guys. Can you tell me a little bit about what's happening in the competitive landscape? Are you finding yourself in a little bit of an advantage versus some of your peers in terms of getting people or work, or not? I just want a little sense there.

William M. Goodyear

Julie, do you want to take a run at that one? We're certainly — where we're recruiting we're doing very well. I don't know if you want to comment on that, but —

Julie M. Howard

Kevane, I wasn't sure if you were talking about just from a recruiting perspective or from a business or work perspective or both?

Kevane Wong - JMP Securities

Actually, both if you could.

Julie M. Howard

Well as you know we never like to negatively recruit against any of our competitors out there. We do feel very positive about the work that we're winning and particularly against some of our close competitors in recent times, and so that always makes you feel good.

Our retention rates are up as you would expect and that's not necessarily surprising in this economy, but we've taken a lot of effort over the last several years to change our work environment and really to enhance our employee retention and so I think we're seeing a bit of that as well.

And then on a recruiting front as Bill mentioned when we really began to undertake our strategic initiatives in a significant way, we would expect to be significant in the recruiting market and so I think people are going to be hearing and seeing us a lot more.

William M. Goodyear

We've allocated some capital to that effort and we're going to put it to work.

Julie M. Howard

We're going to put some muscle behind that.

Kevane Wong - JMP Securities

If you look at the retention maybe by segment or sort of practice groups or verticals, are there any other areas that are particularly poking out either good or bad?

William M. Goodyear

I don't think so. As you know the numbers are pretty — what, was it 4% last quarter?

Julie M. Howard

Yeah. It was just 4% in the quarter and we'd like to pat ourselves on the back, but it's economically driven as well. Everything is down significantly and that's a good thing.

Kevane Wong - JMP Securities

Excellent. Thank you very much.

Operator

Next question comes from Rob Young. Your line is open.

Rob Young - William Smith and Company

Good morning. I just had a quick question relative to compensation packages for potentially new strategic hires at the senior level. Are they relatively close to in line with more robust growth periods or are you seeing that they're coming on more from an equity standpoint or can you just comment on that a little bit.

Julie M. Howard

Rob, it's Julie. I guess I would respond in this way. What we're seeing in the marketplace right now is that they are appropriately priced relative to the competitive environment where we're recruiting and that certainly differs from practice to practice and market to market. I don't think they are the levels of what we saw in really significant talent-challenged environments several years ago. So I think that's a positive and will continue to reinforce for us the strength of our recruiting as we go forward in the next couple of quarters.

Rob Young - William Smith and Company

Okay, great. And then, Bill, you mentioned that there's obviously been some growth and active engagements relative to litigation. Have either of those metrics that you mentioned included any unusual settlement prior to your expectations?

William M. Goodyear

Not yet. I think these cases in their evolution are still early enough in the overall cycle that the whole settlement stuff has not really happened yet, so that's obviously out there at some stage, Rob. It's a good question. We did not do much ARS work, the auction rate stuff, and that if you follow the press, that's where most of the "settlements" have been. So that's not that significant.

I just tell one anecdotal story and then we'll wrap up here today, but we had a — I remember this and I don't know if Jim Janesky is still on, but last fall I was at a football game at Notre Dame. We lost the game, whatever, but I got a phone call from one of our senior people in the firm and it related to a very significant matter that we thought we would be ideal for and I left the game and tried to find a quiet spot. We walked through the thing and got kind of an action plan and so forth.

So yesterday I got a message that we had been selected by — I think there were four defense firms involved, that we had been selected to be the sole provider of support services. It's going to be a very significant engagement and it's going to go for a long time and I just reflected on so what is that, 10 or 11 months? And I remember that day thinking wow, this is going to be great for the fourth quarter or the first quarter.

And so these things have their own live and so I think if we've had an error it's probably in anticipating too quickly.

Rob Young - William Smith and Company

Okay well, I appreciate it. Thank you very much.

William M. Goodyear

We've got a couple more questions and then we're going to have to close off here.

Operator

Our next question comes from Andrew Fones. Your line is open.

Andrew Fones - UBS

Thanks for fitting me in. I wanted to ask first of all, I know we spent a lot of time talking about new business wins, but obviously it was the extending sell cycle and pushback from (inaudible) and starting up projects that kind of impacted the quarter. I was just wondering to that end if you could give us some sense of how utilization trended through the quarter and into July please?

William M. Goodyear

Tom, you've got the granularity don't you?

Tom Nardi

Yeah, Andrew. April started off relatively strong. As you'll recall we talked about it on our last call, it tapered off towards the end of the month. May, as we heard from some others in the industry, turned out to be a pretty weak month. And then June rebounded a little bit. And so far in July post the holiday week we've achieved ongoing utilization pretty much in line with our expectations and with June levels.

Andrew Fones - UBS

Okay, thanks. And then just as you look at the regulatory and the legislative environment we've got an energy bill that just went through, health care legislation that they are trying to get through the house here, I'm wondering how closely you've been monitoring those situations, what the relative impact could be, and then on the regulatory side you talked about the SEC and some of Schapiro's comments about ramping enforcement, but in terms of the other agencies and the headcount additions you've been seeing — how close are you monitoring that and expectations of that to derive business as well?

William M. Goodyear

Well we're monitoring the budget stuff and the headcount stuff closely, but the fact that these budgets are being increased has yet to drive revenues for us so I'm not sure that that's — we hope that it will or else what are they doing back there? But, Bill Dickenson's on in London and Bill walks the halls at the DOE daily or his team does so we certainly are watching that. Bill, do you want to add any color? I know it changes hourly.

William Dickenson

Well, it kind of does. I think in terms of legislation of the energy bill, I think a lot of enforcement responsibilities got placed upon the FERC, the Federal Energy Regulatory Commission. You're going to see some more increased regulation there which is what we're anticipating. It hasn't really popped up yet, but we're certainly in place for a legislative authority to do so.

I think in terms of the other part of what Bill is talking about is our stimulus money. We've finally got our first project that's actually funded under ARRA finally and we anticipated things to move slowly, but the bureaucracy is something that's going to have to be looked at as we go forward, but we think it's in place, it'll happen eventually, and we'll take advantage of it. That's about all I can say about the regulatory side of it.

William M. Goodyear

So Bill, we actually have a stimulus engagement signed up?

William Dickenson

We actually got our first one.

William M. Goodyear

Yay (laughter)!

Andrew Fones - UBS

Thank you.

William M. Goodyear

We've got one more question I think.

Operator

Thank you. And our last question comes from Toby Summer. Your line is open.

Toby Summer - SunTrust Robinson Humphrey

I'll ask mine offline. We've had a long call.

William M. Goodyear

Okay, Toby. Look forward to chatting. Thank you all, we'll get back together in October.

Operator

Thank you. This does conclude today's conference call. You may disconnect at this time. Have a great day.

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