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Navigant Consulting (NYSE:NCI)

Q2 2008 Earnings Call Transcript

July 31, 2008, 5:00 pm ET

Executives

William Goodyear - Chairman and CEO

Julie Howard - President and COO

Rich Fischer - VP, General Counsel

Bill Dickenson - VP, Executive Managing Director - North American Consulting Operations

John Garvey - Chicago Partners - Former President

Scott Krenz - EVP and CFO

Analysts

Andrew Fones - UBS

Frank - SunTrust Robinson Humphrey

Kevane Wong - JMP Securities

George Sutton - Craig-Hallum Capital Group

Bill Sutherland - Boenning & Scattergood

David Gold - Sidoti & Company

Tim McHugh - William Blair & Company

John Crowder - Piper Jaffray

Operator

Good afternoon and welcome to the Navigant Consulting Second Quarter 2008 Earnings Conference Call. At this time, I would like to inform all parties their lines will be on listen-only until the question-and-answer session of today’s call. Today’s call is being recorded. If you have any objections please disconnect at this time.

I would like to introduce you to today's speaker, Mr. William Goodyear, Chairman and CEO of Navigant Consulting. Mr. Goodyear, you may begin, sir.

William Goodyear

Thank you. Good afternoon, everyone. Thanks for joining us today for our webcast to discuss our second quarter 2008 financial results.

Before we begin, I need to point all of you to the disclosure at the end of our earnings release for information about forward-looking statements that we may make today or discuss on the call.

We've posted our earnings release, as we have in the past, on our website. Please review that information, along with the SEC disclosures of factors that may impact subjects discussed in today's conference call.

Also on this call, as in the past, we will be discussing one or more non-GAAP financial measures. Please review our earnings release on our Website for all the disclosures, which, as you know, the SEC requires, including the reconciliation to the most comparable GAAP numbers.

With me today, Julie Howard is here in Chicago. We have our corporate team. Rich Fischer, our general counsel, is on the phone, I think in Wisconsin. Bill Dickenson is on the west coast today and is tied in by phone.

We have a special guest, John Garvey, former President of Chicago Partners. He's a walk-on. We'll use John during our Q&A session. John, thanks for joining us.

Scott Krenz and I signed the Q in all 47 places this morning. Scott, thank you for that. We'll file the Q tomorrow.

And I want to thank Scott. He's here today. I want to thank him for wrestling the Q with us and a nice, smooth transition. So, Scott, thank you very much. And Scott, as we said before, his last day was going to be the day we filed the Q. So there we are.

Okay. On to the second quarter. We had a nice, strong second quarter. You can see we had record revenues, continued improved margins. That EBITDA 18% margin is very gratifying.

Utilization for the second quarter was 79%. We're very pleased with that, reflecting solid demand across most of the company's market segments and business model. 79% was down from our record 83% and I think we talked about, during our first quarter call, that we really did not feel like that 83% was sustainable.

We did have a May 1 closing on our Chicago Partners investment. It went smoothly. We're off to an excellent start and we are finding ways to lever our skills, resources, as well as Chicago's skills and resources, and we'll talk more about that during the course of the call.

For the first half of the year, we could not be more pleased and as we look out to the second half, we're focusing on both opportunities and we're also focusing on risks and challenges. And there are, as you all know, many crosscurrents out there right now, primarily driven by disruptions in the global financial markets. And we're going to talk about some of those later, particularly during our guidance.

If you look at the second quarter at a high level, we basically had another first quarter, good, solid revenue performance, improved steady margins, a very nice move on our bill rate initiatives, good utilization, and we continue to benefit from improved -- that's larger engagement size, which is allowing us to maintain and move those margins up.

The only significant changes quarter-to-quarter from a P&L standpoint, we had more interest expense that related to the closing and funding of the Chicago Partners investment.

We did look at, again, given the deterioration in the real estate market, at some of the assumptions that we have as we move forward in terms of becoming more efficient in our use of real estate. We added to those restructuring charges, and we can provide some detail on that later.

And given the economy, we took a hard look at our bad debt reserves and we moved those up some and we can put some color on that. I think we're right where we need to be given where the economy's at.

Let me make a comment, as I did, about job size, a couple of interesting statistics for us. You've heard me talk about the larger engagements that were growing, that are over $1 million, over $5 million and so forth. We've concurrently and simultaneously made some nice progress on eliminating the lower end of that engagement spectrum.

Through the first half of this year, our under $100,000 engagement size is running 26% below where it was a year ago and the under $10,000 engagements, and, believe me, there are more of them than there should be, are down 35% year-over-year.

So while we've increased our $0.5 million to $1 million engagements, our over $1 millions and our over $5 millions, we've made some nice move on the bottom end and I have to think that's helping us on our G&A management and our margin improvement. And it's hard work, but I'm very pleased with the job that the management team has done on that.

Let me talk about a couple of big issues that we're looking at in the economy and then I'm going to ask Julie to drill in a little bit to some more granularity in the financial performance.

Subprime, let's start with that in terms of big issues that we're looking at that impacted both our first half and will certainly impact the second half.

When we last talked in April, we had updated our study and there were 448 major cases of litigation in the federal courts. We had another frenetic quarter in that arena, as you all know.

We're finalizing and scrubbing the data. I would expect the report to probably be published next week, certainly within five to ten days, and I would not be surprised, at that time, to see the entire federal level major caseload exceeding the S&L crisis that we referenced earlier in Resolution Trust.

And as a reminder, over that seven to eight-year period, there were 559 cases over the entire length of that cycle and I would not be surprised to see this amount of litigation break through that level after 18 months that we've been tracking it.

As you know, some things that have happened in the second quarter that were different and significant relative to the first quarter in the subprime arena is that there were a wave of the auction rate security cases that were filed.

I recall one week where 23 of them were filed earlier this past quarter, and I would say that Navigant is active on a number of those cases, fortunately.

We have seen an evolution in the subprime arena from primarily borrower litigation, which is where most of the focus was early in the subprime cycle. Now, it's moving much more fundamentally into the capital market spectrums, securities litigation and those kinds of issues.

Frankly, that's good for Navigant, because we can cover the entire spectrum of needs from our client base.

Anecdotally, we were engaged by another troubled hedge fund yesterday and we've carved out a nice niche in the hedge fund arena. I think we have eight meaningful cases that are now active in the hedge fund area.

We had a very nice ramp-up of engagements from quarter-to-quarter, first quarter to second quarter, and our expectation is that we'll certainly be the beneficiary of second half revenue from the engagement ramp-up.

Our run rate was not -- revenue-wise, in the first half, really did not change greatly from amounts that we've talked about before. Having said that, our engagement volume has stepped up significantly and that gives us some optimism for the future.

The interesting part of this subprime issue for us, or opportunity, is that the breadth of it is quite broad. You've got the borrowers litigation, the hedge fund litigation, the CDO litigation, the ARS litigation, and all of those things need resources that we can provide. And as I said, we expect to release our updated report, in all likelihood, sometime next week.

Coincidentally or tangentially to the subprime issue, I wanted to talk early on about another initiative that we've launched internally at the company. We're referring to it as the banking initiative.

As you all know, the banking industry is confronting a level of challenge not seen for the past 20 years and you can come at that challenge from any number of angles.

Non-accruals are turning up sharply. Charge-offs are moving up sharply. The residential real estate delinquencies in the one to four-family area have moved and are continuing to move up sharply. Former Chairman Greenspan was speaking to that this afternoon. I have the feeling that impacted on the market a little bit.

Non-current real estate construction and development loans, another segment, just this past quarter, has deteriorated sharply and it moved from under 1% delinquencies up to 5%. And as a reference point, in the last real tough construction cycle, that level of delinquency reached 14%.

The credit deterioration and the depletion of bank capital, because of these sorts of parameters, is very significant and, in our view and I think many other views, replenishment on the magnitude that's necessary is probably not going to be there. So there will be bank failures and great challenge in the banking industry.

What we've done at Navigant is we've looked at our skills broadly across the company. We have a very good set of skills, a very good match for the kind of issues that are coming to the banking industry.

We've formed a firm-wide task force. We talk and you've heard us talk about in the past unique combination of skills and experience, and we certainly think that relative to this issue that's approaching with some speed, that we are very well positioned.

As an example, we've, in the past five years, restructured with our clients billions of dollars of commercial real estate assets. We've, in the past year and a half, helped clients mitigate risk on over $10 billion of subprime and Alt-A collateral.

Our team assisted the FDIC and the RTC in this last crisis with over 100 bank closure engagements and dozens of forensic investigations. So what we've done is we've pulled together resources across the company.

We've made sure that we've sharpened our focus and are going to market in the very near future with, I think, a very nice set of skills that are very applicable and should be in significant demand later in '08 and, I would say, particularly, in calendar '09.

So with that update -- and I'm going to have Bill Dickenson talk about energy a little bit later, but I want Julie to drill into some of the granularity in terms of our financial results right now. Julie?

Julie Howard

Thanks, Bill. As Bill said, the second quarter was very solid overall and nicely reflected, I think, the strengths and the benefits of the diversified business model that we have within Navigant.

Total revenues for the second quarter were our record, 211. We're very pleased with that. That represented a 2.1% increase over Q1 and, notably, 11.5% over the prior year.

General growth in those revenues is attributable to both organic measures, including improvements in utilization in several of our practice areas, as well as improved pricing in our segments, and, also, acquisitions.

As we mentioned on our first quarter call, however, we said we would not be surprised to see the second quarter down slightly absent the result of Chicago Partners, given our outstanding first quarter results and the level of productivity that our employees were running at during the first quarter.

So as such, we view the combined results to be in line for the second quarter with those pervious assessments and certainly as we would have expected.

As is done in prior calls, I want to point out that the EBITDA, net income and EPS numbers that we'll be discussing are non-GAAP and exclude certain charges related to the continued restructuring of our real estate portfolio.

Importantly, we do this to highlight and focus [year] evaluations on the results of our ongoing core business model. You'll find a reconciliation of the adjusted numbers, as well as the GAAP results, included in the press release.

I wanted to drill down a bit into the segments and talk specifically about their performance, focusing first on our North American disputes and investigative practice -- I'm sorry -- segment.

The disputes and investigative segment achieved revenues of $88.6 million, which is down slightly by $2.4 million or 2.6% compared to the first quarter, but up very nicely at 10% year-over-year from Q2 '07.

The slight decrease in revenues from the first quarter was primarily the result of a decline in consultant utilization from 84% in the first quarter to a more sustainable level of 77% in Q2.

DNI segment solid performance in the second quarter as compared to Q2 of '07 reflects a very favorable year-over-year bill rate increase of 8.3% to $299 per hour. Also, a utilization increase of 1% year-over-year, which has been offset by a streamlined workforce and reduction in billable headcount of 28 full-time equivalents.

Operating profit for the segment came in at $33.8 million, which is a slight decline from Q1, but up $2.8 million or a 9% improvement compared to Q2 of 2007. These variances were all in line with the comparative changes in quarterly revenues.

Moving on to our business consulting segment, reported revenue for the quarter were $92.0 million. Quarterly revenues were down $4.3 million versus Q1 and down $2.4 million versus Q2 of 2007, reflecting a significant decrease in discretionary spending in our financial and insurance services industry sectors.

The decrease in revenues was almost entirely reimbursable expenses, EG subcontractors, which has allowed us to eliminate expense as our revenues have declined in that area.

The shift in demand is specifically reflected in the 400 basis point decline in consultant utilization to 80% for the second quarter from an admittedly high and likely unsustainable 84% in the first quarter, although much improved over 76% in the second quarter of 2007.

Our business consulting segment also benefited greatly from an attractive year-over-year bill rate increase of 12%, ending at $227.

Segment operating profits, a sturdy $34 million reflects an increase of $0.6 million over Q1 and $3.9 million over Q2 of '07, which is indicative of the continued focus we have on enhancing our business operating drivers and the ongoing realignment that is necessary in the tumultuous market that we find ourselves in these days.

From an international perspective, the international consulting segment experienced significant growth during the quarter. Revenue for the segment was $23.1 million, which is an increase of $3.3 million or 17% over Q1 and $8.6 million or a 60% increase over the prior year.

This growth is principally the result of several acquisitions we completed in mid-2007, as well as a very high demand environment for both our Quantum and Delay services in the international construction disputes market.

Notably, at the moment, our roster of clients is almost reflective of the U.N. and we are clearly benefiting from some cross-geography resource optimization, utilizing a lot of our resources in the U.S. on international assignments.

Billable headcount in the international consulting segment is 185, which is up eight versus Q1 and 88 heads versus Q2 of 2007, and, also, sequential comparisons in utilization were helped by a 300 basis point increase to 76%.

Finally, but not last, our economic consulting segment, for the first time, we are including the results of our economic consulting segment, which is our recently acquired Chicago Partners team.

Chicago Partners, as we mentioned, was acquired on May 1 and contributed $7.7 million in revenue and $2.9 million in operating profit to the quarter. The integration of the practice, I think, has gone very well. The segment is performing very well and we're already realizing the benefits of collaboration and cross-teaming.

As mentioned, John Garvey is here and John will be able to speak in a little bit more detail about the business when we get into the Q&A section.

I wanted to -- before we move off the segments and talk a little bit beyond that, I wanted to mention our hiring and retention. The hiring environment, as you can imagine, is very naturally favorable in this economic climate and we're taking advantage of it as business needs dictate. That's code for we're still hiring behind the curve at Navigant and intend to continue to do so.

During the second quarter, we welcomed approximately 180 billable professionals into the firm, which was spread nicely across many of our practices and geographies.

Approximately 20% were senior practitioners. In addition, during the second quarter, we provided short-term -- short-term is about eight weeks -- summer internships to 75 current college students and we'll expect to on-board about 100 college students during the third quarter, as the summer interns are returning to school. Our retention rates remain stable as attrition was maintained at about 21.5% on an annualized basis.

Moving on to G&A, beyond our operating segments, G&A expenses increased $3.1 million in the second quarter and were up 200 basis points year-over-year and 100 basis points over the first quarter. This entire increase is due to an additional provisions we've made for bad debt that I will discuss in detail in a moment.

Absent that additional provision for bad debt, we have actually reduced our overall level of G&A spending quarter-over-quarter, and very pleased about that, as well.

EBITDA came in at $34.5 million, which is 18% of revenue, before reimbursements and on target with our goals. That's a 16% increase over the prior year and a 4% improvement over the first quarter.

During the second quarter, we took an additional charge related to restructuring of our real estate portfolio of $2.6 million. This reflects our estimate of how long it's going to take us to sublet certain vacated properties, primarily right here in Chicago and in L.A. We feel this is prudent given kind of the current real estate market and our assessment.

Our overall portfolio, however, since September of 2007, so about a year, has decreased by 16%, reflecting a $5.8 million reduction in annual lease expense related to those reductions and we've been able to reduce our square foot per person from 378 to 299.

We are projecting probably another 5% to 6% reduction in our overall footprint by this time next year and an overall reduction in square footage per person to 265 square feet, which is very close to our long-term goal that we stated of 250. So making very nice strides in managing our real estate portfolio down.

Finally, I wanted to highlight EPS. Excluding the real estate charge, EPS was $0.24 for the second quarter, which was a penny less than Q1, but a $0.3 or a 14% increase over Q2 of 2007.

And on a year-to-date basis, revenues increased 12.2% to $418.5 million and our first half EBITDA of $67.7 million was consistent at 18% of revenue before reimbursement.

With continued good performance in the second quarter, EPS for the first half, excluding the restructuring charges I mentioned, was $0.49, reflecting a 14% increase over the same period in '07.

Finally, moving on to the balance sheet, there are just a few comments I want to make. First, DSO came in at 85 days, which is two days more than at the end of the first quarter, but down from 87 at the end of the second quarter of last year.

If you exclude the impact of our Chicago Partners team, DSO would have been 83 days, consistent with the first quarter.

We continue to make progress in improving our accounts receivable, but we also realize that in adding our Chicago Partners team and the nature of the business and working through their receivables through third-party law firms, we expect to see a little bit longer collection timeframe. So we'll need to take this into account as we move forward in our projections.

Relative to the comment I made about our increase in bad debt, it should not come as a surprise to anyone that given the current economic conditions, we decided to take a hard look at our bad debt reserves during the quarter, particularly those receivables that are related to financial services companies.

Considered together with our generally conservative practices for reserving as accounts age, we've increased our provision to 7.4 million in the second quarter. This brings our reserve to approximately 20 million or just under 10% of our outstanding receivables, which is up modestly from our historical levels of 6.5%.

The increase in bad debt, as I mentioned, is reflected in G&A and explains the entire year-over-year and quarter-over-quarter increase in G&A.

On a more positive note, cash flow continued to be strong and our debt levels were below what we had expected. On the first quarter call, we estimated that Q2 debt levels would be between $315 million and $325 million. Actual total bank debt for the second quarter came in at $309 million.

And, finally, the balance sheet reflects a significant increase in goodwill related to our acquisition of Chicago Partners. With that, I will turn the call back over to Bill for some additional highlights and an update on our guidance.

William Goodyear

Thanks, Julie. Let me work through guidance and then I'm going to ask Bill Dickenson to comment on both the energy study that we released today, which has gotten some great traction in the marketplace, and then, also, in terms of our health care practice, both of which had very good first half performances and we expect them to continue in the second half. So, Bill, hang on for a minute.

Let's talk about guidance. As we discussed in our first quarter call, we had left our earlier guidance unchanged and we also said, at that time, that we expected our -- assuming we got the Chicago Partners investment closed, that we expected roughly $30 million of revenue and $6 million of EBITDA.

And we did get the investment closed on the schedule that we had hoped and we think that that $30 million and $6 million, in fact, remains a very good expectation. I'm looking at John Garvey as I make that comment.

And as Julie pointed out, before the guidance we give here relating to EBITDA and EPS are non-GAAP numbers, and so you'll have to make the adjustments that we've made in the past.

In developing our expectations for the second half, we went through a number of what I would call crosscurrents as we look out to the economy, and I think we all understand that we're in the middle of some incredibly volatile markets, which have positives and also have negatives for the company.

Now, fortunately, the breadth and depth we have in our business model is our friend, as we look out to the second half, and we're thankful for that, with the markets down significantly, the cost of energy up, clearly, the economy sliding towards a recession and the impact that all of those things have on consulting discretionary spend.

So as we look out to the second half, we're cognizant of the fact that we've had, in the company, the wind-down of some large engagements, which is not atypical, but nevertheless, in the first half of the year, we had some great engagements that have wound down, as we expected to and had commented in the first quarter.

We have seen a very significant drop, which we expect to continue, in our financial and insurance services sectors, where the discretionary spend has largely dried up.

Not surprising when you understand that in the last nine months, those sectors have incurred losses and write-downs of somewhere between and $400 billion and $500 billion. So if you're a consultant, you better have a really good idea when you come in to visit with those clients, which, as an aside, we think we do.

But like it or not, we are also looking at the second half, the summer and the fall quarter, and, as you will recall, our business typically runs one to two points lower on utilization in the second half than it does in the first half and each point is 10 million annually or 2.5 million quarterly.

Now, with those negatives, let's talk about the positives so that you get a feeling for the crosscurrents.

On the positive side, as I said, we have very good breadth and depth. Our health care and energy practices had excellent first halves, the best they've had in a number of years. We expect that to continue in the second half, largely offsetting or at least partially favorably offsetting the challenges of the lack of discretionary spend in financial services and insurance services.

In the dispute -- the DNI segment, the forensic accounting restatement investigative engagements have slowed down. I don't think there's any question about that.

We see that. I think that some of our competitors see that. Concurrently, we continue to be very favorably impacted by the ramp-up from engagements from the credit crisis and subprime and those kinds of surrounding issues.

So we have some things winding down, but other things ramping up. Chicago Partners and our economic consulting segment is off to a very good start and we would hope, although it's a little early to declare victory, that we would have some upside in that arena. And our international business continues to perform in solid fashion. So to give you all a feeling for the ins and outs, let's move on to some specific numbers now.

Our revenue guidance coming into the quarter and coming into the second half was 810 to 840 and what we're doing is we're going to move that -- we're going to bring up the bottom end from 810 to 820, from a revenue standpoint, and we're going to nudge up our top end from 840 to 845. And year-over-year, that would be a 7% to 10% revenue increase.

Now, it's easy to say, okay, we're going to nudge up -- pull up the bottom and nudge the top, but inside of that move, there are some quite significant adjustments and I'm going to break out a little granularity for you.

Our reimbursement revenue will run probably $12 million to $13 million lower in the second half than it did in the first half. We've looked at the engagements that wrapped up, many of which had heavy reimbursement revenue and contractor revenue, and those engagements are largely done. So we will not have that reimbursement revenue in the second half, and, as I said, that's $10 million to $12 million -- rather, $12 million to $13 million, as we projected.

Our combined decrease in discretionary spend from financial services and insurance services, as we look out on the second half, is in the range of $13 million. The typical utilization decrease first half to second half of one to two points could be anywhere from $5 million to $10 million. Now, those are the negatives.

On the positive side, we've got a good solid $30 million of revenue that comes in from our economic consulting investment and our energy, health care and subprime -- energy and health care success and the ramp-up in our subprime and our credit-related consulting engagements is a positive to fill in some of those earlier decreases.

And so when you put all those in and we give it our best judgment, that's how we arrive at our 820 to 845. And the 820 range would mean that we have the drop-off in utilization, that we are less successful in ramping up on the credit crisis, that energy and health care might be less robust in the second half than they were in the first half.

The 845 end of the range means that we have good solid ramp-up in the credit area, that we redeploy out of our finance and insurance services some of those resources quicker, maybe we get a little more upside out of Chicago Partners, and that energy and health care continue to perform solidly. So I want to give you a feeling, as well as the absolute numbers.

Now, moving on to EBITDA guidance. We were $130 million to $137 million. We're going to move that EBITDA range up to $135 million to $140 million, and the range there is an 18% margin at the 135 level. If we do a little better, we'd be at the 19% margin at the 140 level.

Year-over-year, that range would be a 13% to 18% increase year-over-year in terms of EBITDA. I want to make a point that as we've said earlier calls, you've heard Scott say it, you've heard me say it, you've heard Bill Dickenson and Julie say it, we were trying very hard to get back to where our EBITDA growth was higher than our revenue growth.

And as you know, we had that relationship backwards for a few quarters and we now think we have that corrected. We've got a little scalability back in the business model.

From an EPS standpoint, our existing guidance is 82 to 96 and we're going to move the bottom end of that range up from 82% to 89%, and the top -- $0.89, thank you, Julie -- and we're going to leave the top end at $0.96.

The reason we're not going to move the top end is because as we expected, when we had our earlier calls, that while we get some EBITDA left out of our economic consulting investment, we will not an EPS lift this year because of the accelerated amortization and those kinds of issues that you have to do from an accounting standpoint.

The $0.89 to $0.96 would be a 13% to 22% increase year-over-year, excluding special charges and restructuring charges. If we look at the absolute increase given last year, some of last year's restructuring, we would be up in the 30% to 35% increase year-over-year.

One last comment and then I'm going to ask Bill for some color on the second half, as well. One last comment is we've got two quarters' worth of guidance here and I know you all have your quarterly model that you need to deal with, but while we haven't done -- we don't break it out on a quarter-to-quarter basis.

We would expect the third quarter, which is the quarter that we're in, the summer quarter, to be less robust than the first two quarters and probably the fourth quarter, as well, and would expect the fourth quarter to be a bit stronger. And I'm not talking about big variation.

But the last two years, we've seen the fourth quarter being stronger than the third quarter, and that relates to the vacation schedules in the third quarter. It relates to the on-boarding of the young consultants, the 100 that Julie referenced coming on.

It relates to -- as we grow our international business, London is a much more significant part and we know the European holiday schedule is extremely concentrated in the month of August.

We would all like to benefit from that, although we don't. But so when we factor those things in, that gives us a little more variability third to fourth quarter. I don't want to overplay that, but I did want to mention that.

So anyway, that's the update on the guidance. We've moved up -- we've snugged up the revenue from the bottom end. We've moved revenue a little bit on the top end. We've moved up our EBITDA expectations a bit. We've moved up the bottom end EPS, left that $0.96 at the top end, and we expect to have a good second half.

Now, I'm going to ask Bill to make a couple of comments and then we'll open up the mike. But, Bill, would you start with the energy study that you all released and then give us your views on energy and health care for the second half?

Bill Dickenson

Sure, will do, Bill. Thanks. The short bullet point version, and for those of you who haven't seen it, I'll give -- energy practice was engaged by the American Clean Skies Foundation to develop an assessment of the current state of North American natural gas production, with a little unique focus on analyzing the future of the rapidly expanding natural gas production from what's called unconventional formations, such as shale.

Our director in the Houston office of our energy practice, Rick Smead was one of the principal guys doing this and if you go to the Websites around, you'll find interviews with Rick, to get more detail.

Sort of the basic points that are found out of the study, which is getting a lot of play right now, is that the premise was that most major studies underlying federal policy choices were not realizing the extent of the new domestic gas development, especially from these unconventional resources.

And the idea was to gain an accurate current, and I underline, sort of current view of the industry's development and of the resource base that would define sustainability. So in other words, yes, we've found this gas, but can you produce it for a while.

They used many sources, but including -- which I thought was very significant was a direct outreach to 114 gas producers, which represented 90% of all the gas production in the United States, and talked to them about what they thought.

The determination was that the domestic U.S. onshore production of natural gas has been increasing at a rate that, if continued, could cause it to be a major resource in displacing imported oil and replacing coal-fired generation as a bridge to a low carbon future.

We also determined that if the industry and government estimates of recoverable gas resources are adjusted just for the recoverable gas from the shale claves that were estimated by the producers, the resource base could last around 118 years at 2007 production levels.

Those are significant findings that said we had domestic capabilities onshore here in the United States and this study was limited to the United States production and didn't take into account Canada, as well.

So that's a significant finding that says that if you substituted gas for all of our coal-fired generation and, also, substituting natural gas for our transmission fuels -- for our fuels for transporting people around, transport fuels, that we still have 60 years left to make a decision about which path to take. That gives you some comfort that there is perhaps an abatement in the prices.

Now, for a little overview on the energy and health care practice, and, actually, I'm not going to get too detailed about it, except to say, in different words at what Bill already said, which is the drivers that have been making those two practices perform in a very excellent way for the first half of the year, it's sort of the concerted opinion that there's no real dramatic change coming for the second half of the year that would change the performance levels of those two practice areas, which, in another way says, it gives us time to offset and park those weak discretionary spending attributes that Bill talked about.

So we are moving quickly to get ourselves solidified in those positions and that's the short story of the good news on those two practices. So, Bill, I'll turn it back to you.

William Goodyear

Thanks, Bill. I note that oil was down $3.00 a barrel today. So I think you guys had a favorable impact with your study.

Bill Dickenson

Could have.

William Goodyear

Okay. Let's go ahead and open it up for some Q&A.

Question-and-Answer Session

Operator

Thank you. (Operator Instructions). Our first question comes from Andrew Fones with UBS. Sir, your line is open.

Andrew Fones - UBS

Thank you. First, could I start off with attrition? Could you give me the attrition in the quarter, please?

Julie Howard

As I mentioned on the call, Andrew, it was about 21.6%. So relatively stable, as our prior quarters.

Andrew Fones - UBS

Okay, thanks. And then what was the actual dollar value of the bad debt expense in the quarter?

Julie Howard

I am sorry. Say that again.

Andrew Fones - UBS

What was the actual bad debt expense in G&A in the quarter, please?

Julie Howard

$7.4 million.

Andrew Fones - UBS

Okay. What level of bad debt expense would you expect in the future?

William Goodyear

Well, Andrew, what we think we've done is bulked up a bit here mid-year and, obviously, we don't expect that on a quarter-to-quarter basis.

We will have some additional provisioning in the second half. But if you look historically at what Navigant's experience has been, it runs 2% of revenue, maybe 2.5 percent in a tough -- I think maybe one year we had 2.5%. So over the course of this year, we intend to manage the company to that level.

Andrew Fones - UBS

So perhaps more like a $4 million to $5 million number in the second half.

William Goodyear

I think your math is quick and you're pretty accurate.

Andrew Fones - UBS

Okay, thanks. And then in terms of the acquisition, congratulations on that. I was wondering if you could talk about any cross-selling opportunities you see and...

William Goodyear

Let me jump in. John Garvey is just waiting to talk about it. Let me make -- but let me preface John to say that the thing that -- if you recall the industrial logic that we were talking about when we made the investment was that we thought we were going to be able to capture engagements together that, apart, neither one of us would be able to capture, number one.

And number two, we wanted to go big elephant hunting together. So with that preface, I'll let John just make a few comments and you can go wherever you want with that, John.

John Garvey

Great. Andrew, this is John Garvey. I would echo Bill and Julie's comments that the transition has been smooth. The integration is going very well and I think it's going very well, as evidenced by some of these combined going to market engagements that we already won.

We've won two or three significant engagements in the marketplace, which, as Bill has talked about, I don't believe we would have gotten alone as either Navigant or the economics practice. So I think it's working. It's working well. We're going to market together and I'm real excited about it.

William Goodyear

John, give a little color on some of the antitrust, I mean, just how the second quarter kind of fell in terms of where you were really active?

John Garvey

Well, we're very active in the antitrust space reputationally. We're moving up the market, seeing larger, broader engagements in the antitrust space, and that really drove a lot of our growth in our second quarter and in the two months that the results are in the combined results of Navigant.

We've also seen some uptick in the subprime credit crisis space and we're winning, again, work in that area and see that as a robust area for the second half of the year.

William Goodyear

The engagements that John referenced that we can't speak to specifically, but the major engagements that we won jointly were related to the credit crisis, were our combined skills were spot on and we captured the engagement.

John Garvey

That's true. We're also getting leads in the antitrust space, where the leads are being sourced by other than us and based on our reputation and credentials, we're winning those cases, also.

William Goodyear

That's great. Okay. Andrew, anything else?

Andrew Fones - UBS

Yes, thanks. If I could, just one more numbers question. In terms of the guidance, could you just confirm if that is on a GAAP basis and then, if you're able to, give me the accelerated amortization expense and perhaps a better impact from Chicago? Thanks.

William Goodyear

I can't do the amortization thing. I'm not smart enough. Well, the revenue number is a GAAP number. Everybody is shaking their head yes.

The EBITDA number is a non-GAAP number, but it's reconciled on our footnotes and so forth. And the EPS number is a GAAP number. It excludes the real estate stuff, Andrew.

Andrew Fones - UBS

And can you tell us what the impact was of Chicago Partners on your EBITDA guidance?

William Goodyear

I said that our expectation for the full year originally, and we still hold that view, is $30 million of revenue and $6 million of EBITDA.

Andrew Fones - UBS

Great. Thank you.

Operator

Our next question comes from Tobey Sommer from SunTrust. Sir, your line is open.

Frank - SunTrust Robinson Humphrey

Hi, this is Frank in for Tobey. How are you?

William Goodyear

Okay, Frank.

Frank - SunTrust Robinson Humphrey

I wanted to ask if you could quantify the proportion of revenue related to consultant spending and financial services and insurance, discretionary consulting spending, as you described.

William Goodyear

Well, what I did try to quantify, and, I mean, these are our views as projected by our financial services and insurance services team, was that we thought that the impact of the lack and the diminishment of discretionary spending in that area is going to be $13 million, to pick a number, in the second half.

Frank - SunTrust Robinson Humphrey

Okay. And as a percentage of total revenue, can you give any color there?

William Goodyear

Well, the only thing I can do is refer you to the Q, where we break out the segment revenue, where financial services and insurance services are located. We don't break out the practice revenue, because we don't really run the company that way.

Frank - SunTrust Robinson Humphrey

Okay. And that will be out tomorrow. Great. Can you talk a little bit about what inning we are in or kind of where we are in terms of timing and as far as 2007 Energy Act as a driver for demand?

William Goodyear

Well, I'll defer to Bill on that one. Certainly, we're the beneficiaries of it. Bill, do you want to comment on what inning we're in?

Bill Dickenson

Yes, sure. I think that what we're seeing is still early days for realizing, at least on our clients' part, what the impact really is and what it means for us. It is certainly driving our business, some of the compliance regs, things like that, are certainly picking up, and that's how we see it.

Frank - SunTrust Robinson Humphrey

Okay, great. And, finally, in terms of your thoughts for uses of cash flow going forward, how are you thinking in terms of priorities versus paying down debt versus looking at additional acquisition, say, and other usages of cash?

William Goodyear

Well, that's a good question. We had board meetings this week and reviewed all of our expectations for the second half and the good news is that we expect a very solid cash flow second half, whereas in the first quarter, we said if we get the Chicago Partners acquisition closed, we would hope, by the end of the year, to be down below $300 million. If I recall, that was our statement.

We would be able to say now that we would like to be down and would probably be disappointed if we're not down below $275 million. So we have improved the liquidity of the company and the balance sheet and as we sit here today, we've got $100 million of capacity under our bank facility, 100 million-plus, and the end of the year, we would hope to have a couple hundred million of capacity.

So with that said, I'll answer your question. We would, in all likelihood, use our cash flow to knock that debt level down. Having said that, we are looking at a couple of modest opportunities, one in the energy sector, gas-related, and one in the health care sector.

And given that both of those practices are performing and we expect them to be performing, we're going to take a look at those during the second half. They're not near-term things and they're not that significant, but they're quite interesting.

We do have ongoing authorities from last year's stock repurchase, remaining authorities, I should say, of, I think, in excess of $80 million. So there's always that opportunity if we decide that our own stock is the best investment that we have. So that would be my answer.

Frank - SunTrust Robinson Humphrey

Okay, great. Thanks so much.

Operator

Our next question comes from Kevane Wong from JMP Securities. Sir, your line is open.

Kevane Wong - JMP Securities

Hey, guys, nice quarter.

William Goodyear

Thank you.

Kevane Wong - JMP Securities

Just a few things. First, just to make sure I've got I've got it straight on the guidance. That $820 million to $845 million revenues, that does include Chicago Partners, correct?

William Goodyear

Yes, it's all in, absolutely.

Kevane Wong - JMP Securities

And then I guess two things on environment. First, as far as the personnel area in North America, just sort of curious on some of the crosscurrents. It seems like I've heard some competitors in this space that are -- that they're pointed to, things haven't yet hit for them as far as the credit crisis, but they're bulking up as far as staffing regardless.

I am sort of curious, one, as far as wages that you're seeing out there, are those beginning to pick up for people that you would use? Are you seeing just more aggressiveness of people trying to hire personnel?

William Goodyear

I don't think I agree with that.

Julie Howard

No. I think, if I understood the question correctly, Kevane, as I mentioned in the call, we think that it's a pretty robust environment for hiring, given kind of the economic conditions, but we're not seeing any pressure on wages internally or externally, nor are we seeing any pressures from a retention perspective, other than kind of normal churn that we get at our junior levels.

William Goodyear

We did some very interesting what I call targeted higher level hiring and we were very gratified, quite successful, in the second quarter at the Director and Managing Director level. But you've got to be careful and targeted and focused and as we continue to say, we're trying to do that investing behind demand and we're going to try to stay true to that philosophy.

Julie Howard

That's a very key point, that we have no intention of bulking up in anticipation, but rather hire as we move along.

Kevane Wong - JMP Securities

Perfect. And then, also, as far as the international, international just generally seems to be strong and it seems like a lot of people are seeing that.

Would you say that's really because of just better economies right now internationally or are you finding particular areas of demand that are really helping drive your strength, or maybe a bit of both?

William Goodyear

Well, I'm going to start and then I'll let Julie, because she's been spending about half her time in London, but if you look on a macro basis internationally, all international economies are turning down, particularly in Europe.

So there's not a lot of good news in our -- I mean, international is now being impacted by some of the same issues that we are. In Asia, obviously, the growth is slowing down, although, for us, we do not that much work out there. But the European thing is important. I would think it would relate more to our -- the mix of offerings that we have.

Julie Howard

Yes, absolutely. So we have a different mix in our international businesses. Our largest and strongest businesses, I've mentioned several times, is our international construction practice, which has a long roster of clients and has been extremely busy for the first half of the year and I expect that to continue, and as much as we are importing people from other parts of the company.

So that, I think, continues to bode well. Our public services practice has really begun to ramp up now that we've got some new frameworks in place and things have settled in on the political front.

So we're seeing nice opportunities there. And then we also have a financial services practices, a disputes practice, and on the financial services side, I think that, from an economic perspective, the economy is probably becoming as shaky there as it is here in the U.S.

But we seem to be working off some good budgets here in London as it relates to financial services and our positioning is a little different, more on the retail side and in the insurance market.

So we're still feeling good, strong market currents in financial services, our disputes practices is kind of moving along steady, as our insurance team is. So just a different kind of mix of businesses and we feel pretty good about the second half.

Kevane Wong - JMP Securities

Excellent. Thank you, guys, appreciate it.

Julie Howard

Thank you.

Operator

Our next question comes from George Sutton with Craig-Hallum. Sir, your line is open.

George Sutton - Craig-Hallum Capital Group

Thank you. Hello, everyone. Could you discuss impacts, good or bad, from a change in presidential administrations that we are going to see?

William Goodyear

Well, we've got an interesting -- we had this discussion at our board meeting. We have some very informed members from both parties on our board. So I'm quite current on this, George.

And I would expect favorable impact in terms of Navigant, no matter who wins the election, because there will be some changes from a regulatory standpoint and change creates consulting spend.

And as you know, we've been careful to put our 2,000 consultants opposite areas where there's a lot of regulatory pressure. And so I think it's a win-win for us.

Now, I think it would also be fair to say that the most radical changes regulatorily would probably relate to a change in administrations from a party standpoint. And if that happens, your energy and health care regulatory environment will be distinctly different and, therefore, create some consulting opportunities for us.

Now, how soon those -- there's a lag between the change in regulatory and then when it bites, but it could be real interesting.

George Sutton - Craig-Hallum Capital Group

Well, my follow-up on that question, I guess, would be could we see a stalling effect from a lame duck perspective? Have you seen that in prior scenarios like this?

William Goodyear

I think that, no, I don't think we have. I think that's a good question. But just the expectation of change or the possibility of change creates some opportunities for us.

I think one of the reasons our health care sector is as strong as it is, because there are a lot of people anticipating some pretty fundamental changes and they're trying to get ready for them.

George Sutton - Craig-Hallum Capital Group

Okay. Now, you mentioned the subprime report would be coming out soon. You did, on your last call, mention a number of new cases in Q1, I believe it was 170, and I'm not sure if you can update us on what that might look like or has looked like in Q2.

And, also, you had mentioned you were tracking a certain number of cases, I believe it was 448. Could you give us an update there?

William Goodyear

Well, I can, generally. Let me just try again. There were 448 at the end of the first quarter and we're not quite done -- we don't want to release the specific numbers until we've absolutely vetted each case, and we've got a team in Washington, D.C. doing that as we speak.

So what I would say, George, is that it was another frenetic quarter and that I would expect, when we finish our data, and we'll get that out next week, that I would not be surprised to have the totals exceed the entire S&L crisis, which -- and there were 559 cases in that cycle. So 448 to 559, so we're up at least 100. But I don't have the specific numbers.

George Sutton - Craig-Hallum Capital Group

Great. Well, I'll go look up the word "frenetic."

William Goodyear

Your whole life is frenetic.

George Sutton - Craig-Hallum Capital Group

It seems that way. Thanks for your help.

Operator

Our next question comes from Bill Sutherland with Boenning & Scattergood. Sir, your line is open.

Bill Sutherland - Boenning & Scattergood

Thanks. Hi, gang. What was the organic growth in the Q2?

William Goodyear

You know, that's a good question. It was low single digits, roughly. And I think for the first half, it was 4%.

Bill Sutherland - Boenning & Scattergood

Okay. And, also, maybe it's in your most recent slideshow and I should just go look for it, but what's the approximate size of the energy and health care verticals at this point in time for you all?

Julie Howard

It's not in there, Bill, so you can't go look for it.

Bill Sutherland - Boenning & Scattergood

I'm just full of good questions.

William Goodyear

They're both meaningful, but we haven't broken that out on a practice basis and there are a lot of reasons, from a GAAP and a reporting statement, that we choose not to do that. But study the Q and you can get at some of that.

Bill Sutherland - Boenning & Scattergood

Okay. Julie, in the construction practice, how kind of far afield are you going? I'm just kind of curious in you're in the feeding frenzy in the Mid-east, for example.

Julie Howard

We are. We have a number of ongoing assignments and, Bill, it's interesting, because most of this work is -- I mean, we have a number of things in Abu Dhabi, working on some big airport issues, hotel developments, pipelines.

And it's not just the Middle East, but other areas. We've done some work in Africa, Asia, and most, if not all of that has emanated from our London or broader European law firm partners. So we like it. We have people on the ground and they move in out and it works well for us.

Bill Sutherland - Boenning & Scattergood

And so you all are kind of focused exclusively at the claims end of it, you're not the tail.

Julie Howard

Yes. I mean, predominantly, we do have some what I would call kind of project risk management services that we do. That's kind of a small practice out of both our U.S. and our UK practices, but we're predominantly just focused at the moment.

Bill Sutherland - Boenning & Scattergood

Okay.

Julie Howard

Both on the cost and the delay side.

William Goodyear

Yes, the two components.

Julie Howard

Which is unique to have both components.

Bill Sutherland - Boenning & Scattergood

Oh, I didn't know that.

William Goodyear

Cost and delay and we're good at both and most competitors are not. Bill, we are ramping up our project management consulting, where you try to head off the risks before you have the dispute.

Bill Sutherland - Boenning & Scattergood

Yes. That's exactly the piece I was thinking about. Bill, you said, when you were discussing the dispute group, that a couple of types of work slowing a bit and I don't know if I understood clearly what you were saying. Do you recall?

William Goodyear

Well, I do. What I said was that the large -- one of the things that slowed down is that the really large restatement engagements that were out there are largely working their way through the system.

Now, we may get another batch of those, but those are big, long-lived pretty labor-intensive engagements, and those are winding down, I think. They certainly have for us and I think they may have for some of our competitors.

So that was one area. And the forensic investigation piece also seems to have slowed down a bit. Now, we have some -- fortunately, we have some significant AML, the money laundering engagements that are underway, which are very attractive for us.

So, there are some crosscurrents out there in that. Now, obviously, you get some investigation work out of the -- in some sense, out of the subprime and the credit chaos, but it's a little different. It's a little different angle.

Bill Sutherland - Boenning & Scattergood

Some are saying that there hasn't been much investigation work yet on that side.

William Goodyear

Well, it kind of depends on how you characterize investigations. There's a lot of research. We've got a number of engagements within the company right now where we're doing heavy analytical and research, like what happened when, databases, how did things evolve, what disclosures were made, when were they made. So I don't know if you call that an investigation or an analysis or what.

Bill Sutherland - Boenning & Scattergood

Okay. Julie, I guess you're the one to pose this to on attrition. I know you're happy to see it stabilize. Is there a stated goal you all have for that number to get to?

Julie Howard

Several years ago, I would have put out something that was middle double digits, but at this point, I think that we are where we wish we weren't satisfied with 20%. I do think, though, that is reflective of kind of the generation that we have within the firm and plenty of other companies have and we're getting used to it.

And Bill Goodyear and I were talking earlier today about the machine that we have. We've talked about that a lot in the past, that we do have a great internal recruiting machine and resource, our own internal resource center to find the right people.

But we get this churn at the lower levels, as I said before, the two, the three, the four-year level. These are people that have been raised and have gone through school and have come out of school with the anticipation that they should have as many experiences as they possibly can. And so I think that's just a new part of our future.

Bill Sutherland - Boenning & Scattergood

Okay. And so at the senior level, that's obviously very, very much -- I mean, it's much lower and you're okay with that, whatever that number is.

Julie Howard

Absolutely and that we like to keep way down. Yes, that's of great concern.

Bill Sutherland - Boenning & Scattergood

Okay. Thanks, folks.

Julie Howard

Thanks.

Operator

Our next question comes from David Gold with Sidoti. Sir, your line is open.

David Gold - Sidoti & Company

Good afternoon.

William Goodyear

Hi, David.

David Gold - Sidoti & Company

Just a couple of follow-up headcount questions. First, Chicago Partners brought on how many heads?

John Garvey

We currently have 90 people. Last year was about 58 or so, I think, for the quarter.

David Gold - Sidoti & Company

And that's just a function of it just being there for a couple of months.

William Goodyear

Correct.

Julie Howard

Right.

David Gold - Sidoti & Company

Okay. And then did you say 180 professionals came on?

Julie Howard

I did. We welcomed 180 professionals during the quarter.

David Gold - Sidoti & Company

Okay. Got you. And then, Bill, on utilization, I know last quarter you said 84% not sustainable. Aside from the seasonal effect over the next couple of quarters, do you feel like 79% is more sustainable?

William Goodyear

Well, I never guide to -- it's an interesting way of asking me if I'm going to guide, David. You and I have always bounced around this.

But I think it's a good question. I certainly would be more comfortable at the 79 level than we -- obviously, I think we tried to be pretty candid earlier this year that 84 was like a breakout number and we never had seen that before and we weren't sure we were going to see it again.

Now, the utilization in London tends to run a bit lower. So as you grow your London base, you may have a little different mix.

Julie Howard

Let me just add to that. I think, remember, it's always a reflection of the practices that we have and those that are doing well versus those that might be a little bit slower.

And so when you think about the mix, if our energy and health care practices continue to be strong, but maybe financial services and insurance pull back, they've specifically been a higher utilization because of their leverage and pricing structure. So you can't necessarily just look at the utilization and say, well, that's not good news. If we come down in utilization, we may go up in other areas.

William Goodyear

And Julie's point is well taken. The utilization, a year ago, probably by far, our highest utilization practices were, inside the overall mix, were financial services and insurance.

Julie Howard

Right.

William Goodyear

So as the discretionary spend has gone out of those and they've been less successful, fortunately, we've been able to pick that weakness up in the other areas of the business model.

David Gold - Sidoti & Company

That's helpful. And then just one other. Can you add some color on the credit crisis work that you see particularly in the economic consulting side of things or basically what's keeping you busy there that's helping out?

William Goodyear

Well, I did reference, and John may want to provide a little color on this, or anybody can jump in, but the areas that -- and we had a significant increase in engagements in the second quarter and those engagements related, in some instances, to -- I mentioned hedge funds, which is a niche where we've gone in and helped analyze situations between the managers of the hedge fund and the investors in the hedge fund.

There's a strong desire in these hedge fund situations to not get into litigation, because it doesn't solve anything. What people want to do is maximize their asset value and, also, their liquidity.

We've found a role for ourselves in that area. There's quite a bit of work that we're doing, Chicago Partners, the economic consulting group is also doing, in terms of the valuation of the value impaired assets, whether they're auction rate securities or whether they're CDOs.

There is a real push in the marketplace, for all the obvious reasons, to get an independent view and an independent mark, for a whole variety of reasons, in a lot of situations, and we have outstanding skills in that area. So it's quite a broad spectrum, David. That's one of the things we like about them. John, I don't know, would you want to add to that?

John Garvey

I think you're right. Mostly what we're seeing is assistance in litigation with asset valuation questions and then there's some investigative component, also, in trying to help companies deal with many of the regulatory issues in investigations that are going on.

William Goodyear

And one of the interesting things, David, on these engagements is that they tend to be very data-intensive, and, for us, that's one of our sweet spots, because we can really perform well for the client and efficiently for the client.

David Gold - Sidoti & Company

Perfect. That's helpful. Thanks.

Operator

Our next question comes from Tim McHugh with William Blair & Company. Sir, your line is open.

Tim McHugh - William Blair & Company

Yes. First, I wanted to ask about Chicago Partners. From the data metrics on your Website, it suggests almost $3 million of EBITDA this quarter, and I was just trying to reconcile that with you saying you expected about $6 million for the year. Is there something I'm missing?

William Goodyear

Yes. You're missing operating profit versus EBITDA.

Julie Howard

There's $2.9 million.

William Goodyear

That was operating profit.

Julie Howard

Operating profit.

William Goodyear

The $6 million EBITDA number is probably a good number. I would stick with that. I don't know if, Dave, you want to reconcile between operating profit and EBITDA.

John Garvey

Well, we don't do a reconciliation like that. I think the numbers you're using are more on the lines of -- those include -- you're approximating the rest of the G&A expenses and things like that.

William Goodyear

There are some things that are in my assumptions that are more consistent with fully loaded numbers.

Tim McHugh - William Blair & Company

Okay. Next, I was going to ask about the -- also, on Chicago Partners, can you give a sense of the year-over-year growth rate, how quickly that business is growing at this point?

William Goodyear

I don't know. I don't think so.

Julie Howard

I think probably it would be premature to put that out.

William Goodyear

Well, we've got only two months of data. So the first two months and where we see things looks exciting. But I think we need to settle in a little bit here. Why don't you try us again in three months? We'll try to be a little more definitive.

Tim McHugh - William Blair & Company

Okay. And then the CFO search, can you give us an update in that regard?

William Goodyear

Good question.

Julie Howard

I can, yes. I failed to bring that up. I have that as a note. As I had mentioned on a previous call or when we put our press release, that we had engaged a search firm to immediately help us conduct a CFO search. They have been extremely responsive.

We're very pleased. Bill and I have probably interviewed seven or so candidates thus far in the last two weeks' timeframe and we have a few more, probably three to five more. The group has done a nice job of putting up a very strong slate of candidates.

So once we have been able to shorten that list, we will take a broader group of interviews and ultimately to the board.

So we feel like we're making good progress and we hope to be able to report out -- knock on wood, I'd love to be able to report out by September, in that timeframe, that we have secured a CFO.

Typically, as you all know, these kind of searches take six months. But at this moment, we're optimistic and very happy with the search firm and the results thus far.

William Goodyear

It should not take that long, but good question.

Tim McHugh - William Blair & Company

And lastly, you talked about the crosscurrents. You're still hiring in certain areas for growth. Overall, what would you expect headcount to do over the next quarter or two at this point?

William Goodyear

Just modest increase.

Julie Howard

Yes. As I think we've said consistently throughout the year, we would just expect to have modest growth in organic heads over the course of the year.

Tim McHugh - William Blair & Company

Okay. Thank you.

William Goodyear

Let's do one more question here. We're getting into dinnertime.

Operator

We have [John Crowder] from Piper Jaffray. Sir, your line is open.

John Crowder - Piper Jaffray

This is John, on for Randy Hugen.

William Goodyear

Hi, John.

John Crowder - Piper Jaffray

So just a quick question here. You covered it just a little bit earlier, but I was just wondering if you could give us a little bit of color on -- say the UK economy does soften. What impact will that have on your international business?

Julie Howard

I think the only area that is potentially at risk at this moment, because all the rest of them continue to thrive in a down economy, is our financial services practice and it could experience the same softness in discretionary spend that we have here in the U.S.

Our team there feels that we are working off 2008 budgets at the moment and the business is strong. But the potential for that could change as the economy continues to soften and we go into a new budgeting season.

William Goodyear

And if that happens, we'll have the same drill that we have in the United States, where we are working aggressively, hopefully successfully, to redeploy financial services into the credit issues that will certainly follow internationally just as they are domestically.

John Crowder - Piper Jaffray

Great. And then another question, kind of. You've got a little bit of experience now with just starting to ramp up in the subprime litigation and the credit crisis.

Can you give us any commentary on maybe engagement lengths and maybe compare them to some previous cycles, like maybe options backdating?

William Goodyear

That's a good question and, obviously, it's early for us to answer definitively. We can speculate, which I'd be happy to do, as long as we all understand it's anticipatory and may or may not work out.

The option dated engagements came hard, fast and wrapped up quickly. I would not have that expectation on these issues. I think, first of all, there's much more -- monetarily, there's much more risk. There's much more complexity and there are many parties involved.

So I think they will be significantly longer in duration. On one of the earlier calls, I referenced that we just opened up two engagements that related to the S&L crisis in 1989. So I think we could safely say if these have any of the same attributes, we could have a very long tail.

John Crowder - Piper Jaffray

Great. Thank you very much.

William Goodyear

Listen, thank you all for your time and your questions and we look forward to chatting in October, after the third quarter. Thanks very much.

Operator

Thank you. This concludes the Navigant Consulting second quarter 2008 earnings conference call. You may disconnect at this time and have a lovely evening.

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Source: Navigant Consulting, Q2 2008 Earnings Call Transcript

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