FTI Consulting Inc (FCN) 2009 Q2 法說會逐字稿

Good day, everyone and welcome to the FTI Consulting 2009 second quarter conference call. As a reminder this call is being recorded. Now for opening remarks and introductions, I would like to turn the conference over to Eric Boyriven of FD. Please go ahead.

Good morning and welcome to the FTI Consulting conference call to discuss the Company's 2009 second quarter results that were reported this morning. Management will begin with formal remarks, after which they will take your questions.

Before we begin, I would like to remind everyone that this conference call may include forward-looking statements within the meaning of section 21E of the Securities Exchange Act of 1934, that involve uncertainties and risks. Forward-looking statements, include statements concerning our plans, objectives, goals, strategies, future events, future revenues, future results, and performance, expectations, plans or intentions relating to acquisitions and other matters, business trends and other information that is not historical, including statements regarding estimates of our future financial results.

Words such as estimates, expects, anticipates, projects, plans, intends, believes, forecasts, and other variations of such words or similar expressions are intended to identify forward-looking statements. All forward-looking statements, including without limitation, estimates of our future financial results are based upon our expectations at the time we make them, and various assumptions.

Our expectations, beliefs, and projections are expressed in good faith, and we believe there is a reasonable basis for them. However, there can be no assurance that management's expectations, beliefs, and projections will result or be achieved or that actual results will not differ from expectations. The company has experienced fluctuating revenue, operating income, and cash flow in some prior periods and expects that this will occur from time to time in the future. The company's actual results may differ from our expectations.

Further, preliminary results are subject to normal year-end adjustments. Other factors that could cause such differences include the current global financial crisis and economic conditions, the crisis and deterioration of the financial and real estate markets, the pace and timing of the consummation and integration of past and future acquisitions, the company's ability to realize cost savings and efficiencies, competitive and general economic conditions, retention of staff and clients, and other risks described under the heading Risk Factors in our most recent form 10K and in the company's other filings with the Securities and Exchange Commission.

Investors are cautioned not to place undue reliance on any forward-looking statements, which speak only as of the date of this earnings call. We are under no duty to update any of the forward-looking statements to conform such statements to actual results.

We define EBITDA as operating income before depreciation and amortization of intangible assets plus nonoperating litigation settlements. We use EBITDA in evaluating financial performance. Although EBITDA is not a measure of financial condition or performance determined in accordance with GAAP, we believe it can be a useful operating performance measure for evaluating our results of operations, as compared from period to period and as compared to our competitors. EBITDA is a common alternative measure of operating performance used by investors, financial analysts, and rating agencies to value and compare the financial performance of companies in our industry.

We use EBITDA to evaluate and compare the operating performance of our segments, and it is one of the primary measures used to determine employee bonuses. We also use EBITDA to value the businesses we acquire or anticipate acquiring. Reconciliations of EBITDA to net income and segment EBITDA to segment operating profit are included in the accompanying table to today's press release. EBITDA is not defined in the same manner by all companies and may not be comparable to others similarly titled measures of other companies unless the definition is the same.

This non-GAAP measure should be considered in addition to but not as a substitute for or superior to the information contained in our statements of income. Reconciliations of EBITDA to net income and segment EBITDA to segment operating income are included in the tables that accompanies today's press release available at www.fticonsulting.com. With these formalities out of the way, I would like to turn the call over to Jack Dunn.

Jack, please go ahead.

Good Morning and thank you for joining us to discuss our second quarter 2009 earnings announced earlier this morning.

I hope you had a chance to review the press release; if you have not, it is available on our website at www.fticonsulting.com. With me this morning on the call are Dennis Shaughnessy, our Chairman, Jorge Celaya, our Chief Financial Officer, David Bannister, our Chief Administrative Officer, and Dom DiNapoli, our Chief Operating Officer.

The second quarter marked another milestone for FTI. It confirmed the momentum we experienced in the first quarter as we rebounded from the unprecedented upheaval of the second half of 2008. The world continued to struggle to transition from the paralysis and dysfunction that were so pervasive in the depths of the credit crisis to a period in which companies are beginning to look past the crisis and are beginning to plan for a more normalized state of affairs. It is also a time in which the new administration is putting in place the funding and key appointments necessary to take a more active stance on regulatory affairs, and the new agency leaders have begun to articulate their priorities of addressing a fallout of the credit crisis and their philosophical approaches to active participation in business and financial affairs. We think we are close to an inflection point in this transition. A a point at which we are seeing the initial indications of how the next phase will work. A little later we will talk about how this may play out.

First however let me briefly discuss our performance in the quarter. In short we reported a quarter of records across the board. Record revenues, record net income, record earnings per share, and record EBITDA. Our revenues in the quarter were $360.5 million, representing an increase of 7%, and were sequentially higher than the previous record of $347.9 million that we set in the prior quarter.

Excluding the impact of currency, revenues increased 10.3%. We continue to generate positive year-over-year organic growth through the second quarter, organic growth, excluding a $12 million impact from foreign exchange was 5%, and 1.5%, including foreign exchange. We have still not lapped the surge in the dollar against foreign currencies that occurred last year but we should be seeing the signs of that shortly. In the second quarter, we had the effect of -- this had the effect of reducing our reported growth by about 3.6%.

Second quarter net income was $37.2 million, or $0.69 per share, up from $34.8 million a year ago, or $0.65 per share. Foreign exchange had a negative impact of approximately $0.02 in the quarter versus last year. EBITDA for the quarter was $84.6 million, a gain of 9.1% over last year, or 12.5% in constant currency. The EBITDA margin increased approximately 50 basis points to 23.5%, compared to 23% last year. This performance was generated during one of the worst economic climates in history and additionally compares against a pretty remarkable quarter last year, when our organic growth was 25% and the world had not yet descended into the twin maelstroms of credit crisis and recession. If those great results last year in a pretty good environment and our record results this year when most businesses are trying to find a bottom, after the trauma of the past two years show anything, I think it is that we have invested and continued to invest in the people, business -- businesses, and the business model that is built for all seasons.

The three linchpins of those businesses and that model are; number one, the extraordinary intellectual capital of our professionals, who are the first ones to be called in both good times and bad. Second, the breadth of our practices, which on both a macro around micro basis are designed to provide solutions in good times and bad and compliment each other. And finally, the diversity of our global platform which serves to diversify our risk.

Consistent with our performance we had another quarter of excellent cash generation. We generated $55 million in operating cash flow in the quarter, driven by higher net income and strong receivable collections, enabling us to exit the quarter with $213 million in cash, up from $158 million just a quarter ago. Cash, as we speak, is plus or minus $240 million, so the trend continues, and we are on a very good financial position to continue to invest in all the core drivers of our business, talent, skills, and our global platform.

The predominant themes that shaped second quarter performance were another outstanding period for restructuring, continued high levels of work on major fraud cases that arose out of the market meltdown and initial signs of regulatory activism and enforcement in business and strategic mergers and acquisitions. The head winds we faced in the quarter were another slack period for overall capital markets activity which impacted strategic communications and residual impact of the recession on discretionary corporate spending, which continued to dampen generic litigation activity and routine corporate communication spending. We believe we may be beginning to see the signs that these head winds are turning which I will speak to in a moment.

Now let's turn to the segment performance. What can you say about corporate finance restructuring? We recorded another outstanding quarter with superb performance across the entire spectrum of the restructuring practice, whether it be in terms of industry, geography or size of engagement. We have maintained the view that this recession is unlike any we have experienced in a very long time in the sense that it is global, the breadth of industries that are being hobbled by economic and financial events is stunning, and that while the United States government apparently appears to be trying, the ultimate backstop to the last seven years, the American consumer, is not there to bail it out.

Revenues in the quarter grew 39% to an impressive $134 million compared to $96.1 million a year ago, and increased sequentially from $127.5 million in the first quarter. It grew organically at over 30%, with excellent utilization rates driving EBITDA to $47.5 million, or 35.4% of revenue, from $29.6 million, or 30.8% of revenue, in the 2008 second quarter.

Case openings are continuing at high levels, and the matters seem to be increasing in size. I would note that of the five largest bankruptcies this year, we have been involved in all of them. Our leadership in the restructuring field was recognized by The Deal magazine once again, where we were again rated the number one firm, far and away. Large new matters in the quarter included our retention by the creditors of General Motors and Visteon, underscoring our reputation and the presence we have in the automotive sector, where we are also working with Delphi and so many others. In addition to the auto sector, another industry where we got a significant contribution was the real estate sector, including our assignment for the Creditors Committee and General Growth Properties.

We have often noted how the consumer portion of the economy remains extremely fragile. Unemployment has risen to 9.5% as of June and consumer confidence has recently hit a new low. So any sector that is dependent on consumer spending remains vulnerable. This is generating work for us from companies in the retail, leisure, gaming, and casinos areas. Other sectors where we continue to see demand were utility energy, manufacturing, industrial, and construction. We have noted many times that this is a global recession, and the practices we have created outside the US have rapidly begun to benefit from the worldwide stresses. Even after a major currency impact, our London-based European practice doubled its revenue versus the year ago quarter and our Canadian Latin American practice which was only launched at the end of last year, has gotten off to a great start.

The investments we have made to expand our presence into international markets are paying off and generating excellent returns. In that vein, I'm sure that have you seen that we have recently expanded our corporate finance practice on to the continent with the launch of our restructuring practice in Germany. We were successful in attracting a prominent team of professionals from other firms, and they compliment our existing communications professionals already in the German market. Overall, we see a robust market in Europe ahead through 2010 and beyond.

Forensic litigation consulting also had a solid performance in the quarter. FLC's revenues were $66.5 million, compared to $69.3 million ago, and at first blush, a decline, but to put this in perspective, the recent quarter was the second best quarter in its history, surpassed only by the comparable quarter last year, and about half the decline was due to currency translation. There are not many companies or businesses comparing favorably to a record quarter last year, and we continue to see the rebound experienced in the first quarter based on the good results in the US and Latin America investigation practices including work on the major Madoff and Stanford cases, as well as in our intellectual property practice. We also saw a higher dispute related activity in both our regulated industries and construction practices. Work in our trial services, however, following the trend in generic litigation and in our Asian investigations business, which has traditionally been driven by capital and financial markets activities, were slower.

Both EBITDA and EBITDA margins continue to improve at FLC. EBITDA increased 3.3% year-over-year, to $16.2 million, from $15.7 million in the year-ago quarter. EBITDA margins were strong, at 24.8% in the quarter, 200 basis points higher than last year. This reflects the continuation of several larger cases, and just as importantly, a focus on building our specialty practices such as insurance, intellectual property, construction, and investigations. Important in the head count statistics is a migration from generalist to specialist, and although the statistics show a slight decline, there was actually a significant movement to beef up our vertical and domain areas of expertise.

Our technology segment again performed very well in the quarter, producing even higher revenues and profits in the second quarter last year, which was the former spectacular quarter. The segment has done an extremely good job of managing through this period of slow litigation and competitive pricing and has made remarkable progress since the trough late last year. Technologies revenue increased both year-over-year and sequentially to $59.4 million, up from $56.3 million, in the same period last year, and $55.9 million in the first quarter. Important drivers were continued high activity levels on large investigations, and strategic M&A related second request work.

Revenues from product liability cases were also important contributors, although not on quite the same scale as a year ago. Margin performance at 40.1% was driven by higher unit-based processing volumes, excellent steps in process re-engineering, better utilization of consultants, and efficiencies we have realized from integration of Attenex. We achieved these strong margins despite the continued significant investment in R&D investment in technology. As a result, EBITDA increased 12.2% year-over-year to $23.8 million, and increased 23.2% over the previous quarter.

I would like to take some extra time to discuss what we are doing in economic consulting; it has such a bearing on how we are positioning ourselves and the segment for the opportunities ahead. Econ. has made significant investments, and Marquis economists has expanded its geographical footprint to prepare for what we confidently expect to be an escalation of disputes coming out of the financial crisis and a much more activist role by the federal government and indeed governments around the world in the areas of regulation and enforcement. We are taking advantage of the market turmoil affecting the industry to continue to build on what was already the best team of financial competition economists in the world, and further separate us from the rest of the pack.

We have recently brought in several high quality professionals from competitors, a former chief economist at the SEC, a former head of the Anti-trust Group, in the Bureau of Economics in the Federal Trade Commission and the former head of Arthur Andersen and Bearing Point Global Financial Services Practices, who will be working with Chris Osbourne and our newly formed European economic practice. We have also expanded our geographical footprint by opening three new offices in Los Angeles, New York, and London, centered around key professionals whom we have attracted from other firms. They have quickly gotten traction in their markets; utilization is rising; and, they have begun to generate meaningful revenue in contributing to the growth of this segment. As a testament to the power of this segment, as of June, of the M&A transactions over $200 million listed in The Deal Magazine, seeking second request or Justice Department approval, we were involved in all but one of them. That is a striking statistic.

In the quarter, segment revenue increased 6.2% over last year, to $57.1 million, the highest revenue level we have ever recorded and up sequentially from $54.8 million in the prior quarter. The key drivers of this growth were increased work in regulated industries and contributions from our newly formed practices.

EBITDA was $10.3 million compared to $14 million a year ago and flat with the first quarter. The EBITDA margin in the second quarter at 18.1% was hindered by lower utilization due to the ramp in head count and slow commencement of work on the growing pipeline of new assignments, plus the impact, of course, of new offices while showing promising early progress and on early target are still ramping to what their normalized levels of profitability will be. Economic consultings retention of new engagements accelerated in the quarter as we saw movement in telecom, airline and pharma sectors. We also continued to see cases logged in the financial economics dispute area. But for some reason they still continue to stay on hold. At some point these will become more active and we expect to generate rising revenue and margins from second quarter levels later this year and into the next.

Our strategic communications segment continues to contend with the three head winds of very slow capital markets activity, particularly M&A transactions and IPO's, recession-driven restraints on corporate discretionary spending and discretionary activities and a pretty severe foreign exchange comparison. Segment revenue was $44.6 million, compared to $62.2 million a year ago. Over a third of that decline, however, was currency related. This was an improvement in $42.8 million in the first quarter so there is reason to believe we are testing the bottom.

Global M&A activity declined again in the second quarter, down about 50% compared to last year, to the lowest levels since 2003. Despite the lack of opportunities, the segment maintained its foremost position in the overall M&A communications market, heading up the lead tables by volume of transactions for the first half of the year. They were number one in Europe and Asia, and number three in the US. EBITDA was $5.9 million, down from $16.4 million a year ago, reflecting this lower activity.

With the recent strength in the capital markets, however, there are early signs of improvement in case load, with a higher level of M&A transactions and some meaningful transaction work being won. Recent matters include Robert Bosch's acquisition of Aleo solar, Anglo American's transaction with Xstrata, Cytochem and Newform, New York stock exchange and DTC and a major stake builder in Facebook. We are cautiously optimistic that we will see improvement in these levels going forward over the course of 2009 and beyond.

As you saw from our press release, based on our strong performance in the first quarter, we are maintaining our revenue guidance for the year between $1.45 billion and $1.55 billion, but are raising our earnings per share guidance to between $1.65 and $1.75. With regard to restructuring, there is ample evidence of a robust market for some time to come. Moody's recent analysis of speculative grade debt forecast continued increases in default rates to 12.8% by year-end before peaking and returning to rates of around 6% over the course of the next year, which are still high by any recent standards. The European outlook is for a higher default rate at the peak and a more gradual recovery than in the US.

Another view is the Euler Hermes Global Insolvency Index, which forecasts a increase in global insolvencies in 2010 compared to 2009. They forecast a slight decline in the US next year, but continued increases in the Euro zone countries. More support for this view is a tremendous amount of low quality debt maturing over the next few years that will need to be refinanced in what can be best described as a sub-optimal credit and challenging credit market.

A recent report by S&P finds $141 billion of speculative grade debt issues will mature by the end of 2009 and another $162 billion will mature in 2010. This doesn't include the highly levered debt that is held by the banks; these are bonds. Maturities balloons still further in 2011 and 2012, when $266 billion and $253 billion respectively come due. Unless there is a significant improvement in both economic conditions and the availability of credit, those debtors will be challenged to refinance these maturities. Ultimately they will either restructure, default or they will be forced to sell to strategic buyers, all of which will be business for FTI which provides solutions in all of these areas.

As I said earlier, the consumer economy remains very fragile and just as we did last year, we expect the second wave of bankruptcies rippling from bankruptcies that have already taken place in the automotive and also that are related to factors that come up in the economy in the third and fourth quarters. Typically, you have the back-to-school and holiday shopping seasons, and you have large amount of debt maturing in the fourth quarter and these should be proved to be problematic for some people who will not be able to refinance at the levels at which they had incurred the debt. We see opportunities most prominently in retail, automotive, leisure and gaming, utility energy, media, and financial service; we are tracking those markets closely. To sum up them, with these macro drivers behind us plus the increased volume, size and complexity of the assignments we are getting, we will carry our restructuring practices through 2010 and beyond.

On the regulatory side we are already seeing federal agencies getting increased funding to pursue their mandates and the agencies are beginning to articulate their positions and to take action. As an example, the Justice Department under Christine Varney has made it crystal clear that under the new administration attempts to take a much more interventionist policy toward antitrust enforcement. The Justice Department prominently withdrew the prior Section II report issued by the Department in September 2008 under the former administration, which more rigidly defines how abused competition within an industry.

This is a dramatic reversal in policy and signifies that the current administration will not be favorably inclined towards defendants in antitrust cases. The Bush administration did not file a single case against the dominant firm for violating the anti-monopoly law; by contrast in only a few short months, the current Department of Justice has already filed actions in the pharmaceutical, telecommunications, and technology industries. This is real and tangible evidence that a new sheriff is in town.

In a similar vein, we also expect the DOJ to take a more active rule in the scrutiny of M&A transactions. Again, during the Bush Administration, DOJ's review of M&A activity was about half of what it was during the eight years to the prior four years. Even if the Obama Administration only reverts back to the average level of antitrust review, this will present a significant increase in potential new work for FTI.

With the best team of competition economists in the industry, there is no one better positioned to advise clients through this more complex landscape, and we will participate, we believe, disproportionately in this climate. After being chastised for missing major fraud, the SEC also continues to shake up the Enforcement Division. The Commission has received increased funding in the new fiscal year and will staffing up to enhance its ability to police the financial services industry. There have been changes to existing laws that allow it a wider scope and there have already been a number of appointments of high profile experienced criminal prosecutors to lead a more aggressive posture against wrong-doers. The increased enforcement activity will create work for our forensic and litigation and technology segments.

Beyond restructuring and litigation, another key driver of our business is activity around the capital markets where we have begun to see some signs of stability that indicate we are approaching the resolution of the fallout from the credit crisis. While down compared to last year, on a sequential basis, the volume of M&A activity picked up slightly in the second quarter, compared to the first quarter and there was even a market for IPO's. In the month of June, there were eight IPO's globally compared to an average of two per month in the second half of 2008.

In technology, we were busy as we said with M&A second requests and believe these are, perhaps, to borrow a phrase, "the green shoots we're looking for" to indicate the beginning of an upturn. In short, these factors give us confidence that we are seeing the beginning of an extended demand that will prove positive for every segment of FTI. On the strength of all of this, we are very confident in our outlook and comfortable in raising our EPS guidance for this year, to a range of $2.65 to $2.75.

In closing, I would reiterate the usual comment about our third quarter seasonality of our business. To those of you who follow us closely, you know that the summer is when we bring in our new recruits from colleges and universities and there is a learning curve while they get settled and become fully productive. There is also the impact of summer time vacations, which is becoming a little more pronounced as we expand further outside the US, where the summer break is sacrosanct.

Finally the seasonal dynamics could be exacerbated this year by investments we make to position ourselves for the upturns in the market. Given our marketplace there may never be a better time for us to invest in our platform. We, therefore, expect to have strong year-over-year comparisons for the next two quarters but the fourth quarter is when we expect to see the fruits of our investments. This will position us for a very strong 2010.

As we have said, FTI does well on the up cycles and well on the down cycles but it does extremely well at the inflection points at which we're beginning to see the beginning of. When the drivers of that cycle that is ending are continuing to operate at very high levels, as the drivers of a new cycle are beginning to ramp up. This was the case in early 2008, when all of the upcycle drivers such as capital markets activity, litigation, and corporate communications were doing well, while restructuring activity was only beginning to come on. We expect the flip side of this to occur in 2010 and we look forward to benefiting from that as it plays out.

With that, we'd be happy to address your questions.

Thank you, ladies and gentlemen. (Operator Instructions). We will hear first from Andrew Fones of UBS.

Thanks. Just in light of the recent announcements from your peer group, I was wondering if you have taken a look at your accounting for acquisitions and outs and how comfortable you feel about that. Thanks.

Yes, we have re-examined our accounting treatments, reviewed it with your outside advisors, and again, we believe we account for earn-outs in according with GAAP.

Okay. Thanks. And then in terms of your bankruptcy business, I was wondering if you could just update us on the rate of new business wins there. Thanks.

First, some simple statistics. In corporate finance in general, in the second quarter, the number of new matters opened was 224 versus 202 last year. And it was 224 versus 214 in the first quarter of 2009.

Now, interesting in that statistic as we talked about last time was the mix of matters. As compared to last year, we had 23 bankruptcy matters compared to 15, and we had 23 compared to 28 in the first quarter. So relatively flat. You would always expect more in the first quarter, because seasonally that's when people get their audited financials and that's where retailers get their results. So that is a very strong number. And out of non-bankruptcy restructurings, we had 62 in the second quarter this year, versus 31 last year. And we had 62 versus 78 in the first quarter. Again, very strong.

What is also interesting is that our as it TAS practice, our transaction support practice also started to pick up a little bit, where its number of cases look very strong, and it was 69 in the second quarter versus 50 in the first quarter so we're seeing some pickup there as again perhaps we're seeing a little bit of M&A activity.

Okay, thanks. And one final one, in terms of utilization, you mentioned economic consulting was down a little bit sequentially on the head count addition, but could you comment in terms of forensic and litigation, and also the corporate finance group, and how much of that decline was seasonality, and how it trended through the quarter, and perhaps where you ended the quarter and what we might anticipate for Q3? Thanks.

I think I got a little bit -- I think what we mentioned was FLC was down slightly in head count by about nine people from last year. And in that -- but in that is the fact that probably they have repositioned about 60 or so people from being generalists into more specialty practices.

Yes, I think in restructuring, they are actually ahead of their hiring plan, for the year and the first half, and I think the minor difference year-over-year really is just simply driven, or for the six months anyway, is simply driven by new people coming on board. So we've been, as you can imagine, Andrew, in this environment, we've been a very attractive place to interview with, and so we're trying to be very aggressive when we see the right kind of people to bring them in, even if it accelerates the hiring, faster than we may have programmed it over the whole year.

And what we need to look at is the actual chargeable hours, and notwithstanding a utilization being down, with the head count, as we mentioned, hours are up, and revenues are up.

Thank you.

We will move next to Tim McHugh of William Blair.

Yes, I wanted to touch on the technology business. You gave a good explanation of why the margins there improved. I think in the past, you've cautioned us against assuming a 40% margin was sustainable there though. Given the changes that you made, is that a potentially sustainable level now? Or would you caution us to expect a pull-back again?

I would always caution against normalizing a profit margin that is 40% in a business where the standard for software as a service and all would be more in the 30s, low 30s. So it was an exceptional performance. It had a number of drivers in there. And as we ramp up, we will be needing to invest in more people and things there. So I would think that that would not be necessarily the normalized margin.

And we've indicated, this is Jorge, we have indicated that tech group will be between the 32 to high 30s, to 40% EBITDA margins, and one quarter is not obviously going to make the answer, it is just part of what you're going to see. They tend to have some quarters, large cases that they may ramp up whether it is the consulting practice, that is ramping up or data gathering on a particular large case, and that is going to make the margins go up and down.

Okay. And then another margin question was the communications segment, given the head count reductions you had taken last quarter, and I know you had hoped for some expense savings there, but yet the margins or the EBITDA seemed relatively flat even though revenue improved. Any more color there.

A little bit. This is one of the intricacies of becoming a global company. When you have head count reductions, for example, outside the US, specifically in the UK, people have a right to basically get a stay of their termination for a couple of months, so we have not seen quite the full effects of the head count reductions we've done there, but I think realistically when you look at it, it is the level of activity.

We think this is a great business. We think, as we said, we're beginning to see the signs where we can more fully deploy them, and so we don't want to lose any more people. In fact, we are in the market, hopefully pick up great people that might become available because they're not happy where they are, so we would be investing in this business for that inflection point that we've talked about. We see a lot of promise for this business.

Okay. Thank you.

Our next question comes from Arnie Ursaner CJS securities.

Hi, good morning. I want to focus again on the technology segment. You mentioned you had particularly strong software sales in the quarter. Can you give us any better feel for how that may have impacted margin?

Arnie, it is Dave Bannister. The comment was specifically directed to the year-over-year results where last year of course we did not have Attenex as part of the software offering in the quarter where as this year we did, and software sales as a percentage of the total revenue are up and that really explained part of the margin because they carry a very incremental margin.

And we are just beginning to feel the benefits of integrates the two platforms. So the first quarter, we obviously spent a lot of time introducing the integrated product out into the marketplace and the second quarter was really the first opportunity to get some sell-through.

And a more general question, were there any unusual one-time programs that ran through in any of your segments that you particularly like to highlight?

Well, I believe this is -- this is Jorge again. I believe we highlighted in the text segment, we had high activity in second requests.

But it wasn't one large job. It was numerous second requests. And again, I think where we're seeing a lot of activity for them, and we foresee it in the second half is as the government makes inquiries on a regulatory basis, so not even on an M&A, there is a massive document production that is required, and of course, this is the power alley of this group, especially where it is global and it is complex and we would expect them to get more business that is linked to the regulation towards the end of the year.

I harken back to restructuring wherefore about three quarters, we explained away at success, but this is reminiscent of what used to be business as usual in terms of the second request, because we are seeing our case files build up and when we talk to M&A lawyers, in the industry, who are our good clients, we are seeing a definite pickup in M&A strategic and financial M&A activity picking up.

And that's the work that the technology practice is doing with the forensic practice, on the large litigations that we mentioned earlier.

And I want to stay on, one more moment if I can. You obviously are guiding, Jorge mentioned you are talking about 32% to 40% margins and I'm trying to understand the factors that would cause it to drift lower in the next few quarters, and obviously one of them would be significant R&D expenditures. Could you quantify or give us a sense of what you spent in the quarter and how much we should expect and how long it would continue?

In the quarter, we spent approximately $5 million, compared to approximately $2 million and change last year, Arnie, so close to a doubling.

And Arnie, I think that is going to be steady state for right now because we're actually looking at releases that will be coming out of this R&D starting at the end of this year, so we would keep that spend up certainly through the end of the year.

Final question from me. The Fraud Enforcement and Recovery Act was passed on May 20. And it seems to give not only dramatically more funding but also expands the liability to people that make false claims or statements and it would seem to me that that could cause a dramatic change in a number of your businesses. What are you seeing now, and when do you actually think we may see some more significant impact on your business looking forward?

You see a couple of things, you see first of all, the potential for more enforcement, and it will take a little bit for that to be thoroughly digested and to get under way, and you also see clients undertaking self assessments of things, which I think is another area of business for us where we've seen just again the beginnings of people, but I don't think certainly to say that that has been fully implemented or have had full impact. I don't know, you're having the Congressional hearings and things now that will pick out the targets for those things.

Thank you very much. Great quarter.

Thank you.

Deutsche Bank's Paul Ginocchio has our next question.

Thanks. I know that the corporate financial restructuring business is sometimes lumpy, and I think back in the third quarter of '08, it was actually down quarter-on-quarter, but the last couple of quarters, quarter-on-quarter basis, have you been adding a big amount of revenue, which somewhat decelerated here in June and going back to the earlier question, should we be any way concerned that the q-on-q growth rate in bankruptcies is down or how would we explain that? Thanks.

It is hard for me to be concerned about that business right now. It has a tremendous continuing group of cases. We have been picked in every major case that comes along. There will be, as I say, there is a little bit of seasonality; you have tremendous activity in the first quarter, and we had in fact tremendous activity in the second quarter, and I wouldn't take anything from the fact that it is a few cases less in terms of restructuring and bankruptcy.

And in the third quarter, there are literally hundreds of second and third tier auto suppliers that are in the $300 million to $1 billion range, and they will begin to see the ripple effects, you will see the retailers, the ones that don't survive the back-to-school shopping, so I think you are going to see it.

We had said all along, we thought there would be another wave of this in the third quarter or beginning of the fourth quarter, so I think that as I say, the margins are spectacular, the utilization was great, they will be bringing on their probably of our hiring of people out of colleges and universities, they will be the largest hirer of those so there will be plenty of people to put to work so we will be increasing the capacity. As I say, I would not worry about that practice at this time.

And similar to last year, should we expect revenues to be down q-on-q in the third quarter in this division?

As we we -- as you know historically, we don't give quarterly guidance, we certainly are not giving guidance by segment, and we can only point to you to some of the historic seasonality.

Okay. Great. Maybe just a final one on the corporate expenses. They're basically not growing year on year. Is that what we should expect going forward?

Not to speak quarterly, but just to give you a general sense, yes, G&A, let's talk G&A in total, so far for the rest of this year, as you know, we've been holding pretty tight controls on that, and we are still going to continue to invest in the marketing area, and you might see an uptick in SG&A, and likely in the third quarter, partly due to the marketing and, of course, we continue to expand globally so you can't expect a company of our size to not grow the SG&A in dollars but we are trying by the end of the year to keep it pretty constant, especially the fourth quarter should probably be as a percentage of revenue, pretty constant to where we are in the second quarter.

I think we are becoming large enough where we also are getting scale and operating efficiencies, and we are looking very hard at -- it is not so much expense reduction, but it is slowdown in the growth of expense, because you're getting much more leverage off of the expense line.

Thank you very much.

Jim Janesky of Stifel Nicolaus has the next question.

Yes, good morning. A couple of questions. If we can go back to where we are in the phase of government investigations, I mean outside of economic consulting, do you expect a lot of activity there? Is there anything that is concrete or is it more anecdotal?

I think we would definitely -- our SEC investigations, practices, which is I think probably the largest cadre of former SEC practitioners outside the SEC, is known, and they've been very busy, and I would think they would only get more busy as the SEC becomes more enforcement oriented.

I would think that it would also impact across the board in technology, certainly a lot of these things tend to be investigations, integrity investigations, would involve heavy document review. And it would involve traditionally in the past, it has involved our communications segment very heavily, people bring that in to make sure that they can control their message to their constituencies so I think what we believe is that going from a really dearth of any of that type of activity, certainly since the last half of last year, and probably since before that, that that should bode well for a number of our different practices.

The serious fraud office in London is certainly getting more active, and our people are picking up business over there. And we continue to get very large assignments on the continent that are related to foreign corrupt practice investigations, either at the initiation of one of the governmental bodies or at the initiation of the boards either on a prophylactic basis, or, on a therapeutic basis.

How much of the activity would you attribute to you folks being international? Probably more than anybody else in the industry.

Well, one of the benefits of being official is the foreign corrupt practice act creates a lot of large scale investigations that geographical reach is important to be able to execute those projects. So we're being thought of a lot more frequently because of our global expansion and the practices that are built in, than we would have two or three years ago. So that is critical.

Our intellectual capital and domain expertise and how to handle documents and discovery outside the US is really a show-stopper. That is very much a differentiating factor that -- when they work hand in glove with our FLC folks, that's a pretty tough combination to beat.

We have been told by large law firms, and large clients, that we would not have won certain engagements if we didn't have the last mile execution in these respective countries where a lot of the inquiry has to take place.

Okay. And now, shifting a little bit to the momentum going into 2010, if we could talk a little bit about your comfort there, is it because of the second phase maybe of a bankruptcy activity, what type of backlog do you have that gives you that comfort of talking about the momentum going into 2010?

Well, we have a great backlog obviously already, here in the states, and it continues to grow, and I think as Jack had mentioned, the end of the third quarter tends to be another seasonal blip, so you start picking up business, one as a result of people having bad third quarters on a cash generation, and then two, anticipating they're going to default at the end of the year on their numbers and trying to get ahead of the curve. So just I think on a seasonal basis, we feel good about that.

And I think if you read the financial times, yesterday, it talked about the $400 plus billion in structured finance, that Jack had mentioned that is sitting on the banks of books in Europe and the private equity companies are going to have to be very aggressive in trying to get that refinanced. We just completed our first large assignment, it was a $4 billion credit, two major banks, and it is ending up being a debt for equity exchange. This is the first one. So we've got -- if you believe the FT numbers then we've got $396 million left to try to help restructure.

So I think our feeling is we're very, very well-positioned with a huge backlog here in the US that we expect to even grow in the fourth quarter, and move through next year, and we feel that Europe is now just beginning, which is why we've been so aggressive in the last six months in trying to build that capability, and we are very pleased with the initial first six months results of our operations down in Latin America where we seem to be getting almost every major assignment that is coming out.

So I just think it is a combination of backlog and very big wins that are just starting, in all honesty, as Jack mentioned, Visteon, and some of the others, we're just started; and there is a bunch, in all honesty, that we can't tell you about that we're involved in. So, I think that we feel good on the backlog. We feel good on the seasonal uptick. And we feel especially bullish in 2010 on what Europe is going to give us in restructuring.

There is kind of an ugly trifecta lining up out there, Jim, just to take one more minute. When you think about the $400 billion of structured finance and another $150-plus billion of bonds that are out there in Europe, those represent deals that were done at seven times the earnings. Those were very highly levered deals.

And the trifecta is, you have those coming due. Think about the consolidation taking place, have you less lenders out there and each one of those lenders in our experience is not willing to hold as much as a year ago so you literally have not enough money in the world to refinance these deals, so I think that means debt for equity swaps, it means restructuring, it means hardball, it means a lot of things, and I'm very excited about our presence in Germany, I'm very excited about the UK, and as always, the leading restructuring practice in the US is the thousand men and women that have been with us for the last seven or eight years. So I think we're really well-positioned for that.

And also, there is some crisis M&A deals to merge your way out of a credit crisis. And the other thing is when you look at commercial real estate, rents are down, and the rates are down, vacancies are up, and that drives property values down, so when the owners need to refinance, they're going to have a real problem getting the level of financing necessary to take out the existing facilities that are maturing over the next six, nine, twelve, twenty-four months.

Some of the healthiest REITs are our clients as you guys know, and they have been raising money for a war chest. And in a conversation we had with one of the biggest ones in the country, he basically has told us he is going to be a buyer, he thinks, in the second half of 2010. So I guess it is one man's expert that you're going to have some degree of capitulation pricing in 2010, which means we will see a lot of activity on that part of our restructuring practices, as this new money comes in at very, very attractive cap rates.

Okay. Thanks for that detail. Just as a final question, do you expect a lot of this work that technology type of revenues will accompany this type of work that you're talking about?

Well, I think the technology business will certainly get a lot of work in the -- where there is M&A deals, and especially given could it be more scrutiny, even with a failing company doctor, and standing behind the race on debt ratio, I think the technology group is very prominent in a producing a lot of that information. I think the biggest gain force hedge is probably going to be in response to the regulatory inquiry that is going to happen not only here but in Europe, and we think they will be at the forfront of helping companies provide those responses.

Okay. Thank you.

Our next question comes from Toby Sommer SunTrust Robinson Humphrey.

Thank you. The first question has to do with your development of the FTI brand. And maybe if you could speak to progress and efforts in that regard, in the context of your goal of increasing your percentage of revenue internationally, and maybe talking about the international opportunity in that context. Thanks.

Yes, I think, we have been very aggressive in three areas, in trying to build a brand, and one is clearly simply to gain mind share, and we have conducted special symposium for thought leaders in the legal and financial community, and Ireland, and in the UK, and in Brussels, and we do that all the time here in the US, we partner oftentimes with normally a significant media partner, and we will continue to do that.

We have been very aggressive in trying to gain thought leadership again, in looking at a lot of the risk issues that are surrounding Asia and that's been prominently centered with Steve Bickers, I think, Steve is one of those popular guys that CNBC calls on to help them dissect a lot of the things like that, and I think it has been great for our brand-building in Asia.

We clearly host and sponsor selective sporting events, and obviously we are the main corporate sponsor of Padraig Harrington, who has been a great spokesperson for us not only here in the states but especially in Europe.

We were prominent advertiser all through the UK, the week leading up to the British Open, and the week afterwards, we took advantage of the fact that he was the defending champion, we took advantage of the fact that again, have you historically, interesting buying opportunities for media. And we will continue to do that through Europe.

So it will be a combination of traditional focused outreach, sponsorship of intellectual capital type of events most likely again centered in Brussels and London, and then you will see a continued push to gain more recognition on the brand. I think we have such great intellectual capital that is imbedded across the 3,400 people that we have, that we can do a better job of the actual PR part of it, in getting these people out more prominently.

We have created our own captive TV network, which is really going to be a way for us on a push basis to use the Internet as a very cost effective way to pushing out to potential clients and intermediary the strength in intellectual capital that we have. We will be able to take topical challenges of the moment and be able to literally push to select groups of people over the Internet in a very cost efficient way our experts who can make an up to date commentary on it and give good background, and we think it will be viewed as a very valuable source of information by our clients, and potential clients.

The good news, is that we've done the heavy lifting, or a lot of it, the expensive stuff and the name recognition really to establish a beachhead and the stuff that Dennis is talking about, the PR stuff is very excite, because first of all through FD and our strategic communications segment, we have some of the leaders in being able to mastermind those campaign, and the second thing, is they don't cost very much. They are situations where media outlets, et cetera, are hungry for the insight that our people would have.

So our ability to establish ourselves and get named in the articles and all of that is going to be great. So I'm very much looking forward to that over the next eighteen months to seeing a real uptick in the -- not just seeing our billboards and seeing our hat, bullet in seeing our -- but in seeing our great professionals profiled in various media outlets.

Thank you. And my last question relates to maybe you could give us some commentary on the hiring market as well as the M&A market given your building cash balance.

Hiring is -- I mean I think Jack said it in his speech, we are clearly a company of choice right now. We have had incredible success on the campus. We would like to believe that a lot of that is clearly the opportunities that FTI offers but we're not naive to the fact that it is a much better competitive environment right now, as far as other people hiring.

So we will be bringing in our largest-ever class of hires, we are finishing up probably our most successful internship program nationally, and clearly, they represent the next group of hires, we will be making offers to most of those people, and we anticipate a high acceptance level of the offers. Dom?

And on top of that, our turnover is very low. I can't recall it being this low -- it is in the 11 and change level, which is historically as low as I've seen it for quite a while. So that is all good news. We're able to retain our people, plus we've got an opportunity to hire some of the best talent out there. The accounting firms and many of our competitors are not hiring at the level that we're hiring.

On the M&A front, I don't think -- we haven't seen any change second quarter to first quarter. We are being shown a lot of transactions, some of them for a lot of reasons are under stress, so, buyer beware there, and a lot of the good companies that would be nice tuck-in acquisitions for us we're staying close to, but obviously these people understand the changes in market values, and some of them are simply reluctant right now to sell their companies.

So we're just in some cases just staying close to each other, using them where it is appropriate, working with us in something, and, a lot of our growth really has come through very large group hires, and now this is to a certain extent because of the trauma that a lot of other people in the industry have been going through. But we have been able to bring in entire teams with full support, in Canada, and Germany, and South America, and that has the effect of an acquisition. It is just structured differently.

And then finally we have been presented with very large opportunities, and obviously these, in some cases, require some strategic thought and expansion, do we want at this stage to add another leg to the stool, another division, and I think we are very active in looking at those, there are some very attractive opportunities out there that can expand our portfolio, and I think it is totally not -- you cannot predict when we and a potential partner might pull the trigger on a very large deal, but they are certainly there, and we are certainly being shown them.

Did you have anything further sir?

No, thank you very much.

We will go to the next question from David Gold of Sidoti.

Good morning.

Good morning, David.

A couple of questions for you. One, just to follow up. On the hiring front, presumably, and obviously some of those folks or many of them go to the restructuring practice, where else might you be thinking to fill out?

We've been aggressive hiring in Econ. I mean I think we've been bringing these big economists in and then you have to staff up underneath of them, and so that has been one big focus for us, not only here but in Europe. Clearly, we have been going through a significant change in FLC. The numbers of FLC don't show a big head count growth, but there has been significant change in the type of person we've been bringing into FLC. We've put a much greater premium on domain expertise, and specialization, rather than generalists.

So you can track people inflows and outflows, and there, you would be seeing over the last eighteen months a concerted movement to move into the specialized areas away from the general areas. That has resulted in some people leaving, but it has also resulted in us aggressively hiring in those areas.

I think clearly you would see us continue to be aggressive in the developing world, as we build out our platform, so that South America, we're hiring aggressively, in Asia, an the Middle East, we've been hiring aggressively. So it would be in those areas.

We will need people in technology. And as we said earlier, we think it is a great time to be active in the communications, strategic communications area, because there are some great people out there who for one reason or another may think it is time to hitch their wagon to another star, so that is -- we're pretty -- we are investors at this point, we are very bullish on that inflection point that is coming in so we will put our money where our mouth is.

Okay. And then part two, on restructuring, so the margins there, pretty strong, yet obviously given some of the adds, your utilization, leaves potentially some room to approach let's say historic peak levels. Is this a good rate of margin to expect to go forward or could it get better from here as utilization improves?

Well, it could always get better. This is a reasonable margin. We're very happy with this margin. But, as we said earlier, we've added a head count.

So we've got room to flex up to the extent, the avalanche of the larger cases that need ten to fifty people in short order, to staff them, arrive. So again, comfortable at these levels and these are very, very good levels, but they can flex higher.

And also keep in mind that part of the corporate finance segment is the S&G group. And S&G, at least in the short term, is obviously -- has a freeze on the credit market and therefore does not have a lot of transactional activity going on in the state area.

So that as it improves, especially as we look toward 2010, that is one of the things that we had mentioned earlier that could be a good news for the overall corporate finance segment as we reported.

So when we are advising one side or the other on something, if it takes a different course and has to move into a formal restructuring, then the amount of work those teams might be required to do would be exponentially higher.

Got you. Dom, on the attrition, you mentioned 11%. Can you give a similar number for the MD level, sorry for the MD level, or for the senior level?

We don't break it out. We've got a very low attrition rate at the SMD level. The people we lose are often some of the lower performers, and we work with them on finding a more reasonable place for them to be gainfully employed. You know what I mean?

Yes.

And we don't lose many senior people. And over the years, if we've lost two or three, we really wanted to keep -- that would be a lot. We've got a significant number of high performers and at this point, even losing a superstar or two, wouldn't cause us to change our budget.

Got you. Perfect. Thank you all.

Thank you.

Our next question comes from Kevin Wong of JMP securities.

Hi, guys. How are you doing? Couple things. First to beat the corporate finance restructuring segment horse a little bit more, the buildup here on work, just trying to get a little sense on the ramp. Obviously you're talking about a lot of business. You had a little seasonality impact on the quarter.

Do you feel like with the cases you have that even with this, that is already active, that you have a build-up element that happens on these cases, you got them, there is a certain amount of work, but it takes a while to get them all chugging or are these things, they hit from the ground running and simply a matter of the flow of cases and there is a little bit of seasonality this quarter?

I think there is still room for build some of the larger cases that we're in. There is always seasonality in the third quarter. And I think that is tempered a little bit with the fact that we do have some large cases that will carry us through the quarter.

Right.

In the first quarter, you don't usually have a lot of new cases. We all have many new cases happening, fourth quarter, and that tracks with our performance historically, has always been a bigger quarter, you got all of the new people, hired, getting started, and third quarter there, and they're in training, and there are not a lot of new restructuring cases, or big litigations going on, and because of the holiday and vacation schedule, and so third quarter is always challenged by those things, but we're pretty comfortable that for the balance of the year, in our estimates, and the new engagements we see on the horizon that we will be able to meet those numbers.

Some of the engagements might change their character too. We're in a lot of things in Europe or here in the states where we're advising one side or the other on something and if it takes a different course and has to move into a formal restructuring, then the amount of work those teams might be required to do might be exponentially higher.

Got you. And I guess in the broader longer term cases, do you also feel in that space, we're still aggressively ramping up on the longer term situations, simply because were you talking about second wave in Europe, et cetera, that you see coming, or is it plateauing? Or, just a little of the broader picture of where that space is.

Historically, Europe follows the United States six to nine months. So we believe that is still ramping up. But as Jack laid out some of the maturities, of the substative grade bonds that are going to occur in 2009 and 2010 and into 2011, that should create a significant amount of new opportunities for us, and unless there is a -- the flood gate opens with respect to liquidity, we don't see where it is going to come from at the levels needed. We think we're going to continue to be busy at least for the next eighteen to twenty-four months on the restructuring front.

Got you. And then I will do a couple of quick ones here and I will let you go to the next person. Looking at strategic communication, I'll pick on this one here, the -- obviously, it has been a tough space. Do you feel that is at the bottom at this point? And it should start to improve? You talked obviously a little bit about some M&A looking to pick up. But it has been a long transition. And things are still pretty tough there. Where do you feel that is as far as the cycle?

The people in the business believe that they may be seeing the bottom based on their experience and past cycles.

There are the number of M&A transactions I mentioned, there are the IPO's. And as you know they've done a great job of actually picking up with the nondiscretionary side of the business which is more the strategic message crafting when there is some kind of crisis or something like that. So I think they are beginning to believe that they could have seen the bottom, that it might bounce there a little while but that's what they think.

And if that is the case, we expect margins to also commensurately start to pick up at some point as that picks up?

Yes, I think as I said, there is a tiny bit of pickup from the head count management that they did in the first quarter that would maybe come in, but that will depend on volume picking up and that's pure and simple. And we would like to not take any further head count actions there because as I said this is an investment and it will come back, I can't guarantee the day, but it will.

Got you. Okay. Then I will wait for later. Thanks.

Our next question comes from Scott Schneeberger of Oppenheimer.

Thanks. Good Morning. Could you refresh us just in restructuring, and FLC, and economic consulting, those three segments; pricing, are we seeing, because the billable, average billable rate increased nicely, are we seeing, is it just you passing through price, or is it working on higher price point, more of a mix, mix element, if you could just elaborate on that, please?

Well, we do raise our prices, and our rates annually, to meet with the market. In restructuring, sometimes it is dependent on success piece that we get that average up the average hourly rates when you divide the revenues by the total hours. But we don't see a lot of pricing pressure, certainly in corporate finance and we don't see a lot of pricing pressure in FLC local.

We are competitively priced. Certainly there are always situations that are not the norm. But, generally speaking, neither those practices are extremely price sensitive. It is nor important to get the top people on the case, as quickly as possible, to get the best results.

Thanks. And with regard to -- you had mentioned an earlier question on acquisitions, and they had been quiet in the first quarter, and mentioned a few buyer beware things that you had looked at and monitoring some tuck-ins, should we expect a very active M&A second half, or might we see use of your big cash stockpile in another form, perhaps repurchases?

Clearly if we thought the stock was the best investment for us at the time we would be looking at that, since we -- knowing we will see the cash, where it is today, it is going to increase significantly over the next two quarters, given the anticipated performance. As I said, I think we're being presented a wide variety of opportunities, some are in different stage, and some of them we don't have agreement on price, and we're discussing it actively with people.

And as far as the large ones are concerned, again, it isn't the deal itself, it is the strategy that is the important part of it. So you have to make sure before we pull the trigger on one of those that we're very comfortable with the strategy, just like we were being aggressively in the communications which has paid off extremely well, for us over the last four years, since we've owned the company, and I think in looking at these big deals, it is a strategic decision, not a deal decision.

So it is unpredictable how they would hit. I think you would probably see certainly closing some transactions in different parts of the world as we go on, but they would be smaller.

Great. Thanks.

Moving next to Joseph Foresi of Janney Montgomery Scott.

Hi, guys. A question here, just on the general pickup in litigation and SEC work; I wonder if you could talk about the bankruptcies movement into general pickup, the tale in bankruptcy and how that might coincide with the general pickup in litigation and anything you're seeing on that particular front.

A typical bankruptcy we always said, is approximately eighteen months, twenty-four months and recent case, the larger ones with government intervention have been a lot smaller, a lot shorter. However, there is the trust or the residual assets that will take several years to liquidate, to ultimately pay out the creditors, and that creates a different type of work for us, not the classic restructuring work.

But I mean it is really -- the change in the economic condition of the world that will dictate when the litigation business will really pick up, and the restructuring business will wind down, and as you know, we've built and continuing to built a carriage practice, which is the M&A diligence side of the corporate finance practice, to pick up ground where the restructuring may quiet down, and that should dove-tail along with the increase in the forensic litigation activity, when those investigations pick up.

Was your question about the litigation that normally follows a bankruptcy?

No, it was more toward the normal litigation trends and I think you guys pretty much answered that as far as the SEC getting active and stuff like that.

There are a lot of empty seats at the SEC, and the various regulatory agencies that once filled hopefully that will create the bodies needed to bring the actions that we keep hearing are in the pipeline to be brought.

Do you have anything further, sir? Our next question comes from Shawn Jackson of Avondale partners.

Good morning. Can you talk about the Madoff and Stanford cases, how long a tail do those cases have, and what is your expectation when they significantly roll off, that you can supplement those with other business?

We can't talk about the internals of the case for obvious reasons. As you can see from the public announcements, the trustee in Madoff is moving into a recapture of funds set of activities; he has been very aggressive, with our assistance, in doing that, and it is in a combination of a claw back type of activity, with people who receive distributions, and then actions against the feeder funds and fund-to-funds for a wide variety of reasons, and that's moving along at a good clip. It is not going to mature for awhile. A lot of these cases have simply been filed recently.

And as in all of these things, there is negotiations, there is settlements, and there will be litigation, so it is pretty difficult to predict how that is going to go, except to say that it is extremely active.

I think in Stanford, Stanford will change its character, and it has been predominantly an investigation on behalf of the SEC, and now the Justice Department is in there and it is moving towards criminal activities, and again, it is very difficult to predict these things, because part of it will be determined by the pace that they want to assume.

Okay. Is it safe to assume that the peak of the revenue contribution from these has already hit? Or is it pretty steady through the rest of the year?

Well, in all of these things, we're -- when the technology group is involved, which tends to be in the very beginning where are you grabbing hold of documents, it is an intense amount of effort, so, in a lot of these, these instances, what you do is you have a huge spike, you have the hours burning off and then you plateau into more of a steady state.

I think in Madoff, clearly we've been more in a steady state, but in a rising curve. In Stanford, I think, we would be in the decline, to steady state mode and a lot of that is going to be driven by what justice does.

And thank you. And you can comment on the international revenue that you have, what percent of it, what percent is it of it, the entire business, and what is your expectations say for the --

About 17 to 18% in actual terms, and, probably it would be higher in constant currency. Our goal would be by 2012, that that number would be in the 30s.

Okay. Thank you.

And our final question will come from Robert W. Baird's Dan leven.

Great. Just one real quick one for you. Help us think about the regulatory engagements when the budgets get approved and come through in the new government fiscal year. How long does it take before you see business flows and new engagements from that?

We're already seeing some. Certainly as Jack said, we're seeing business in the tech sector, we're seeing business in big pharma, that's related to potential anti-trust issues, so that is already. So we're in the discovery preparation of documents phase there to respond to subpoenas.

And depending on how some of those mature, then you might have some aggressive activity back and forth in response to the regulators inquiry, so then they try to go into enforcement, for something that could lead to trials, so I think without a doubt, if they're manning up, you're going to see more and more of these subpoenas hit and you're going to see more demand for us to assist companies in responding to them.

With no further question, I will turn the conference back over to management for closing remarks.

I would like to thank everybody for being with us and look forward to speaking with you again next quarter.

That does conclude our conference for today. Thank you all for your participation.