LECG (NASDAQ: XPRT) is a consulting firm that provides specialized services such as expert witness testimony, economic, financial and statistical analyses, and litigation support. LECG completed its IPO in November 2003. Since its IPO, demand for the company's services has grown rapidly due to Sarbanes-Oxley, which restricts public accounting firms from providing their clients with consulting services. From 2003 to 2006 the company's revenue grew at a CAGR of nearly 30%. 
Despite this impressive revenue growth, poor management of consultant compensation and intense competition have shrunk operating margins from over 13% in 2002 to under 10% in 2006.  In response to investor demands for change the company has initiated restructuring plan to reduce operating costs.
Aside from its restructuring efforts, LECG's future success depends on its ability to compete with larger and more diversified consulting firms. While other competitors have focused on diversifying into different consulting arenas, LECG has focused on recruiting experts that have advanced degrees and significant experience in their field of practice. Many of these experts are professors with the reputation of being one of only a handful of people qualified to deliver expert testimony on their chosen subject. Much like a specialized retailer competing with Walmart or Target, it is unclear whether LECG's depth can compete with its competitors' breadth.
As of December 31, 2006, LECG employed 379 consultants that provide independent expert services to Fortune 500 corporations, law firms, and local, state and federal government agencies in the United States and other countries around the world.  LECG provides litigation support services and expert testimony in several consulting arenas:
LECG's revenue growth is largely the result of an acquisition-based growth strategy. Since 2002, LECG has acquired multiple companies that have contributed approximately 40% of total revenue growth. The depth of LECG's client relationships and the non-discretionary nature of its expert services has also contributed to strong top-line growth. However, a reputation of giving large bonuses to lure new consultants and retain strong performers has hurt LECG's operating margins. 
The following graph demonstrates LECG's revenue and operating income growth from 2002 - 2006:
The utilization rate of consultants is a fundamental operating metric that gives insight into a firm's ability to generate consistent demand. A demonstrable trend in either direction may foreshadow under or over performance by the firm. In LECG's case, poor utilization from 2002 - 2005 is evidence to the difficultly of integrating consultants. As LECG has grown through an acquisition-based strategy, it must constantly integrate new consultants into the existing business. This process inevitably reduces the amount of time current and new consultants can spend working on cases. However, the spike in utilization in 2006 is evidence that absent these integration demands, the strength of LECG's relationships with clients and the unique services provided by its experts does create sustainable work flows.
The following graph demonstrates LECG's consultant utilization rate over the past five years:
External consulting services brought in approximately $125 billion globally in 2006, and over the last several years spending on these services in the U.S. has grown at an annualized rate of nearly 7%, significantly outpacing GDP growth.  The consulting industry is loosely divided into four categories that feature highly fragmented competitive landscapes:
LECG's closest peers are the independent consulting firms that provide similar financial and operational consulting services to many of the same clients. As the "Big 4" accounting firms continue to bleed market share in the financial and operating consulting market, a tremendous opportunity exists to become the dominant provider of these advisory services. This market has several unique characteristics:
Demand for financial and operational consulting services is non-cyclical and has shown no signs of slowing down. Thus, the key determinant of these firms' future success is their ability to contain costs, especially costs related to consultant hiring, compensation, and retention. These firms operate under two distinct organizational structures that determine how consultants are paid:
The following graphs compare the relative revenue growth, operating margins, free cash flow levels, and consultant utilization rates of these competitors: