Heidrick & Struggles International Inc (HSII) 2002 Q1 法說會逐字稿

Good morning, and welcome to the Heidrick & Struggles first quarter earnings results conference call. Today's call is being recorded. For opening remarks and introductions, I will now turn the call over to Ms. Lynn McHugh, managing partner of Investor Relations. Please go ahead.

Good morning, everyone, and welcome to our conference call. We will be reviewing our 2002 first quarter results and provide some comments on the current business environment. If you would like a copy of the related news release or any other materials, you may request them through the investor relations section of our Web site at www.heidrick.com.

Featured on today's call are Piers Marmion, Chairman and Chief Executive Officer of Heidrick & Struggles, and Kevin Smith, our Chief Financial Officer. We plan for the call to last no more than one hour.

Before we begin, I'd first like to advise you that this call is being recorded, and that it may not be reproduced or retransmitted without our consent.

Second, certain matters in this call are forward-looking statements. We refer you to the Safe Harbor language contained in our press release dated May 1, 2002, which was widely disseminated by the various wire services and other media.

I'll now turn the program over to Piers for an overview of the quarter just ended. Kevin will then provide greater detail on the first quarter. Piers?

Thank you, Lynn. And good morning, everyone. Our 2002 first quarter was slightly better than we initially anticipated, with revenues of $91.7 million. This, of course, was well below the first quarter of 2001 but represented a 4 percent sequential increase over the fourth quarter. Some of the contributors to that sequential rise were our financial services practice globally and our industrial and technology practices in North America. Our executive assessment practice also made a good showing in the first quarter. While we are certainly pleased to see the modest improvement in revenue, we remain cautious in our expectations. Of course, we speak continually to our clients, and there seems to be some consensus forming inside and outside our client base that an economic recovery will be quite gradual in nature. We would concur with that view, and we're planning around it. We're experiencing stability in North America, and there are signs of an early upward trajectory. The picture in Europe, however, remains mixed, making projections a challenge. The region started the year strong, but revenue has been inconsistent in the past month or two. In our press release we told you that we currently believe that second quarter revenue would likely form in the 85 to $95 million range. We hope we are being conservative, but as long as uncertainty regarding Europe, in particular, exists we feel this is the responsible estimate. At that revenue level, however, we will have a better bottom line because of all the work that is being done around the world to get our cost structure more in line with today's reality. We presently estimate a range of 3 cents loss per share to diluted earnings of 4 cents per share. We acknowledge that based on the revenue assumptions of the first half of 2002, our previous estimates for the full year's revenues of $420 million are likely to be a little optimistic. A more gradual bounce-back in the business environment seems likely, so our basis for planning now is more conservative. While the revenue might continue to be unpredictable, it was important that we put ourselves in a position to break even under any foreseeable revenue scenario. And that we have done.

With this more conservative picture in mind, we took the decision to be more aggressive in this final [traunch] of our program to reshape the firm. Kevin told you in February that we expected to exceed the original estimate of $50 million of special charges by 5 to $8 million. In the end, we extended that a little further so that we could close or consolidate more locations than initially planned and trim our workforce by an additional 166 people. More than 70 percent of the reductions were non-revenue producers.

Allow me to summarize the scope of the actions we've taken since last June to reshape the firm. We have recorded a total $76 million in special charges since the second quarter of 2001. In these charges was $33 million of severance related to the elimination of 786 positions. And this includes 187 executive and management search consultants and 599 search support and corporate staff. Most of the remainder of the charges were for the closing, consolidation, downsizing or sale of approximately 25 locations. The total annualized savings for these aggregated charges will be 85 to $95 million.

We always face the challenge of balancing our capacity appropriately by considering both current market requirements and future expectations. It's our responsibility to ensure that our capacity at any time is sufficient but not so costly that it penalizes our main producers or our shareholders.

I'm now going to ask Kevin to review the first quarter results in detail, and then I will come back with some final comments before we take your questions. Kevin?

Thank you, Piers. Good morning, everyone, and thanks for joining us today.

As Piers said earlier, our operating results for the first quarter were a bit better than we initially anticipated, but the story is a somewhat complicated one. So I'm going to cover the financials in quite a bit of detail this morning. On a GAAP basis, the reported loss for the quarter was 98 cents per share. However, included in that number are a couple of non-comparable items-special charges of $23.2 million related to the cost of our program to reduce our workforce and to consolidate the number of offices in our network, and net unrealized gains of $143,000 related to our warrant portfolio. There were no realized gains on the warrant portfolio in the first quarter. The pro forma column of the schedules attached to the release are intended to provide an apples-to-apples comparison of our core operating results, and as such they exclude the non-comparable items in both years which are special charges in 2002, the goodwill amortization in 2001 since we're no longer amortizing goodwill in 2002 in accordance with FASB Statement 142. All realized and unrealized gains and losses on our warrant portfolio have been pro forma'd out as well as the cumulative effect of the accounting change reported in 2001 related to the implementation of FASB Statement 133 on derivative accounting. So that if we look at our core operating results, the pro forma net loss in the first quarter was $2.8 million or 15 cents per share. We continue to make progress on bringing our cost structure in line with our revenue run rate. And with the cost savings that should result from the latest reductions, we expect the improvements to continue into the second quarter.

Let's now run down the P&L line by line, and then I'll circle back and provide more color on our geographic regions. Revenue for the quarter was $91.7 million, a decrease of 34 percent from the first quarter of 2001 as weak economic conditions around the world continue to adversely affect search activity. All four geographic regions reported substantially lower revenue versus the comparable quarter of last year. Exchange rate fluctuations were not a significant factor in the quarter. The negative effect of currency rate variances was about 2 percentage points in the quarter. On a sequential basis, revenue increased about 4 percent over the fourth quarter. We think things have stabilized in North America while the results in Europe remain somewhat mixed. Of the $91.7 million of first quarter revenue, approximately $3 million was generated by our startup operation, Leadership Services, which provides executive assessment and interim management placement services. The worldwide revenue for management search were a little over $4 million in the quarter, of which approximately 2/3 came from Europe. Moving onto the expense lines, consolidated salaries and benefit expense decreased 21 percent versus the prior year. Base salary costs declined by 25 percent due to the reduction of more than 600 people since last March. Partially offsetting the base salary savings were the reversal of some bonus accruals during the first quarter of 2001 related to uncollectable receivables and other missed performance targets that benefited the compensation line by $13 million last year. As a percentage of revenue, salaries and employee benefits were 75.1 percent in the first quarter of 2002 compared to 62.5 percent last year.

The 62.5 percent compensation ratio in 2001 was unusually low due to the $13 million benefit that I just described. However, having said that, the 75 percent ratio in 2002 is much too high. It was driven largely by excess search capacity that we simply can't afford to carry in this environment. And that is what drove us to trim our headcount to the extent that we did at the end of the first quarter. If you look at the compensation line sequentially versus the fourth quarter, you'll see that it increased by $11 million on modestly higher revenue. The reason for the increase is that in the fourth quarter of 2001 we renegotiated certain minimum guarantees from a one to a three-year amortization period resulting in a benefit of $3.8 million, and we reduced our incentive accruals based on full-year performance. The first quarter incentive accrual is therefore considerably higher than the fourth quarter number. Of course, if our 2002 estimates are not met, the first quarter accruals will be adjusted downward later this year as they were in 2001. Turning to G&A expense, as I mentioned earlier, we adopted FASB Statement 142 on accounting for goodwill and other intangible assets in the first quarter. And, accordingly, we are no longer required to record goodwill amortization. We have eliminated the amortization expense from our 2001 pro forma numbers to put them on a comparable basis with the current year. Pro forma G&A expenses declined 36 percent in the first quarter to $27.8 million from $43.8 million last year due to lower fixed costs resulting from our office consolidations, substantially lower bad debt expense, and lower spending on discretionary items like marketing, travel and internal meetings.

On a sequential basis, G&A was down more than 26 percent from the fourth quarter. As you may recall, we had a number of one-time costs in the fourth quarter of 2001, but even if we eliminate those one-time charges, we've clearly made substantial progress in reducing our G&A expenses in this tough environment. So our pro forma or operating loss for the quarter was $5 million versus an operating profit of $8.4 million a year ago.

Looking at it sequentially, the operating loss in the fourth quarter was $7 million. So the good news is that we've cut the sequential operating loss by approximately $2 million on a marginal increase in revenues. Looking at the items below the operating income line, interest income in the first quarter declined 74 percent versus the first quarter of last year, reflecting our lower cash balance and lower yields on the cash.

The $251,000 in other income is primarily foreign currency transaction gains. Moving on to taxes, our pro forma tax benefit was $1.5 million in the quarter, yielding a consolidated tax rate of 35 percent compared to the 43 percent rate we had in the prior year. The decline in the effective tax rate was due to the fact that we operated at a loss in the first quarter of 2002. And as you might expect, we would not receive benefits on the losses in certain tax jurisdictions. The pro forma loss then for the quarter was $2.8 million, or 15 cents per share, on 18 million shares outstanding versus net income of $5.9 million, or 28 cents per share, based on 20.6 million diluted shares outstanding in the first quarter of 2001.

Okay, let me circle back now and review our performance by geographic region. And I'll begin by reminding you that effective with the first quarter of 2002 we are operating under one line of business-Executive Search. Our management search practice, which was previously known as LeadersOnline, has been integrated into Executive Search. Because the LeadersOnline segment was all North America based, its prior year financial results have been folded into the North American regional numbers. In addition to the year-over-year comparisons, I'll also talk briefly about the sequential changes in revenue and operating income on a quarter-over-quarter basis because in this environment those comparisons are clearly a more meaningful barometer of our progress. So in North America revenue declined 34 percent to $49.8 million versus the first quarter of last year primarily due to the continuing economic weakness in the US. Nearly every practice was down in the quarter. Management Search got off to an extremely slow start in January, but it picked up somewhat in the latter part of the quarter. Operating income in the North America was $3 million, a 48 percent drop from the first three months of 2001. The operating margin declined 6 percent- to 6 percent from 7.7 percent in the same quarter of last year. On a sequential basis, revenue in North America was essentially flat versus the fourth quarter of 2001. The decline in operating income was attributable to a higher level of compensation accruals for the reason I cited earlier and the cost of excess capacity. Consequently, we have eliminated another 97 positions in North America in connection with the first quarter charge, which should help margins in Q2. In Latin America, revenue fell 33 percent to $2.9 million primarily due to the political and economic climate in several parts of the region. The operating loss in Latin America was $353,000 in the quarter, an increase of 136,000 versus the $217,000 loss posted in 2001. As a result of these ongoing losses, we took the decision during the first quarter to reduce our presence in several cities in the region in order to improve the profitability of the business going forward. On a sequential basis, first quarter revenue declined 4 percent versus the fourth quarter number in Latin America largely due to the turmoil in Argentina and Venezuela. We did, however, see some improvement in the operating loss versus the fourth quarter's number due to better cost controls in the region. Revenue in Europe was $33.4 million in the quarter, a decrease of 35 percent from the first quarter of 2001. On a local currency basis, revenue declined 32 percent. As we've said before, Europe has been a bit of a mixed bag. Southern Europe has been strong, but the remainder of the region continues to struggle. Revenue in all industry practices declined year over year, and the operating loss for the quarter was $957,000 compared to operating income of $9.5 million in the first quarter of last year. Sequentially, revenue was up 10 percent or approximately $3 million from the fourth quarter of 2001. January was an exceptionally strong month for Europe, but since then performance has been inconsistent. And it is that lack of a clear trend in the region that causes us to set modest expectations for the second quarter of 2002. The good news is that our European operations have reduced their operating loss by $2.4 million versus the fourth quarter, primarily due to cost containment efforts in the region. In Asia Pacific, revenue decreased 29 percent to $5.6 million. Revenue in most of the practice groups were down, but a few of the small practice groups did report increases. Operating income in the region fell 17 percent to $659,000. On a sequential basis, revenue in Asia Pacific increased 10 percent over the fourth quarter of 2001 with particular strains in financial services. The region has also moved from a loss position to a profit of nearly $700,000.

Our corporate expenses were down slightly from a year ago as increased technology costs were more than offset by a reduction in corporate staffing and other expenses. Compared to the fourth quarter, corporate expenses were down 20 percent.

Let me now review our search statistics for the quarter. The number of confirmed executive searches in the quarter declined 34 percent versus the comparable quarter of last year. And the fee for search declined 4 percent on a year-over-year basis, primarily due to a change in the mix of searches. Sequentially, the number of searches increased 15 percent over the fourth quarter. At the end of March, there were 414 search consultants in the firm compared to 432 at the end of 2001 and 546 a year ago. The average number of consultants in the first quarter was 427. The number of consultants will decline further in the second quarter due to the cost cutting decisions that were made late in the first quarter.

Okay, let me now move on to our special items. Our first quarter results include special charges of $23.2 million of which approximately $15 million are cash charges. Approximately $10 million of the charge represents the costs associated with reducing our workforce and the balance relates to the closing or consolidation of additional offices and other miscellaneous costs. Specifically, the charge covers the elimination of 166 additional positions, including 45 executive search consultants, six management search consultants, and 115 search and search support and corporate staff. The annualized savings related to the charge are approximately $25 million. The cash outlay related to the special charge activities was $7 million in the first quarter. We anticipate approximately $11.5 million of cash outlays in the second quarter and approximately $3 million in each of the last two quarters. The reason for the lag in the cash disbursements is that some severance is still being paid out, and the charges related to the disposition of leases occur today while the cash spending continues until subleasing or negotiations with the lessors to terminate the lease are completed.

One final but important note on special charges, and that is we don't expect any additional charges for the foreseeable future. We have put the substantial cost cutting behind us and are now focused on other aspects of the business. And Piers will have more to say about that issue in a few moments.

Let me conclude my remarks with a few comments on our balance sheet, which remains quite healthy. We ended the first quarter with a cash balance of $68 million compared to $108 million at the end of December. The decrease from year-end is primarily due to the bonus payments of approximately $50 million in March and the $7 million of cash outlays for severance and other restructuring activities during the quarter. I expect the cash balance to be in the 70 to $75 million range at the end of the quarter- at the end of the second quarter. While we would normally be building cash in Q2, the cash we generate will be offset by outlays related to the restructuring activity, which should be approximately $11 million during the quarter. We should then build cash for the balance of the year until we pay the first installment of our bonuses in December. Accounts receivable increased approximately $15 million in the first quarter. Most of that increase, however, is in the current column of our [aging] because of the higher billings in March. As you might imagine, we continue to closely monitor our worldwide receivable collections. The only significant fluctuation on the liability side of the balance sheet is the $33 million decline in salaries and employee benefit accruals. This, of course, is due to the bonus payments in March offset in part by the bonus accruals made in the first quarter for the current year. Capital expenditures in the quarter were $1.6 million compared with $4.3 million for the comparable period of last year. As we said we would, we have begun the year by spending cautiously, both as a way to preserve our cash and to enable us to get a better view of 2002's performance before we make decisions on certain investments. At this point, I would expect our 2002 capital spending to be approximately $15 million. Depreciation and amortization of intangibles, other than goodwill, was $3.9 million in the quarter compared to $4.4 million last year. Last year's number has been adjusted for the elimination of goodwill amortization. Depreciation represented $3.3 million of the first quarter's expense. I estimate that depreciation and amortization expense for 2002 will be approximately $16 million.

In summary, we know this was another complicated quarter. And like you, we would like to get this complexity behind us. I believe the actions we've taken have now done that and have better positioned us to achieve our goals for the future. And with that, I'll turn it back to Piers for some closing comments before we open it up for questions.

Thanks, Kevin. Since last June, much time, attention and energy has been absorbed on adjusting our cost structure. It's come with a price but also with the expectation, as Kevin mentioned, that we are now finished with these programs of cutting. We are comfortable now with our structure in terms of its scale and shape based on any economic scenario we can reasonably foresee. We anticipate that any further cost control will be achieved in the normal course of business, and our business controls are much tighter than they were a year ago. We've now shifted our focus to spending the greater part of our days and our talents on revenue generation and the building of a truly enhanced business. Aggressive and imaginative business development continues to be the standard within the firm with a goal of taking a larger share of the market. We are giving our people more tools to do this. Let me mention a few. We're extending across the firm our ability to broaden and deepen our client relationships by training a number of select individuals in key account development and management. One of our first workshops in key account management took place this last weekend with attendees from all around the world, and several more are planned.

We are enriching our proposition to clients with the addition of our leadership services, which, as you know, include executive assessment, interim executive placement and coaching. This has expanded the portfolio of skills we can bring to our clients to help with their need to assess, acquire, or develop talent in their organizations. And the introduction of ((inaudible)) consulting, coaching and professional development services to our consultants and clients is occurring now with a very encouraging response.

We are creating technology platforms to improve the search process and to share knowledge better across the organization. The first generation of a global search system already in place in Europe and Asia Pacific was rolled out in North America last week, and Latin America will follow shortly. This will be the platform for future developments.

One other means of strengthening the firm's capacity to win is through selective hiring of consultants from the competition, and sometimes elsewhere, who are at the top of their game and are energized by the Heidrick & Struggles vision. We've made 10 such hires this year. Such hiring will also result in upgrading our team since capacity constraints will force us to be disciplined about swapping out under-performers to make room for additions. We are now clear in our minds that we are an ((inaudible)) organization and the emphasis on management to hire and develop our people appropriately.

Reshaping the firm rather than just cutting it is not an empty phrase. We are now a leaner organization, having reduced the scale and complexity of our network. We are focused where we should be geographically. We are becoming more of a true professional services firm, building real institutional strengths in product range, collective effort and quality standards.

We understand that not everyone who's been part of this business or indeed this industry will buy in at the same pace or indeed necessarily stay through the transformation, but most will gain strength from it. Equally we will and are becoming more magnetic to some who will join us just because they know they will thrive in this new environment.

Since October we have been communicating our vision. Our destination is clear. We will be a firm where deeper, broader relationships are nurtured and we truly partner with our clients to help them assess, acquire and develop leadership talent. We will be an organization where everyone will be truly connected through proper technology, common standards and more linked enterprise. We are becoming a performance-minded company that is managed for profitability with an appropriate return to all stakeholders, including investors and employees, and a culture where we are not driven just by ambitions of scale, but where being the best at what we do is a religion and attracts the highest caliber of people to our doorstep and clients to us.

Make no mistake. We know this evolution will not happen overnight. It's a journey measured in years, not months, if done correctly. We're mindful of the need to move deliberately and resolutely, but the foundations are now in place, and momentum is on the way. We look forward to sharing our success with you.

With that, I'll ask the operator to open the lines so we can take questions.

Operator?

Thank you. The question and answer session will be conducted electronically. If you'd like to ask a question today, please press the star key followed by a digit 1 on your touch-tone phone. We'll take as many questions as time permits in the order they signal in. Also, please limit yourself to one question and one follow-up question today. Once again, please press star, 1 to ask a question at this time. And we do have a question from Adam Waldo of Lehman Brothers.

Yes. Good morning, Piers, Kevin, Lynn and anyone else on the call.

Good morning.

Good morning.

A couple of questions, Piers, if I could, in terms of updating us on the plans that you had put in place that you reported to us on for the December quarter results period in terms of changing some of your compensation plans to perhaps more closely align variability compensation with variability of billings. Could you update us on that? You indicated that you might have more to say by the late April or early May period.

Yes, indeed. We have now rolled out the new consultant and management compensation plans. Let me start with management first. Management is all levels, whether they are, so to speak, full time and corporate managers or people who spend any element of their time in management at practice and office level now have a very clear framework for performance related compensation. Bonuses used to be given somewhat vaguely in the past. They are now tied very much to shareholder interest. Management compensation is a mixture of cash and long-term incentive programs, some of which reach out over a three-year period. And they are tiered according to levels of accountability. What they have in common is that they are triggered by achieving profitability and revenue goals. And unless those goals are triggered, nothing is paid. And they're also triggered by achieving certain personal and strategic objectives. So we feel that the alignment of management and shareholder interest and the health of the company are now really very well aligned.

With regard to the consultants, 70 percent of consultant compensation is formula ((inaudible)) commercially driven based on the booking and execution of business, as was traditional. Thirty percent is now subjective and based on broadly ((inaudible)) behavioral criteria. Half of that 30 percent is based on quality, really as defined and perceived by the clients. And we measure it by a number of metrics. And this is to ensure that quality standards throughout the firm are established and maintained in a fairly consistent way and that we don't chase the dollar before satisfying our clients.

The other half of the subjective reward is based essentially on firm building activity, what we might loosely call partnership. And it means different things to different people. The philosophy of compensation has been very well accepted, and one hallmark of the system is we have made it very clear that what, in fact, generally has been the case but may have got lost in very buoyant markets is now certainly the case. And there is a direct connection between firm profitability and the multiplier and compensation. That's created a great deal of positive peer pressure around management to make sure the firm is ((inaudible)) and that we're not wasting funds.

Well, thank you very much for that quite comprehensive update. I wonder if I could just have one follow-up turning to some cash flow issues, Kevin.

Sure.

Sixty-eight million dollars in cash in the quarter. And what were accrued bonuses at the end of the quarter? And then, I guess, if I could hypothesize, if the firm were to do somewhere around 360 to $400 of billings this year, where would you expect to exit 2002 in terms of accrued bonuses?

I'm sorry, the...

I'm sorry. I really asked a two-part question. I apologize.

All right. Let me respond to the first question.

Okay.

The accrued bonuses at the end of the first quarter are $15 million. And, I'm sorry...

And I'm sorry. I apologize. The second part of the question was let's say that the firm were to do 360 to $400 million of billings this year. Under the new compensation plans that Piers laid out, I assume that they are in effect for the 2002 year.

Right.

If that's an appropriate assumption and if we hypothesize a revenue range or a billings range of 360 to $400 million, where might we exit the year in terms of accrued bonuses payable during the first quarter of 2003?

It's somewhat difficult to answer because it depends on who produces that revenue. As Piers said, 70 percent of the payout is formulaic based on the revenue that they produce, and they ratchet up the tiers based on production. So it is a bit of a difficult question to answer, but there is- within the plan there is a company performance factor that ratchets down the pool based on the overall performance of the company. And I think- and that is really based on the profitability of the company. So it is, you know, a multi-part equation. There are a lot of variables in that equation in order to determine what that accrual might be.

No, I very much understand, especially given the 30 percent that's more- or I should say less tied to billings levels. But, again, if we just were to look at the 70 percent that's tied to billings and ignore the 30 percent apart- and I know that's not the easiest thing in the world to do, but I'm just trying to get my arms around what sort of cash outflow range we might expect in the first quarter of '03.

I would say that based on last year's performance you're probably in the $70 million range, 60 to $70 million range is probably the right number.

Okay. Terrific. Thank you all very much.

Sure.

And we'll move to Arnie Ursaner of CJS Securities.

MIKE [ROSS]: This is actually Mike [Ross] in for Arnie. Kevin, you mentioned specifically you thought that the number for the salaries and benefits in Q1 was too high. What sort of percentage can we look at for the- as the rest of the year rolls out?

Well, our goal, as we've said before, is to reduce that percentage over the next three years to somewhere in the 60 to 62 percent range. I would say for the balance of this year we're probably looking at somewhere in the vicinity of 65 to 70 percent.

MIKE [ROSS]: Okay.

Hi. This is Arnie Ursaner, if I could drop in for a quick one.

Sure.

Everyone owns their stock basically for the eventual recovery in your business. Can you kind of remind us, given your current cost structure, what you think your operating margin would be when business returns to normal?

Well, it depends on what you define as normal, Arnie. It's a question of where the revenue shakes out. Again, our goal over the next three years is to move to a double-digit operating margin. And we feel that with the actions that we've taken, we have positioned ourselves to achieve that goal when the economy recovers.

Is it fair to say you did not give your breakeven revenue number in your mind?

Sorry?

Did you actually give what you believe to be your breakeven revenue number?

No, we didn't give that number today. You know, our sense right now, Arnie, is that we're probably tracking somewhere in the 390 to $400 million range for this year. And as we've said before, and we reiterated today, we think that we will be at breakeven or marginally profitable for 2002.

Okay. Thank you very much.

Sure.

And we'll move to Mark Marcon of Wachovia Securities.

Just wanted to ask about the list of cash outflows that we have to go through. I just want to make sure I heard that correctly. We only have 11.5 million that's going to come out in Q2. There's no more bonuses that need to still be paid. They've all been paid.

No. No. Bonuses are paid in December and March.

Okay. So basically the 68 million that's on the balance sheet right now in terms of cash goes down to approximately about 55, 57 million.

I'm sorry. Fifty-five or 57 when?

At the end of Q2.

No, no, no, no. We said that we'd probably be in the 70 to $75 million range, okay, because we- ordinarily we build cash in the second and third quarters.

Even if you generate at an operating loss.

Yes, because so much of the expense base is accruals of incentives to be paid out in December and March.

Okay. Great. Great. And, you know, the corporate G&A and just the general G&A, you've done a great job of bringing that down. Are we at a level now that's going to be kind of flat going forward or...

Yeah, it would be- I would say, in the second quarter you'll see it be either flat or tick up very marginally. As we've said, we have really held the reigns on discretionary spending in the first quarter, things like marketing, travel, meetings, et cetera. And we continue to hold the reigns pretty tightly on that issue, but there are some things that we need to do in order to generate revenue going forward.

Great. And then one last one, if I may. Just a little bit more color in terms of the mixed results in Europe. Can you go through that again just with regard to monthly sequential trends and regions?

Southern Europe has been pretty strong. And where we continue to struggle is in the rest of the region-Germany, Scandinavia, UK, et cetera.

And you said it was really strong in January. Is it- but then it bounced around.

Then it tailed off, right, and it's because of the tail-off that we've seen in Europe over the last couple of months.

Is it tailing off in April?

April has been somewhat weak, yes.

Okay. Great. Thanks a lot.

And we'll take our next question from Chris Gutek of Morgan Stanley.

Thanks. Good morning, Piers, Kevin and Lynn.

Good morning.

Good morning.

A couple of questions. Piers, you said that you expect a relatively slow recovery and demand for the service based on the comments from the customers. And just to be very clear, is that because you are expecting a relatively slow economic recovery, or conversely are you expecting a fairly normal economic recovery but a relatively slow delay in the recovery in demand for the executive search services specifically?

No, I think it's driven by our expectations for the overall economy. We're seeing clients just being very cautious at the moment. We do have much more active dialog with our clients than was the case in the last six months of last year. And we, therefore, think there is a fair amount of pent-up demand, but that's not going to be released until there's more confidence in the economy.

So I don't want to put words in your mouth, but in other words, if the economy does recovery a bit more strongly, then the revenue guidance that you just talked about, the 390 to 400 for the full year, could be a bit on the conservative side. Is that fair?

We think it's realistic. We're planning realistically. And we think it's pretty real.

Okay. And with those revenue assumptions, 390 to 400 million, is it fair to assume that all of the cost cuts with the last set of headcount reductions and office closings will be fully realized in the second quarter, or will you be experiencing additional savings into the third and fourth quarter to cause the profitability in those quarters to improve more significantly versus the guidance you've given for about breakeven in the second quarter?

Well, the benefits should continue out over the balance of the year. We will not get a full impact in the second quarter because some of these severance actions haven't happened until April, and some of them may even drag into May. The decisions were all made by the end of the first quarter, but not all of the actions have yet occurred. So we will get a partial benefit in the second quarter, but everybody should be out and all of the leases wound down by the end of April. So we should get a full impact in the third and fourth quarter.

Okay. And a quick specific follow-up if I could. The corporate cost was down quite a bit in the first quarter. What's the expected run rate following all of these restructuring cost reductions for the corporate expense in particular?

Probably somewhere in the 7 to $8 million range quarterly.

Okay. Great. Thank you.

Moving on to Mark Allen of SunTrust, Robinson, Humphrey.

Good morning, guys. Nice job in gaining company position.

Thank you.

In your press release you had mentioned, I think, confirmed searches were up 15 percent sequentially from the fourth quarter.

Correct.

And I was basically- is there any seasonality to the business, or is that a, you know, genuine uptick? And then I'm assuming that North America might have been up more than that and Europe would have been down. Any color on the split between North America and Europe?

Well, what we have seen is three successive months of increases in confirmations in North America. We're not ready to declare that a trend at this point, but we have seen three successive months of increases. And that's the first time that we've seen that in probably a year. Europe, as we said, has continued to be somewhat weak, particularly outside of southern Europe.

Okay. And, I guess, a thought would be that the European economies would, you know, basically go through the US cycle but with a lag.

Correct.

Okay. Second question, on the pricing front I think you had mentioned you had a mix shift that lowered the fee for search, but any comment relative to executive compensation? What's the rate of inflation there, and is there any change between cash-based compensation and stock-based compensations in the people you place?

I don't think a huge shift since we last spoke, in any event. There are clearly less pre-IPO startups in our mix of business. But cash comp- and, you know, therefore the equity components in some of the work that we're doing is smaller as a consideration. Cash continues to be the primary way of attracting people. And we're not seeing any massive shifts in compensation trends at the moment.

Is there still some modest inflation in executive comp, Piers?

Yes, there is.

Okay. And final housekeeping question. Your consultant count was 414 at the end of March. And I think you mentioned an additional 51. Can we get a- what would be your consultant count say at the end of June as the additional cuts take effect?

All right. We think it'll be somewhere in the 380 to 390 range.

Okay. Thank you, and good luck.

Thanks.

Thank you.

And we have a question from Dan [Mendoza] of [OMT Capital].

DAN [MENDOZA]: Hi. I had a quick question on the balance sheet. Just wanted to get a little bit more color on the receivables increase on a relatively flat revenue.

Sure. Right. We had a spike in activity in March. January and February were kind of weak, and the activity picked up in March, particularly in North America. And as a result of that, you have a lot of current receivables in the mix.

DAN [MENDOZA]: Okay. That's helpful because I thought that commentary had been that Europe was strong in January. Can you give us any sense as to whether that activity level in North America has continued so far this month- or in April?

April was one of the three months that I talked about in that sequence of three successive months of increase.

DAN [MENDOZA]: Okay. Good. Thanks.

Sure.

And we'll move to Michael [Wiseberg] of ING Asset Management. MICHAEL [WISEBERG]: Did you say you thought your salary wages expense would be in the 65, 70 percent range in the second quarter and for the ((inaudible)).

Well, that's the goal for the year as a whole.

MICHAEL [WISEBERG]: Okay. Where might it be- in terms of your guidance of plus or minus 3 cents, where might it be for the second quarter to achieve that?

Again, it's difficult to tell. It depends on how the revenue flows for the quarter, who produces the revenue. There are a lot of variables that go into this. And so it's difficult to tell at this point what that number would be for the quarter. But the goal is to bring it down to somewhere in the 65 to 70 percent range for the year. MICHAEL [WISEBERG]: I presume you'd have to be at the 390, 400 million revenue level to get there.

Not necessarily, no. It depends on- again, it depends on the performance of the company. Our goal, as we've said earlier, is to be breakeven to marginally profitable for the year.

MICHAEL [WISEBERG]: Great. And then once you get down to that level, I presume you need some top line growth to further leverage the ratio lower.

Correct.

MICHAEL [WISEBERG]: Great. One other thing. I know this corporate expense, as you report it in the segment breakout, is running flat year to year despite all the cuts. Is there a reason for that?

It's primarily driven by the spending on technology.

MICHAEL [WISEBERG]: Okay, because spending and technology is in the corporate.

Yes.

MICHAEL [WISEBERG]: Okay. So that number- even with all the cuts, that number won't be lower. Is that right?

No, it comes down a bit, but I don't expect it to move markedly as we move forward.

MICHAEL [WISEBERG]: Okay. And then finally, you said the number of consultants would be 380, 390. What would be the change in total employment do you expect by the end of June?

I don't know if I have that number readily available. We're checking to see if we have the number.

MICHAEL [WISEBERG]: Okay. That's quite...

So we're guessing somewhere in the 1500 range total employment.

MICHAEL [WISEBERG]: At June 30th?

Yeah.

MICHAEL [WISEBERG]: And that would be versus what March 30th?

About 17.

MICHAEL [WISEBERG]: Oh, so you'd be down 200 more people this quarter.

Yeah. Well, as we said, the 166 was the number that we ((crosstalk)).

MICHAEL [WISEBERG]: All right. And that's been reserved ((inaudible)) in terms of your anticipated- in terms of the first quarter write-off.

Yeah, yeah.

MICHAEL [WISEBERG]: Great. Thanks a lot.

Sure.

There are no other questions. Thank you for joining us. That does conclude today's conference.