Heidrick & Struggles International Inc (HSII) 2008 Q4 法說會逐字稿

Good day, ladies and gentlemen, and welcome to your Heidrick & Struggles fourth quarter 2008 quarterly conference call. At this time all participants are in a listen-only mode. Later we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions)

I would now like to introduce your host for today's call Ms. Julie Creed. You may begin, ma'am.

Good morning, everyone, and thanks for participating in Heidrick & Struggles fourth quarter and 2008 conference call. Participating on the call today are Kevin Kelly, Chief Executive Officer, and Scott Krenz, our Chief Financial Officer. As a reminder we will referring to supporting slides that are available on our website at Heidrick.com and we encourage you to follow along or print them.

As always we advise you this call may not be reproduced or retransmitted without our consent. Also, we will be making forward-looking statements on today's call and ask that you please refer to our Safe Harbor language contained in our news release and on slide one of our presentation. And now I will turn the call over to you, Kevin.

Thanks, Julie. And thanks to all of you who are taking the time to participate in our call today. If you are following along with the slides we have posted on our website, I am going to start with slide number two.

Market conditions around the world deteriorated more than we expected in the fourth quarter, but the 2008 net revenue of $615.9 million declined only 0.6% from 2007 and the operating margin was 9.0% compared to 12.8%. 2008 was not the year any of us were expecting but we managed quite well given the circumstances.

Our geographic diversification was important to 2008 results. The Asia Pacific region, now 16% of our mix, grew net revenue by 27.3% off-setting declines in the Americas and EMEA regions whose economies were more severely impacted by the credit crisis on resulting recession.

By industry practice, referring to slide four, revenue growth in 2008 was achieved by the Industrial, Business & Professional Services, Life Sciences, Technology, and Education/Non-for-profit practices. But their growth was offset by declines in the Financial Services, and to a lesser degree, Consumer Goods practice.

Continuing with slide seven, we confirmed 4,812 executive searches in 2008, down 6% from 2007, but the average fee per search increased 7% to $122,600 compared to $114,900 in 2007. The increase in average fee per search was driven by double-digit growth in Europe and in the Asia Pacific regions and growth in the Americas region as well.

In addition to an increasingly competitive market for top talent, the increase in average fees per search was driven by our continued focus on working at higher levels of an organization. Focusing our work at the top level of any organization is very important to us. 51% of our revenue in 2008 came from searches at the Board and C level. The balance of our revenue largely came from follow-on work as a result of our success at the top.

Looking at slide eight, productivity, which we define as an average revenue per executive search consultant, was $1.4 million in 2008, down just slightly from $1.5 million in 2007. The decline was a result of a higher number of consultants during the year, but essentially the same revenue levels.

Turning to slide nine. Consultant headcount at December 31 was 419 and voluntary turnover in 2008 was very low at 6% compared with 16% in 2007. Today our consultant headcount is approximately 395. This reflects the global headcount reduction announced last month, annual promotions which occur each January, and a new hires made since the end of the year in higher growth regions or practices where we continue to invest for the future.

Now I will turn back to the fourth quarter results on slide 10. Net revenue in the fourth quarter of $134.9 million was down 12.1% compared to last year's fourth quarter and declined 14.8% sequentially compared to the third quarter. On a constant currency basis, net revenue in the quarter was only down approximately 6% year-over-year.

Executive search confirmations in the fourth quarter were down 16.9% year-over-year and down 23.1% sequentially. We saw slowing confirmation trends in every region this quarter and in almost every industry practice group. Although we saw a slight improvement in January confirmations, they were not what we were hoping for and at this point February confirmation levels appear to be slightly lower than January. Fourth-quarter revenue was hampered by slowing confirmations in the back half of the year and the 2009 first-quarter revenue will be negatively impacted by the continuation of weak confirmations into February.

Referring to slides 13 and 14, fourth-quarter operating income was $5.1 million compared to $18.2 million last year and the fourth-quarter operating margin was 3.8% compared to 11.9%. Despite reductions we made to salary and employee benefits and savings in general and administrative expenses, we could not fully offset the effect of a decline in net revenue.

So with that brief overview of 2008 and the fourth quarter, I will now turn the call over to Julie to go into a little more detail on some of the key line item and regional results.

Thanks Kevin. Turning to slide 15. Salaries and employee benefits expense in the fourth quarter was $98.8 million, down 4.4% year over year. Variable or discretionary compensation declined $11.4 million in the quarter, mainly as a result of lower revenue and operating results. But this was offset by higher fixed compensation of $6.9 million as a result of a 6.3% increase in headcount since last year's fourth quarter and in particular search support staff.

Total stock-based compensation expense in the quarter was $6 million, an increase of $1 million compared to last year's fourth quarter which benefited from a higher RSU forfeiture rate.

Turning to slide 16, general and administrative expenses in the quarter of $31 million declined 3.3%. This decline reflects our cost savings initiatives as well as the absence of Professional Services fees incurred in last year's fourth quarter, but was partially offset by an increase in bad debt expense in the quarter.

Looking at slide set 17 and 18, net income in the fourth quarter was $5.3 million and diluted earnings per share were $0.30 reflecting an effective tax rate of 27.9%. The lower rate in the fourth quarter reflects the favorable settlement of a European tax audit and the release of tax reserves associated with the expiration of certain tax-related statutes of limitation for prior years.

Now I will briefly review our regional results in the fourth quarter. Please turn to slide 19. In the Americas region, net revenue in the fourth quarter declined 14.7% year-over-year and was down 16.6% sequentially. Education/Non-for-profit and Technology practice groups achieve double-digit revenue growth in the quarter, but they were offset by declines in the other practices.

Fourth-quarter operating income declined 47.1% year-over-year and the operating margin was 11% compared to 17.8% in last year's fourth quarter. The decline in operating income and operating margin is mainly a result of the lower revenue levels but also reflects higher fixed salaries and benefits for additional search support staff and higher stock-based compensation related to performance and service-based awards as compared to last year's fourth quarter.

In Europe, net revenue in the fourth quarter declined 16.1% year-over-year and declined 9.1% sequentially. On a constant currency basis net revenue only decreased about 3%. Every industry practice saw year-over-year declines reflecting the economic impact on our clients in this region.

Operating income in Europe decreased 63.4% and the operating margin was 8% compared to 18.2% in last year's fourth quarter. The decline in operating income and the resulting operating margin in the quarter reflect a combination of lower net revenue, higher salaries and employee benefits expense, and higher bad debt expense.

In the Asia Pacific region, net revenue increased 9.2% year over year but decreased 19.6% sequentially compared to the third quarter. On a constant currency basis net revenue grew approximately 18% year-over-year. Operating income declined 60.4% and the operating margin was 2.7% compared to 7.3% last year.

The largest factor that negatively impacted operating income and the resulting operating margin in the Asia Pac region was an increase in salary and employee benefits, reflecting an increase in total headcount of approximately 17% year-over-year including an increase in consultant headcount of 43%. As you know, this translates into additional fixed costs without corresponding margin as these consultants get up to speed.

Now I will turn the call over to you, Scott.

Thanks, Julie. The current state of the economy makes forecasting especially difficult. We believe that when market conditions improve our clients will turn to us for their talent needs, but it is difficult to precisely predict when this will happen. As of today, we are forecasting 2009 net revenue of between $450 million and $500 million and an operating margin of between breakeven and 5%. Of course, these numbers exclude any impact over structuring charges which may be taken in 2009.

It is important to note that our forecast assumes a pickup in confirmations in the second half of 2009. Our forecast also reflects a consensus estimate for foreign currency rates, but the volatility in the currency markets only adds to the difficulty in forecasting. So while this is our forecast today, the unprecedented uncertainty and volatility in the global economy raises the possibility that our 2009 outlook could change materially as the year unfolds.

On January 15 we announced a restructuring plan to reduce overall costs and improve operational efficiencies. The restructuring included a headcount reduction of approximately 12%, or somewhat more than 200 employees. This was spread across every region and every level of the Company. We expect annual savings of approximately $31 million from this headcount reduction. This will also result in a first-quarter restructuring charge of approximately $20 million, substantially all of which will be cash.

In 2009, we are anticipating lower G&A expense as a result of current and planned cost-savings initiatives. In January, we shared our long-term goal to cut real estate expenses and support costs by approximately 30%. This will be achieved by closing or consolidating some of our offices and adopting new technologies and processes to improve productivity in such areas as accounting, procurement, and human resource administration.

This won't happen overnight, but we do expect to see some progress in 2009. We will share our progress with you as the year progresses.

Our financial position remains solid. Net cash provided by operating activities was $65.7 million in the fourth quarter and our cash balance was $234.5 million at the end of the year.

Turning to slide 20, in March we anticipate paying approximately $130 million in bonuses as well as the final earnout payments of the $11.6 million to Hudson Highland and $800,000 related to the 2007 acquisition of Renton James. In 2009 we are planning capital expenditures of between $17 million and $21 million. The majority of this will be invested in our new search system. The budget for the new search system has not increased, but the timing has changed pushing more of the investment into 2009.

We did not repurchase any shares of our common stock in the quarter. However, we did continue to invest in our business where we saw opportunities to enhance our market position.

Our strategy has not changed. We have brought on several experienced consultants this year and expect to continue to prudently acquire new talent. We will also look for ways to accelerate our capability to deliver a broader range of talent management solutions. Strategic hiring, training and development, and acquisitions have been and will continue to be part of executing this strategy.

With that I will turn to you Kevin for the close.

Thank you, Scott. Given the unprecedented turmoil in the economies around the world, our business has slowed. We know that we are in a cycle and that organizations will more actively look to us to help them expand or upgrade their management teams. The timing of when they will do that is still unclear. We will continue to evaluate our cost structure against expected revenue levels, but our actions have to be balanced with how best position our company for improving market conditions. And this is a delicate balance.

Last month we shared our plans to more aggressively focus on growing our leadership advisory services. Turning to slide 21 you will see that growing this business means expanding our service offering from executive recruiting to something much more broadly defined as talent management. It is a very logical extension of our search business, not only focusing on the acquisition of talent, which is executive search, but retention and development, assessment and succession planning. There is so much more to talent management and we have either been giving it away for free or letting somebody else do the work.

But I just want to be clear that this is a five-year goal and during that time we have no intention of shrinking our executive search business. Our intention is to grow both businesses while expanding our leadership advisory capabilities in order to offer a more holistic talent management solution.

We have a 56-year history of helping organizations manage their talent needs in times of both prosperous and retrenching economies. We believe that we have arguably the strongest brand in our industry and we are highly diversified geographically and from an industry practice standpoint. I know that our company will weather this storm and be better because of it.

At this point we would be happy to take any questions that you might have.

(Operator Instructions) Josh Vogel.

Good morning. Thank you. I was curious -- you know we are seeing the fixed portion of the compensation increase and I was wondering what you are targeting this metric to get to in 2009?

You are exactly right. It has increased and that is part of the process of managing a professional services company in a downturn. As revenues decline it's just hard to stay ahead of the curve. We attempted to redress at least a portion of that in January when we reduced staff here, but it does have an impact through the year.

As to what the target is for the metric, clearly it's too high at 70%. But we probably are thinking of something which historically is more between 65% and 70%, would vary from year to year.

Okay, great. And I think you guys have stated in the past that you are looking to decrease stock-based comp expense going forward. I was wondering if you had a target for that in '09?

In 2009, our budget right now is approximately $19 million for stock-based compensation. And that would be down from -- this year it was $24.8 million.

$25 million. Right, okay. And of the -- switching gears a little bit -- of the 48 consultants let go in the restructuring, was it mostly across the Americas and Europe or was it just the Americas, just Europe?

It was across the board. I mean, we went through systematically and took a look at those consultants --. First of all, any time you have to let people go it's not fun, nor is it good for either the organization and/or those individuals you let go. So we were very stringent in the process of making sure that those individuals that we did let go in the restructuring were those that weren't performing over a period of time, and usually that time is between 18 and 24 months.

Okay.

But it was across the board, it was in all four regions.

Okay. And, lastly, can you just remind us what the bonus payment was last March?

Oh, about $140 million.

$140 million. But you have about 30 less consultants?

Julie? Let's quick look. I think you are right. Yes, it was somewhat higher, I mean, last year than what we are anticipating paying out this year. The $130 million this year.

All right. Okay, thank you.

Tobey Sommer.

Good morning. This is Frank in for Tobey. How are you?

Good, Frank.

I wanted to ask a little bit about the average fee per executive search that crept up and I guess in your prepared remarks you talked about double-digit growth in Asia and Europe and growth in the US. Could you give us some color on a sector basis of kind of drivers of that increase?

I can't, Frank, probably address it by industry sectors but I can just say that we have -- starting in 2004, end of 2004/2005 we made a concerted effort across the European region to move upstream in terms of working more at the top and it has paid off. Same in Asia Pacific. You have seen compensation increase given the supply/demand issue of talent in the Asia Pacific region and we have continued to focus on the top in North America and Latin America.

So I think in aggregated it's just more of a focus on making sure that we work at the senior level across the globe in every industry and practice in which we operate. That in conjunction with some of the comp increasing, primarily in the Asia Pacific and the emerging markets has driven that average fee per search up.

Okay, great. And shifting to what are your thoughts on uses of cash going forward? There are no repurchases this quarter. Can you talk a little bit about how you view repurchases versus continued investments and other use of cash?

Well, I think there are a couple of things to consider. First of all, and probably foremost is, as I probably belabored in my comments, this economy is different from anything we have seen. I think everybody who is out there is trying to be as cautious as they can and that goes with cash as well.

Our view is that until we have a little more clarity on what is happening with the global economy we will attempt to husband our resources and our cash, which I guess is a backhanded way of saying that it's unlikely we will be repurchasing shares here. Now, we leave open the fact that possibility, but I think in this market we have been quite clear that maintaining our cash balances is a top priority for us.

As it relates to acquisitions -- and Kevin will probably want to follow up a comment here -- we have done traditionally, as you know, a number of smaller acquisitions. I would not shut that out as a possibility in '09, but certainly we are backing away. And, again, generally keeping with maintaining our cash balance. Unless something is incredibly compelling we probably would not consider it at this time.

That won't stop us from acquiring individual high producers out there that we find in the marketplace. As for broader acquisitions, we have stated I think publicly now that, particularly in the area of the broader talent management and leadership advisory, we would be interested in looking at something which might be more sizable than what we have traditionally done. But it's definitely at the sort of looking stage, don't expect anything imminent here. Kevin?

No, I was just going to say valuations have come down and those organizations in the search industry that don't have a global footprint are probably hurting more so than those that have a global footprint. And if there is an opportunity and it makes sense -- of course we want to be prudent -- but we would look at organizations that help us capture market share and use this as an opportunity to capture market share and market share globally, either by region and/or by industry practice. So I think otherwise we want to make sure that we in this market hang onto our cash.

Okay, great. That is very helpful. And if I could squeeze one last one in, you talked about bad debt being up a little bit. Are you seeing anything on the collections in terms of delays or issues there? And can you talk about that?

The answer is it has been remarkably good in terms of DSO. I have been surprised how well our collections have held up, which I think is, by the way for any of our consultants who are listening on the call, is a real testimony to how hard they have worked to bring cash in as well here. So that has held up pretty well.

You know when we look at the bad debt expense and what we have left is preserved, we have pushed that up somewhat from 5% to 7% of our balance simply because, again, in an uncertain market, with the economy the way it is, we just wanted -- if we were going err, we wanted to err on the side of being more prudent than aggressive here. So that has drifted up a little, but it doesn't reflect any specific issue or any specific problem area. It is more an anticipation of generally what we see in the economy and trying to be prepared for it.

All right. Great. Thank you so much.

Kevin McVeigh.

Great, thank you. And thanks for framing out some '09 guidance. It just want to spend a moment on that if possible and realizing that the visibility is very, very limited, wonder if you could just give us a sense of the contribution across regions as you think about the revenue range?

We have not broken it out with that level of granularity in the past and probably will not do so now. However, I think Kevin was pretty upfront about sharing the results from '08 and in broad sense we expect that to continue. Asia continues to be a focus of investment and growth for us. And at the moment the US and EMEA tend to be suffering relatively more than the rest of the world in this. Kevin, is that fair?

That is correct, although you do see some parts of Europe continuing to grow as well. So, I think from our perspective we want to use this as an opportunity to continue. We don't want to pull back in a region growing like Asia Pacific, but we expect Asia to keep growing. We expect North America and Europe to fall back somewhat. But, overall, I think we want to use this, again, as an opportunity to figure out ways to grow our business in the down market.

Great. And then it sounded like you are kind of expecting a pickup in confirmations in the second half of '09. What would it take in terms of any type of metrics we could look out for that to happen? I guess as you think about a pickup in the second half of '09.

I would say and then I will let Scott finish off here. First of all, what we are hearing from our clients is that -- and clients across the globe -- is that they expect to hit the button on recruiting again somewhere in the third or fourth quarter.

Now, as you said earlier in your comments, we don't have much visibility right now. But this is what we are hearing and our consultants are hearing on the ground from their clients, be it either from the practice leaders and/or geographic heads. So at this point in time that is what we are going to see.

In terms of what we need to hit as a bogey each month or each quarter, I will let Scott convey that to you.

Thanks. Again, in the interest of not getting too granular here, we have seen a fall off which we said starting probably November-ish we saw a fairly significant falloff in confirmations and that carried through December. And, frankly, has carried through January and February here as I think we are in the heart of the darkness here.

You know all of our conversations with the consultants out there and with the various regional and practice heads would indicate that there is a -- they sense a pent-up demand in the market. That a lot of things have not been canceled, they have been sort of postponed as people similar to us, I guess, are sort of waiting for some clarity out there. So we bake that in.

At the lower end of our range, $450 million, there is some pickup but it is pretty modest. Sort of a little more robust pickup in the back half gets us to the higher end of the range and that really is what is driving that range is our attempt to predict and forecast the back half of the year. But I will tell you, as Kevin said in his remarks, that we expect the front half and probably specifically the first quarter to be relatively weak compared to what we see in the back half of the year.

Great. Thank you. And then if I could just one other one. Scott, do have a sense of a range of free cash flow in '09, assuming obviously the range on the margins are pretty wide?

Yes, and the nice thing is that this continues to be a cash-generating business. I guess there is -- the other thing I would remind everybody as we manage the year that a very substantial portion of our expenses is compensation, and most of that is discretionary in nature. So we do have levers we can pull during the year depending on how we see the outcome.

Now in terms of the free cash flow to give you your number, I think we are thinking of numbers that range at the lower end sort of in the $25 million to an upper end of somewhere, $50 million -- maybe a little short of that short of that -- range of free cash flow. That would assume sort of the normal cash-generating capacity of the Company with a couple of other things to note here.

Obviously, we pay bonuses in the first quarter here, which would be approximately $130 million. And as I said, we also have a couple of these earnout payments to make, just short of $12 million for Hudson Highland and just short of $1 million for Renton James. So that is going to depress the front end of the year as well as we pay out that cash.

Great. Thank you.

Clinton Fendley.

One other follow-up question on the cash flow, any expectation for pension plan contributions in '09 or 2010?

Nothing of significance. We have a few things around the world here, but that is not a big issue here for the Company. So that is not going to impact us in any significant way.

And, Scott, could you provide some more detail on the other net line item number for the quarter? The $1.2 million.

On what, the cash flow or on the --?

On the P&L.

Or on the P&L?

On the P&L.

Let's see. If you can imagine, everybody is pushing pieces of paper around here because we have more analyses than you can shake a stick at here. So which line --? You are talking the other income line or which line?

Yes, yes. The other line for $1.2 million.

$1.2 million.

That is okay. While you are looking, I guess, Kevin, also on just the assumption of the pickup for confirmations for the second half of the year. I wondered if you could provide a bit more color as to when you might be expecting those confirmations to pickup. I guess especially considering both the lag effect that confirmations have on revenue as well as the accretive nature for the revenue impact here?

It's interesting because a lot of it right now is anecdotal. And that is when we go out and I talk to our global practice leaders and regional heads who are constantly in the trenches talking to their clients. So you know what we are hearing across the globe -- and we haven't seen a significant falloff in Asia and Europe has been fairly strong given the economic environment. It's primarily here in North America that our clients are predicting an uptick in confirm somewhere in the third and fourth quarter and that is a consistent message that we are hearing.

Now having said that, the only caveat is I think every day we wake up and something else surprises us in these markets. So I don't think, whether it's us or any other organization out there, we have visibility beyond the next two or three months.

Just to get back to you the specifics on that line item, now I don't feel so bad as to why I couldn't recall what was in that line. It's one of the most mundane things of everything. What it is -- it's FX impact. It's almost all FX impact on intercompany loans.

Oh, okay. Great. Thanks guys, appreciate it.

Trying to test me there -- and you did.

[Joe Ockery].

Hi, there has been a lot of focus on executive compensation recently and I know in certain situations your fees are capped so the impact here could be muted. But just wondering how you are thinking about executive pay limits as it relates to your business?

That is a great question and something I always want to reiterate, so I appreciate you asking it. I mean, two things, and I will address Financial Services first.

Financial Services is quite interesting for us because the perception is with the significant falloff in comp vis-a-vis investment banking, capital markets, etc., it's going to drastically impact our business. But what we have, particularly when it comes to financial services, is caps anywhere between $350,000 per search and $500,000 per search. So even though a banker may end up making significantly less money via down $5 million to $2 million to $1 million, our caps kick in so it doesn't hit the top line as much as it's perceived to have been historically.

Secondly, in CEO and executive comp, particularly the $500,000, I think cap that has been put into place -- as of this point in time it's a very finite number of institutions that that is actually impacting. And the same thing holds true when it comes to CEO and executive comp. Most of the senior searches we do are capped at about $1.5 million and that is based on the first year's guaranteed income and can be both equity and cash.

So the fall off in executive comp we don't believe is going to have a significant impact at this point in time on our business and that holds true globally. But, primarily, it's impacting or will impact the United States in terms of these finite number of organizations, particularly, I guess, the financial institutions and some of the car companies. But we don't see that at this point in time really impacting our business.

Okay, and then in your prepared remarks you had mentioned still seeing solid demand in certain practices and/or regions, just wondering if you could provide a little more color there.

Sure. We still see demand across Asia Pacific. Our Technology practice has still been robust. Parts of Life Sciences, the alternative and renewable energy space continues to grow for us. The Education and Non-profit practice continues to grow as well. And believe it or not, there is demand across different areas or segments of Financial Services as well so that hasn't completely fallen off a cliff.

So I mean, overall, we are seeing clients -- some clients still looking at this as an opportunity to upgrade. Some need to grow their business geographically and/or by industry -- excuse me, by product. Simultaneously, what we are seeing -- we have talked about this for the last couple of years -- you are seeing Asian companies using this as an opportunity to come into America and capture market share be they Chinese companies, Korean companies, and even some Japanese organizations.

Okay. And, finally, historically you have provided backlog number at the end of a given quarter, just wondering if you could provide that number as well as your tax rate expectations for 2009?

Sure. Julie will give you the backlog. Tax rate is probably going to be somewhere between 38% to 40% going forward here. Obviously, we had some gyrations in the fourth quarter, which Julie spoke to here, which kept the rate low this quarter as we finished up some audits. We had some just things hit statute of limitations and we released some reserves. But 38% to 40% sort of on a going forward basis. Backlog, Julie?

And the backlog at the end of December was $39.2 million.

Okay, thank you.

Jeff Meuler.

Good morning. It's Jeff Meuler from Baird in for Marc Marcon. Kevin, I was wondering if you could speak a little bit about what you were hearing from your clients and what you were seeing on the tech front that led to your decision to over the long term increase the exposure to the advisory and the tech-related revenue?

Well, let me first define tech-related revenue. When I talk about tech-related revenue it's more of driving productivity. I mean, you all ask me consistently do we want to increase our consultant headcount from 400 roughly to 450 to drive revenue. And I would rather keep the number at 400 but have our consultants generate $1.7 million, $1.8 million, $1.9 million in revenue so really driving productivity.

So our investments in technology are primarily around building communities of executives, having access to global communities of CFOs, CIOs, CEOs, etc., that really help our consultants be better, faster, more efficient, thus driving productivity from $1.4 million to $1.6 million to $2 million. Because we believe we can continuously focus on improving our delivery mechanism and helping our clients get that talent at a much faster pace, thus again improving productivity.

On the leadership advisory front, maybe I could give you an example. What we are seeing, particularly in this market and even over the last couple of years, is our consultants go out and have conversations with CEOs and executives or Boards primarily around do they have the right talent in place. It's not just the acquisition of that talent, meaning conducting an executive search, but what happens is we then have conversations and dialogue around retention.

So one specific example recently is we did a major CEO search where there were three internal candidates and three external candidates. Excuse me, three internal candidates the client had provided to us and said can you benchmark those three against -- Heidrick & Struggles -- against three external candidates. So during the course of that search we found three external candidates.

The internal candidate got the job as CEO and the first thing he said was, Hey, wait a second. I have two great people in the organization. Can you help craft a retention plan for us because one of these individuals could be my successor?

And oh by the way, because I am a new CEO I have a new strategy that I would like to embark on. Do I have the right leadership team to help me execute and get there? So can you assess them. And if not, can you help me develop a plan that will get them there? And, finally, I am a CEO who is new in the job. I have a diagnostic period. Can you help me work with the Board on and on-boarding plan?

So not only do we -- have historically given that away for free, but now we are actually getting paid for these services that we are offering. So, for example, we go out and get a $1 million fee for that search and then there is another $700,000 fee throughout the rest of the year to help with the retention, help with the assessment, help with the development, and help with the on-boarding plan.

So in conjunction with that I would say that we have had calls from numerous of the strategy consulting firms and there is a gap between what they do, advising and strategy, and what we do in executive search vis-a-vis all of those things I just mentioned. Because when they talk about strategy it always comes back to the leadership and do they have the right leadership in place. So this is what we continue to see in the market and I believe, personally, and I know our organization believes it, this is the evolution of the search business going forward.

Thank you. That is very helpful. And then, Scott, after you strip out the cash reserve for bonus payments, the earnouts, and the restructuring or severance payments in Q1, I have that you have about $75 million in net cash. Is that in the ballpark?

That is probably a little low, but --

Because it doesn't include what we are generating in the first quarter.

-- what we are generating in the first quarter. But I would put the number between that and $100 million, somewhere in that range.

Okay, thank you. And then what are the headcount expectations? Obviously, Asia Pacific was up fairly materially in Q4. Do you anticipate continuing to add net heads from there after the restructuring that just took place? And then generally speaking for the Company as a whole, do you plan to add net heads during the year?

I would say that Asia Pacific was unique in that our clients are really driving our investment in the business out there, be it through real estate or be it by adding consultants out there who have the expertise that our clients need. Overall, what we are looking at -- and this is across the globe -- is are there opportunities to pick up search consultants with expertise in areas that we don't cover right now.

So I think it's going to be somewhat proactive on our part in making sure that we look at areas that we can actually invest in and grow, but simultaneously be cognizant of the fact that we have to watch our cost structure going forward and only make prudent investments in our business for the foreseeable future. So I guess it depends on who we find in a particular region and/or segment. But we don't have ambitious plans to grow our headcount by X number this year.

Well, I will go a step further. We have -- having just reduced the workforce by a little over 200 people here -- in conjunction with that we have instituted a hard hiring freeze across the Company. The exception of that has to be approved by the senior operating committee of the Company. And it largely will be focused around, one, as Kevin said bringing on board strong producers that we feel will add to the overall, I guess, competitiveness of the Company as we turn around here and the occasional one where we replace a person or we just have a crying need for a special thing. But there is overall a hard hiring freeze here.

And then just one last question, could you quantify what the bad debt expense was in the quarter?

Hang on one second and we will get it for you. If you want to continue on, we will figure that one out.

Can we get back to you on that one?

Yes, we will follow up with you off-line. Thanks guys.

(Operator Instructions) There are no further questions at this time.

All right. Well, listen, I would like to thank -- first of all, I would like to thank all our consultants and our employees across the globe who continue to do great things on a daily basis. And I want to thank you all for taking the time to join our call today and have a great week.

Ladies and gentlemen, this does conclude today's presentation. You may now disconnect.