Heidrick & Struggles International Inc (HSII) 2012 Q1 法說會逐字稿

Good day, everyone, and welcome to the First Quarter 2012 Heidrick & Struggles Conference Call. Currently, all participants are in a listen-only mode. At the conclusion of the today's presentation, we'll conduct a question-and-answer session, instructions will be provided at that time.

Now, I would like to turn the conference over to Ms. Julie Creed, Vice President of Investor Relations and Real Estate. Please go ahead, ma'am.

Good morning, everyone, and thank you for participating in our first quarter conference call today. Joining me on the call are Kevin Kelly, our Chief Executive Officer, and Rich Pehlke, our Chief Financial Officer.

As a reminder, we will be 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'll be making forward-looking statements on today's call, and ask that you please refer to the Safe Harbor language contained in our news release and on slide one of our presentation. Our slide numbers refer to the slide numbers in the bottom right hand corner of each individual slide.

And now, I'll turn the call over to you, Kevin. Please start on slide two.

Thank you, Julie. Good morning, everyone, and thank you for joining today's call. I hope that you've had an opportunity to review the earnings release we issued this morning. When we spoke to you in February, our Business faced tough economic headwinds which were impacting revenue, and that is still the case today. However, the improvements we made to our cost structure as part of the restructuring initiatives in the fourth quarter, and other actions we've taken, have yielded significant improvements in our profitability.

First quarter 2012 revenue of $106.5 million was down 8% over the same period last year, although within our guidance. Despite a $9 million year-over-year decline in first quarter revenue, we produced a $7.3 million increase in operating income. And our operating margin for the first quarter of 2012 was 3%. This compares to an operating loss and negative margin in the same period a year ago.

Compared to last year's first quarter, salaries and employee benefits expenses were lower by 13%, and our general and administrative expenses declined 16%. These results underscore our commitment to deliver on the expectations we set forth for our shareholders, much the same as we do for our clients on a daily basis.

Before I turn the call over to the Rich for a more complete analysis of our first quarter performance,I would like to take few minutes to offer some color on the quarter. In every region, our businesses continues to be challenged by economic conditions. On slide three, we outline our regional performance.

Net revenue in the Americas declined 7% year-over-year. The decrease mostly reflects declines in the Financial Services and Global Technology & Services practices.

Net revenue in Europe was relatively flat. Revenue growth in Germany, Italy, Switzerland, The Netherlands, and France, was offset by a decline in the UK and several other small offices. Leadership Consulting showed solid growth in the region, however this gain this was offset by declines in the Financial Services and Consumer Markets practices.

In Asia-Pacific, net revenue was off 16% in the first quarter, driven largely by declines in the Financial Services and Industrial practices. Australia, Hong Kong and Singapore were impacted the hardest. We saw improvements in Japan, which indicates the region is recovering well from last year's devastating tsunami.

On slide four, we provide a breakdown of our 2012 first quarter performance by industry practice. And slide five reflects our industry diversification. As I've already mentioned, the Financial Services practice continues to be impacted by tough industry conditions, with revenue down 27% from the year ago. The decline was felt globally, but on a percentage basis, impacted Asia-Pacific the most. The Financial Services sector has undergone fundamental changes, and we believe that a return to pre-recession levels will take a while longer. We are mildly optimistic that the improved first quarter results by banks and investment funds could lead to some deep, increased hiring in the second and third quarters.

The Industrial practice performed well in Europe and the Americas, but declined in Asia-Pacific,most notably in Hong Kong and Australia. For the remainder of the year, we continue to expect uneven market conditions.

The Consumer Markets practice was essentially flat compared to a year ago. Good year-over-year growth in the Americas was offset by declines in Europe and Asia-Pacific. Looking forward, clients are slower and more cautious to make decisions, especially when it comes to the higher-level positions, but we continue to see more activity at the SVP levels and the business unit levels.

The Global Technology & Services practice performed well in Asia-Pacific in the first quarter, it was about flat in Europe, and declined in the Americas. We saw professional services companies cautious about first quarter hiring, but anticipate improvement going forward. The Life Sciences and Education & Social Enterprises practice both grew net revenue year-over-year, but combined, are only 14% of our Business, and therefore did not offset the drop in the Financial Services and Industrial practices.

Looking at slide six, revenue from the Leadership Consulting across all regions was $10 million, up 18% compared to last year's first quarter. And despite the market conditions, I'm very pleased with the efforts of our colleagues around the globe to differentiate Heidrick & Struggles in the marketplace. There is no question we are leveraging our leadership advisory capabilities to expand our relationship at the C-Suite and board level, and truly differentiate Heidrick & Struggles.

I have heard from a number of consultants in the Financial Services practice that they are beginning to see a shift in their business development activities. While in the past, engagements began with a search, today many are seeing more and more searches begin with a Leadership Consulting assignment and progress to search. This underscores our leadership advisory strategy, which is based on long-term consultative relationships. Today we have relationships with nearly two-thirds of the Fortune 250 companies.

As you'll see on slide seven, total search confirmations were down 9% year-over-year, primarily as a result of the slow start for the year, reflecting market conditions. But at the same time, our consultants continue to win some of the most highly sought after searches in the industry. During the quarter, Heidrick & Struggles helped to place Edward Shirley as CEO of Bacardi. And also Steven Mills as CFO of Amyris, one of the fastest-growing companies in the world, providing integrated renewable products.

In addition, we worked with the Board of The William and Flora Hewlett Foundation,which with its $7 billion in assets, is among the largest -- one of the largest foundations in the world, to help select its next president. To give you a feel for one of our Leadership Consulting projects, we are very excited to be selected by the Georgetown University on a talent competency project related to their expansion into the Middle East. These are just a few of the many high profile assignments we completed during the quarter.

And with that overview, I'll turn the call over to Rich.

Thanks, Kevin, and good morning, everyone. I'll start with a review of some of our key operating metrics and a deeper dive into operating expenses. On slide eight, we ended the quarter with 343 consultants, down four compared to the end of December. However, as we mentioned in our release, we promoted 16 Associate Principals to Principal consultants, effective April 1st.

Slide nine is a look at our average revenue per search. This metric is the calculation of our search revenue in the quarter, divided by the number of search confirmations in the quarter. As such, not all the revenue in the quarter matches up with the confirmations. This metric is more meaningful if you look at it on a trialing 12 month basis and we provided both numbers in this slide. In short, we did see pricing pressure in the quarter, but not to the extent that it has been material.

Productivity, on slide 10, as measured by annualized net revenue per consultant was $1.2 million in the quarter,reflecting the lower revenue quarter. We continue to believe that the combination of hires made in 2010 and 2011 -- we will reach higher productivity in our efforts to exit underperforming consultants in the fourth quarter of 2011 should help us achieve higher productivity levels in 2012. This was not reflected in the trend in the first quarter.

Now let me go into a bit more detail about salaries and employee benefits and G&A expenses. First, as Kevin alluded to, our key operating expenses were down roughly $17 million compared to last year's first quarter, and down $12 million compared to the fourth quarter. When we did the restructuring in the fourth quarter, we estimated analyzed cost savings of $20 million to $25 million, or $5 million to $6 million per quarter. We have achieved those expected savings and more.

Despite the decline of first quarter net revenue, our discipline allowed us to produce operating income of $3.2 million in the first quarter, and operating margin of 3%, as seen on slides 11 and 12. And while this is below our target for the year, we believe this demonstrate the scaling of our Business and the control we have over expenses.

Starting with slides 13 and 14, salaries and employee benefits expense declined $11.7 million, or 13% year-over-year,and declined 10% compared to the fourth quarter. Variable compensation accounted for $6.3 million of the decline, which reflects lower bonus accruals related to lower net revenue levels, as well as changes we've made to our cost structure, whereby variable compensation is more directly tied to performance.

Fixed compensation expense accounted for the other $5.4 million of theyear-over-year decline. This mostly reflects the reduction in worldwide employee headcount, and were approximately 6% compared to the last year's first quarter. It also reflects the absence of approximately $1 million of severances costs in last year's first quarter.

Turning to the slide 15, general & administrative expenses declined year-over-year by $5 million or 16%, and declined $3.8 million or 13%compared to the fourth quarter. We are very pleased with this reduction as it comes from tighter controls in a number of areas throughout the Firm. Lower professional fees and unbillable travel and entertainment expenses were the two largest contributors to the decrease.

Net income for the first quarter was $700,000 and diluted earnings per share were $0.04. The effective tax rate in the quarter was 84.9% and is based on the full year projected tax rate of approximately 47%. The higher rate in the first quarter compared to the expected analyzed rate reflects losses for which we cannot realize tax benefits, and a few tax expense items that had to be recognized within the quarter.

Please turn to the slide 16. Our cash position remains strong, with $82.6 million in cash and cash equivalents, well above our global cash needs of between $40 million and $60 million.

Those who are familiar with our Business know that our cash position typically builds throughout the year, as we accrue for cash bonus payments, which are paid out in the February, March and April of each year In February, we paid out approximately $10 million of cash related to the portion of the consultants' bonuses that were deferred from the last three years. In March, we paid out approximately $106 million in variable compensation related to 2011 performance. In April, there will be an additional payments related to 2011 bonuses of approximately $3 million.

We also used approximately $4 million in the first quarter related to our 2011 restructuring actions. Net cash used in operating activities was $99.1 million in the first quarter. And with bonus payment behind us, we expect positive operating cash flow during the remainder of the year. We also expect to generate higher free cash flow than last year.

Slide 17 shows our backlog and slide 18 shows our monthly Search and Leadership Consulting confirmations. As expected, with an increase in confirmations, backlog is higher going into the second quarter. Confirmations are tracking similar to last year, albeit down compared to last year.

We are seeing a different trend in revenue from a year ago. Much more will be determined by confirmations in May and June. We were forecasting second quarter net revenue of between $125 million and $135 million. And like last quarter, we are not guiding to quarterly margins. We believe it is more meaningful to share with you directionally where we are taking the Company for the full year.

As we evaluate the second quarter and the remainder of 2012, we are cautious about net revenue, but not ready to back off the goals we set for the Company. We have considerable faith in the capability and talent of our consultant teams around the world to rise to the challenges of this operating environment. At the same time, we are cognizant of the fact that our first quarter revenue, although within our guidance, was at the lower end of the range we provided. If we combine that with the mixed signals we are receiving about a global recovery and continued weakness in certain sectors and regions, we are now tracking at the low end of our 2012 net revenue guidance of $510 million.

Most importantly, we are not backing off our improvement in operating margin and still expect to achieve between 7% to 9% overall, the range still mostly depends on achieving revenue targets for the year.

And with that, I will turn back over to Kevin.

Thank you, Rich. The first quarter is historically our low water mark for revenue and margin. We continue to be extremely mindful of the larger macro-economic conditions which clearly drive our Business, but the first quarter results are not indicative of our expectations for full year performance.

We are focusing on expanding the work we do for our clients, as well as growing our client base. So we continue to concentrate on those aspects of our Business that can truly differentiate us in the marketplace; our people,leveraging technology, and ensuring that our service offerings match the needs of our clients, because these are our valued drivers.

From a people perspective, we believe that our consultants are the best in the industry. This is due, in large part, to the emphasis we place on developing our talent and promoting from within. During our most recent promotion cycle, 11 consultants achieved Partner status, and as Rich mentioned, another 16 were promoted to Principal Consultants. We made promotions at all levels of the Firm, based on a similar process.

Although we will always recruit qualified consultants to fill regional or practice gaps, our analysis demonstrates that our productivity is greater when we promote from within. And we believe this strategy also allows us to attract the most talented professionals in the industry. When you couple this with our global reach and extensive practice experience, we are able to provide our clients with unparallel advice and service execution.

Our global partners meeting in the third quarter is designed to bring our consultants from throughout the globe together to network and share best practices. When we roll out Latitude, our proprietary search database, at the end of the second quarter, our consultants will have access to the state-of-the-art technology that will allow them to better leverage the knowledge of the entire organization for the benefit of our clients.

Our clients face increasing challenges with how to attract, engage and develop their talent to remain competitive in the current economic climate. This provides us with the incredible opportunity to leverage Heidrick & Struggles brand and expertise, while shifting our Business from one that, historically, has been transact ional to one is more consultative through our Leadership Advisory strategy. We believe that by focusing on those initiatives that have a direct impact on client service, Heidrick & Struggles and its clients will achieve sustainable, long-term success.

Before we open the call to the questions, I would like to acknowledge our colleagues around the globe for their hard work and dedication. Our people are the defining factor, and without them, we would not be able to achieve our objectives.

So thanks again for taking time to join us this morning. And at this time, Rich and I would be happy to take any questions that you all may have. Thank you.

(Operator Instructions). We go first to Giri Kirshnan with Credit Suisse.

Hi, thanks for taking my call. When I look at your full year guidance, and the revenue guidance specifically, it clearly suggests that the second half -- you expect to get back to positive revenue growth. And based on the trends you are seeing, I'm curious to know what your thoughts are around what practices do you see being more strong? Is it a continuation of what you saw in the first quarter? Any color would be helpful.

Sure, Gary, it is Kevin. What we are seeing is -- it's been an interesting three years, because historically we have started the year off slowly. Financial Services has been all over the map the last couple of years. So three years ago we saw a huge uptick in Financial Services in June and July, which historically hasn't happened. Last year we saw a big increase in March, April timeframe. And this year what we're hearing, first and foremost -- and a number of our Financial Services consultants are saying, whether its New York, Hong Kong or London, the three major centers, that they are starting to see a lot more interaction with their clients. The result in that some of these investment banks in the first quarter were much better than anticipated.

And there is pent-up demand in the Financial Service sector, in areas like legal and compliance, risk management, the hedge fund space. There are areas though -- asset wealth management -- so there are areas within Financial Services that will continue to probably recruit going into the third and fourth -- end of the second and third quarter. And also, in Technology and Professional Services, as I mentioned, a lot of companies cut back in Professional Services in the beginning of year, but we have seen an increase in the demand in that area as well.

So across the board, in whether its the functional areas, they continue to thrive -- and our CFO space and CIO space, et cetera. So there are still pockets of recruiting. And I think what we are seeing, collectively, as the leadership team here is that in every market which we operate, there seems to be some pent-up demand that we will see coming through in the second and third quarter.

And then a quick question on Leadership Consulting. Clearing, you are seeing more integration between Search and Leadership Consulting. I know you don't necessarily break out revenue by geography, et cetera; but could you help us understand if Leadership Consulting -- you are seeing broad-based demand? Or any visibility you can give on what sort of trends you are seeing by vertical for that line of business, would be helpful.

If you think about Asia Pacific, we are seeing -- it is pretty much across the globe. So Asia-Pacific, for example, the CEOs and executives of Indian companies and Asian companies -- excuse me, Indian companies, Japanese companies, Chinese companies, et cetera, they want to know if they have the talent to compete globally as they enter European markets, Latin American markets, South African markets, as well as the US market. Really assessing and looking at development for their individual and executive teams there, it has been a critical exponent of our Leadership Advisory strategy.

The same holds true here in North America. I mentioned Financial Services. And so what you are seeing in Financial Services, to be specific, is that investment banks -- banks in general are looking at, do we have the right talent going forward before we go our and recruit again?They are looking at how they assess and develop their needs within the investment banks. And that holds true in the Industrial, Technology, Consumer Goods, et cetera, as well. So broad based across the board. And in Europe, we see a lot of Board effectiveness, Board surveys, CFO succession, as well. So I'd say across the globe, it is different, in terms of the solutions we provide. But there is broad-based demand for that service.

Okay, thanks a lot.

Our next question comes from Mark Marcon with RW Baird.

Good morning. I was wondering if you could talk a little bit more with regards to the Industrial and the Global Tech practices, in terms of what you are seeing across the globe and how confident you are that will pick back up?

Hi Mark, this is Kevin. What we're seeing -- Rich and I were just in Hong Kong, meeting with the Industrial team -- we had an unbelievable start. Getting the Mining and Metals practice in the region, we had just an outstanding start to the year, particularly in Australia, which was significant in terms of revenue for the region. And its just been a slower start. The demand is still there and we're still seeing it in the alternative and renewable energy space. And actually, there has been increased demand in the metals and mining area, as well,most of the commodities we are seeing out there. We believe that we have a very sold Industrial practice covering all aspects and we'll definitely see a bounce back. It is a tough base, given last years large revenue numbers, particularly the [A and zed] region.

Got it. And Global Tech, how are you seeing that?

I think Technology -- again, we are seeing Professional Services, I mentioned a few minutes ago, starting to the bounce back. And in certain areas of Tech we are seeing demand, but a little softer than last year. There was a lot of recruiting last year. And we were just talking to one of our major global clients who said they had a hiring -- which is a significant amount of revenue for us, if you think about two or three of these -- so it was one of our major global clients that we're working with, and we just sat down and they said they had a hiring freeze until April. But there is number of searches and Leadership Consulting assignments that they're looking to give us after that is lifted -- the hiring freeze is lifted. What Rich and I are focusing on is making sure that we stay close to the clients during this time, because as the markets tend to come back, we want to make sure that we are first and foremost on the client's mind.

And just to add to that, Mark, we spent a number of months, weeks talking to CEOs and executives, and the perception out there is -- last year we ended up with somewhat of a pyramid, in terms of the front half of the year being fairly strong. And what we're consistently hearing is that the back half of the year is going to be stronger. We are starting to see that with the interest we're getting from the clients now.

And then, you did really well in Europe, outside of the UK -- UK is certainly understandable, given Financial Services. Do you feel like you have the right teams in the place? You obviously had to go through a rebuild over there a few years ago. Does that feel like everything is pretty well set? And that we should continue to see a build, even if the economic environment get worse?

We're really proud what we have done in Europe, and I'll Rich add to this. If you think of the number of consultants in the restructuring -- revenue, year-over-year was flat, which brought roughly, 25 plus less consultants. And I'm really happy with Germany. Germany, year-over-year, both in Leadership Consulting and Searches has bounced back as well. If you think about Europe, again, London -- and I was on the phone with the head of our London office yesterday -- with the Queens Jubilee this year and with the Olympics, it may be a tough couple of months. But the back end, they expect it to really bounce back as well. Financial Services -- London is a big help for Financial Services. We do have a team in the place. We do need to fill in some gaps over there, in certain industry sectors -- Life Sciences, in particular, we have a huge opportunity. But I am very happy with what the team has done and the progress we have made. Rich?

Good morning, Mark. We probably benefit a little bit in Europe off of a better comparison in Q1 versus Q1 of last year. We'd still like to see it stronger across the board. But as Kevin said, we like the team, we like the way we have gone about rebuilding it and the culture we're building in Europe. It is still a very volatile economy. And sovereign risk is still pretty high on the charts, relative to the overall marketplace. In overall, I still think we feel good about the leverage from prospects.

Great. And then in Asia-Pac, what percentage of the revenue is Financial Services?

It's about the same -- (overlapping speakers).

Roughly the same as all the other regions. Financial Services really hit hard in some of our bigger offices, like Singapore and Hong Kong. And the volatility that we saw and Kevin noted that the two areas that probably impacted Asia-Pac the most were Industrial and Financial Services.

Industrial would be the second-largest. So that is the reason why the consultant count is going up while the revenue is going down, is because of those practices. There is nothing that is going on from a productivity prospective, aside from that?

Yes. I think it's just tougher [flooding] in the short term.

Great. Can you talk a little more about the pricing? You mentioned softer pricing. Where are you specifically seeing that?

I think we're seeing it globally in Financial Services. That is probably the number one area where we have seen the most pressure relative to the change in the pressure on the core model. Mainly because there is structural changes happening in the compensation of the clients. So the way they are actually paying people, the levels at which they are paying people has changed. So I think we're seeing, certainly a short-term and near term impact, relative to how that plays out.

In general, across the rest of the Business, I think we've seen it hold relatively well. And certainly, it has been, again, an environment where we have seen a little bit of pressure, but not to the point where it's been material. I think the biggest area we've seen it globally is Financial Service.

Great. I'll jump off for now and jump back on. Thank you.

Our next question from the Tobey Sommer with SunTrust.

Hi, Tobey.

Hi, thank you. First, I had a housekeeping question. The guidance you have for operating margin of 7% to 9% -- on the slide show, it is 6% to 8%; what is the delta there?

It says 6% to 8%?It's just an error, Tobey.

It is just an error. It has been 7% to 9% since year-end. We'll make that correct.

Okay. Kevin, you mentioned a hiring freeze at one customer. I know periodically you get group orders from customers, because of your close relationships with them. What has the appetite been from those customers that have larger orders with you, to execute those orders?Have they hit the pause button?

No, we'd see it cross the board sometimes, when you get a senior executive in and they would want to build out their team. So you would see four or five hires at the senior level. I would say Tobey, right now, what we are seeing is there is a number of firms that are being cautious. There is a lot going on, as Rich mentioned, the macroeconomic environment, elections in Europe and the United States. They are just being cautious right now, as they get through the first quarter. And that's what we're hearing across the board.

We still have a very strong business when it comes to Strategic Partners program, of clients that are looking for us, for both Search and Leadership Consulting. Historically, where you'd see at beginning of the year, five, 10 senior level hires to build out a division, et cetera, for a company, they have put some of that on hold as they get through their first quarters.

Okay. From a cash perspective, what do you see for cash flow per share -- or in absolute dollar term?

Well, as I kind of indicated relative to my cash flow, I expect that cash flow will continue to build for the rest of the year. I'm actually pretty pleased. I think we are going to be generating cash flow probably in the $30 million to $40 million range -- probably near the higher end of that range for free cash flow. I have no balance sheet worries here. I have no financial capabilities worries. Our people have done an amazing good job of managing working capital. I'm very pleased with thatand the efforts we have made there. I feel good. We've got an untapped credit facility.

So from the financial strength position, we couldn't be in a better position. We have the total -- we have the flexibility to invest and grow and support any of our strategy anywhere in the world. The course we have taken, quite frankly, is to approach it from a more conservative standpoint. We are not going to throw dollars at a very volatile revenue and economic climate. I don't think that's the right strategy, longer term.

I think that's -- we see every day, amplifying what Kevin said, everyday we see three steps forward and two steps back, in terms of the economy and the overall feeling in the financial markets. I mean if you just read the headlines -- you guys do it every day as well, you see the headlines every day. There still isn't that sustainable market momentum that send a clear signals to people that they are opening up a lot of investment dollars. In those types of environments, we are trying to keep our people extremely, tightly focused on serving clients, meeting their expectations. But at the same time, we are not going to let investment dollars get too fluid here.

Last question for me. Where do you see consultant headcount going? You just recently promoted some people, so maybe it'll be up, sequentially in Q2; but directionally, where do you see it progressing throughout the year?

I think you are probably, going to see a -- directionally, I would expect that we might have a single digit, slight increase in that headcount year-over-year. But I don't think it would be in the neighborhood of 10%, I think it would less than 10%.

Thank you very much.

(Operator Instructions). And we'll go next to the Tim McHugh with William Blair & Company.

Thanks. First, I want to ask you if give any more color on April?It looks like it is down -- pretty weak. Any more color on practice level and regional, in terms of what you are seeing?

Morning, Tim, this is Rich. Clearly, we don't give individual month guidance or comment too strongly on the months. There is no question, coming off our first quarter, which is our low revenue quarter, we are still coming from of lower backlog and lower momentum. We're going to watch, as Kevin indicated -- we're going to watch pretty closely the end of the second quarter and the trends over the third quarter. The overall indication we are getting from the client's side and our people's side are that the revenue trends for this year will be slightly different than last year and will be a little more back-end focused. We are not sitting here believing in a hockey stick. But just by the level of activity, we think things are going to trail more into the second half of the year.

Okay. Rich, on the G&A, how sustainable is that, and then -- that level it that you are at in Q1? And then, I know -- at least I heard you mention, the partner's meeting for Q3, I believe it was;how big of a bump-up will that be for -- ?

A partner's meeting, usually, is worth a couple of million bucks in expense, in terms of additional expense, over year. But from a productivity standpoint, from a G&A,we are trying to keep this runway very sustainable.

Again, I'm going to continue to compliment one of things that I've seen this year, that while I think there were a few areas we could tighten up,our people have done a great job. And we are certainly watching expenses in a very tight revenue environment. The good position we're in is that if we see better revenue environment, we could easily open up the valves a little bit and can afford to take that and feel out whether our expense ratios get out of whack.

We have changed the discipline of the Company a little bit. Our people are keenly focused on it. We are spending the money the right ways. I'm comfortable where it going. And our effort is to drive the right scale of the Business, so that we're profitable and free cash flow positive at levels of a volatile time and are easily able to add to our margin in the good time.

Rich, did you say a 47% tax rate for the full year?

Yes.

Much lower -- .

It's much lower. We are seeing -- a lot of the stuff that has impacted our tax rate, especially last year, start to flow through and get out of the way now. So I think we're going to get back, at least from a booked tax rate, a little more normal as we play out the balance of the year. From a cash tax rate perspective, we're in relatively decent shape.

Great. Thank you.

You're welcome.

Our next question comes from Kevin Steinke with Barrington Research.

Good morning. I just want to follow-up on the consultant headcount question. You mentioned single-digit growth in the consultant headcount this year. Is that going to come primarily from the promotions? Or are you still looking to hire selectively from the outside, as well?

We're still looking -- this is Rich, good morning, Kevin. We are still looking to hire. We are hiring at all levels across the Business. But we're hiring in a very disciplined way. We're making sure that our business cases are solid. We're making sure that our capabilities are good and that we're putting people in the right geographic areas for the time being where we can get the most benefit. We certainly are looking to hire. But it is not something that we're going to chase that aggressively.

You mentioned perhaps specific geographies for hiring, are there any particular areas that are you targeting, in terms of industry or geography?

I will tell you that there is no restrictions on any of our practices or regions, but there is areas where, as Kevin indicated, we would like to have more. I think Asia-Pac is an area where we will probably do more hiring than less. We'll be a little bit more cautious in the select areas of Europe. There are certainly areas of Europe where we have needs and we have strengths, where we are going to continue to add people.

From a practice perspective, we're more likely to add people in a Life Sciences or Consumer than we will in Financial Services, just from a position of scale. Because we look at that from a standpoint of also, what do we have on the ground, if you will, and what do we have our imbedded investment base?We have a very good group of people with a lot of good coverage, so we are going to fill more holes than we are just broaden the base.

And lastly, I think Rich, you said perhaps you were tracking even a little bit above the $20 million to $25 million in cost savings for the year. Is that correct?And should we think about a meaningful variance from that?

I don't think it's going to be a meaningful variance. I still think the number is pretty accurate relative to the overall impact. I'm glad to see that we're tracking at that level and actually delivering on the actions we took. Again at the end of the day, I want to keep the right ratios of the business model in the place. And we're going to spend less time worrying about what happened in the past and just making sure we are redeploying those dollars, as I indicated we would last year,in the right places. And actually, I would like to get to the point where our expenses actually trickle up a little bit at a sustainable rate. Because that means we're investing in the growth of the Business. And we are hoping to see that environment come through here.

Sure. Thanks for the update. Nice job.

Thank you.

Next we'll take a follow-up from Mark Marcon with RW Baird.

Could you talk a little bit about the productivity enhancements you would expect from Latitude when it gets rolled out?

One of the things it will do, is it will decrease the average time to complete a search. It will really help us tap into the web 2.0 technologies, it will help us get in sync with a lot of the assessments that we do globally. In terms of the front end, of delivery to the clients, it will really help expedite that process. And therefore, the knock-on effect would be the average number of searches the consultant has the ability to do by freeing up the associate and the leverage in the Firm would increase. That is where we get a lot of the productivity from.

Would you expect that the average number of searches -- what I'm wondering is, how many searches are you turning down now?Obviously, there is a huge variance between some of your most productive consultants versus some that are ramping up. Are there some that are you turning down, that it is like with Latitude you would be able to pick up?

No. What we would have is -- and it is tough to gauge the average number of searches. For example, we'd have someone in India, one of our top consultants, who would do 33 searches in a year, just given the average fee per search. But then in the United States, you would somebody do 14 or 15 a year. What we try to and try to drive through the practices is make sure that we understand where the consultants are, either, A, just got promoted, or B, are coming up to speed. And before we would ever turn down a search, the practice leaders are responsible for making sure that we'd steer that work in that direction. That also helps with the productivity gains.

Great. With regards to the variable comp, as we look at the ratio that we saw this first quarter, is that how we should think about it for the balance of the year, in that you basically pro formad it?

No. Our variable compensation will track the trend of the balance of the revenue and will probably grow slightly as a percentage of the total compaccruals, because as we scale the Business. But in aggregate, for the full year basis, variable will actually be a higher percentage of total compensation than fixed. And that's the way we wanted to keep trending the Business. We wanted to keep tying the compensation expense to productivity and to production. And that's the result of some of the changes we made structurally last year. So I would look forward to increase proportionally over the course of the year, as revenue tracks.

Great, thank you very much.

Thanks, Mark.

And next we'll take a follow-up from Tobey Sommer with SunTrust.

Thanks. Kevin, I wanted to get your updated thoughts, to the extent that they have evolved, on how social networking is or is not impacting the Business, both from a productivity side and from competitive demand side?

Sure. I think you and I had spent some time on this before. What we do see is the same as last time; will social networking impact the search industry? I think at the lower levels. It is much faster paced than people anticipated. Where we work, at the sea level and the executive suite, it is still very difficult to go out and find executive on a Web 2.0 technology. So where we add value is the assessment, the cultural fit, et cetera, for executives. We're still seeing -- it would be a challenge.

What companies have done is they've built up at lower level very individual-intensive recruiting teams to go through these technologies. Because Tobey, I've mentioned before, we have had a couple of clients, and many more since that you talked to -- whereas we provide three to five candidates that are already assessed and appraised for a client, and had gone through the cultural fit, et cetera, they get anywhere from 400 to 1,700 resumes, and particularly in this environment for a particular search. And it is very challenging to sift through that, and then figure out, from a cultural standpoint and fit, if this individual is going to work. Yes, you do see it at lower end of the market and you will continue to see that. But as you get up in the upper echelons in the area in which we operate, it hasn't impacted us yet.

How much of the firm's revenue is derived from C-suite and board level searches?

A little over 50%.

Thank you very much.

You're welcome.

And at this time, there are no further questions in the queue. I'll turn the call back to our speakers.

Thank you, everybody. We really appreciate you getting on the phone today. I hope you have a great rest of the day and a good week. So thank you very much.

Ladies and gentlemen, that does concludes today's presentation. We thank you for your participation.