Hudson Global Inc (HSON) 2004 Q1 法說會逐字稿

Good morning.

My name is Elizabeth, and I will be your conference facilitator today.

At this time, I would like to welcome everybody to the Hudson Highland Group first-quarter earnings release conference call.

All lines have been placed on mute to prevent any background noise.

After the speaker's remarks, there will be a question-and-answer period.

If you would like to ask a question during this time, simply press star then the number one on your telephone keypad.

If you would like to withdraw your question, press star then the number two on your telephone keypad.

Thank you.

I would now like to turn the conference over to Mr. Chait, Chairman and CEO.

Thank you, you may begin your conference.

Thank you very much, operator.

Welcome to the Hudson Highland Group conference call for the first quarter of 2004.

I'm Jon Chait, Chairman and Chief Executive, and I'm joined today by Richard Pehlke, our Executive Vice President and Chief Financial Officer.

I want to start by reading the forward-looking statements.

Please be advised that except for historical information, the statements made during the presentation constitute forward-looking statements under applicable securities laws.

Such forward-looking statements involve certain risks and uncertainties including statements regarding the company's strategic direction, prospects and future results.

Certain factors, including factors outside of our control, may cause actual results to differ materially from those contained in the forward-looking statements including economic and other conditions in the markets in which we operate, risks associated with acquisitions, competition, seasonality and the other risks discussed in our filings made with the Securities and Exchange Commission.

For purposes of today's call, I'm assuming that everybody has had a chance to see the press release issued earlier today with respect to the detailed financial statements for the first quarter of 2004.

As has been the practice on each of our calls, I will limit most of my comments to discussing the highlights of the quarter and the sequential movements within our business in order to give you, our shareholders, some insight as to the trends of our business units.

Rich will review the financial results in more detail.

Periodically, I will refer to profits or operating profits.

By that, I mean generally adjusted EBITDA as defined in the schedule to the press release, which hopefully you have seen previously.

As stated in our press release this morning, we are pleased with our first-quarter operating results, which were in line with our guidance and expectations.

Trends within the quarter were favorable.

HH Group achieved a positive adjusted EBITDA in March.

This was our most profitable month at adjusted EBITDA since the spin-off.

Even though this is a five-week month for Hudson accounting purposes, it demonstrates that we have moved considerably closer to break-even on a current run rate basis.

Average weekly gross margin in March was the highest since the spin.

In Q1, most of our operations achieved improved EBITDA results despite continuing difficult market conditions in many geographies.

Special note should be made of the results in Hudson, Australia, which went from an adjusted EBITDA loss in Q1, '03 to a profit in the most recently completed quarter.

Hudson Australia has now achieved four consecutive quarters of profitable adjusted EBITDA.

Highland Partners recorded a break-even in adjusted EBITDA in Q1 compared to a loss of slightly over $5 million a year ago and $2 million in Q4 of '03.

We saw an immediate benefit in the quarter to the repositioning that was completed last year since Highland Partners achieved this result on a reduced level of gross margin and a smaller number of partners.

I also want to make special note of the exceptional result that we reached and achieved in Highland Partners in Australia.

Consolidated adjusted EBITDA loss increased .5 million over Q4 but still included a number of one-time items totaling approximately $2 million.

On a constant currency basis, year-over-year, consolidated revenues and gross margin were both down but expenses were also down.

As a result, currency had little impact on adjusted EBITDA on a year-over-year basis.

Sequentially, we experienced the same dynamics.

Gross margin was down and expenses were also down in constant currency, so again, there was little currency impact on an adjusted EBITDA basis.

In the quarter, we've broken out for the first time developmental expenses in North America which were $1.6 million in quarter one.

Previously, they have been included in corporate expense.

This relates to our ramping up of three new business units.

We have previously described for you the Center for High Performance which positions us in the area of thought leadership and offers performance solutions to senior executives in our client organizations.

In addition in 2003, we began operation of Hudson Inclusion Solutions, which is designed to assist clients in both recruiting and consulting regarding the creation and retention of a diverse workforce.

This was an opportunistic recruitment of two individuals to start a practice for us in an area that is extremely important for employers today.

The other operation is Human Capital Solutions, which we currently operate in a variety of markets in both Asia Pacific and Europe.

We're expanding our operation to North America with the goal of creating a consistent platform in all three of our main regional markets.

This is a business that has performed very successfully for us during the recession in both Europe and Asia Pacific.

We expect the losses to be reduced through the course of the year.

We are seeing the markets generally in the U.S., UK and Australia improve, particularly in February and March, and we are also seeing positive trends in particular in our permanent businesses in those regions.

As Rich will discuss in more detail, we have reaffirmed that we are on the path to profitability in Q2 of this year.

With that, I am going to turn it over to Rich for a more detailed discussion of the financial results.

Rich?

Thank you, Jon.

I am going to talk a little bit briefly to amplify Jon's comments on the operations.

I'll also touch on currency both quarter to quarter and year-over-year, a comment or two on expenses and our cash position and talk about our guidance.

I will also touch on an issue related to one of our operations and a move we made in the quarter which is to withdraw from our operations in Hudson, Germany.

First, let me talk about and build on Jon's comments a moment on the operations.

We were off to a very weak start in January, and as we expected in all our discussions looking into 2004, we expected that January would be a weak month, but we are encouraged by the strong finish to the first quarter.

March, overall, as Jon indicated, was an exceptionally strong month and the strongest that we've seen in certainly our time as an independent company.

In Highland Partners, we did benefit from all the improvements we have made through the investments and the reductions in the cost base.

There was -- there has been a significant reduction in headcount year-over-year, and we have focused on building that as a boutique business with very strong performers, and we continued to see that improvement as the quarter went on.

Business has been improving, and we do expect Highland to be profitable for the year overall in '04.

And that is a big incremental swing over the '03 results.

So that is still on plan for what we expect.

In Hudson North America, we saw the best overall monthly performance since March of '02 in March of this year.

We hit the highest revenue, the smallest operating loss, and we're back up to a contractor and building level similar to what we saw two years ago.

So we are encouraged by the monthly and weekly trends that we see to finish out the quarter and have started off in the second quarter of this year, which tells us for now that we believe we are on plan.

In Europe, we are as Jon mentioned, we are starting to see some market improvement.

This is particularly important in the UK market where we have the biggest exposure to our business, and recent wins have come at good margin levels in terms of new contracts and new business wins with some of our larger customers.

So we are encouraged by the signs that that market is starting to improve.

Then again just to amplify what Jon said about Australia and New Zealand, it is our most profitable segment.

It has had four consecutive quarters of operating profit.

It is a good balance of solid operating trends and seeing the improvements in productivity from the actions taken late last year to improve profitability.

In terms of currency, Jon mentioned that on a sequential quarter basis, the overall impact of currency on our business was about 4 to 4 1/2% on both our revenue and expense lines and virtually almost a wash on the EBITDA line.

The year-over-year impact of currency on the revenue and gross margin line ranged from 13 to 13 1/2% with the expenses being 11% and, again, just about a wash on the EBITDA line.

So again as it comes down to operating profit, it was not a big net factor in our results, but it does impact some of the comparisons as you look at issues either on a quarter-to-quarter basis or year-over-year.

Let me touch for a moment on the actions in Germany.

As some of you may have seen in a press report, during the quarter, we made a very difficult decision from a business standpoint.

We had been examining all of our businesses across the portfolio and had been discussing the outlook for our Hudson German operations for some time.

We had a sizable operation in Germany.

It was pretty big in terms of headcount at nearly 100 people, and it had been unprofitable and operating results trending downward for sometime.

We had tried numerous strategies with our local management and our operating management to restructure the business.

Unfortunately, we weren't very successful at accomplishing that.

We made a decision late in quarter one to withhold funding support for that subsidiary.

As a result of that decision, by way of structure and law in Germany, once we did that, the operating control of the company relents -- goes down to the local directors of the entity, and in this case, they were all German management and local people.

They made a decision based upon the financial situation exactly what we saw in the business that this company was not profitable and was not a solvent business on a stand-alone basis.

And it was their decision to file for insolvency under German law, and basically, it's similar to a bankruptcy protection, and it goes through an administrative proceeding.

And that is currently what's happening with the business.

As a result of that, we lose all operating control of the entity.

So our quarter-one results do reflect the operating loss of Germany which was translated in U.S. dollars about $800,000 loss in the operations, and we've recorded another $900,000 of expense in other income that relates to writing off the value, the net value of the investment on our books.

We will benefit going forward in the rest of the year from the absence of loss, which we felt was going to continue to grow in the German operations.

While it was a difficult decision, we believe it was the right decision for our business.

So again, not an overall material impact on the business but it clearly was a difficult decision and one that we just felt we had to do at this time.

In terms of our overall expenses, looking at Q1, I continue to be very proud of our people and the job they've done with the excellent results throughout the company.

On a constant currency basis, if you look at quarter one versus quarter four of last year, our expense base fell by 1.3% or approximately $1.5 million.

The reported basis, our SG&A expenses were up -- were a total of $117.6 million.

And basically all of the increase on a sequential basis was related to the currency impact, which largely impacts our salary and related lines because we have over two-thirds of our business outside the U.S.

We still had minor impacts as Jon mentioned of some one-time related expenses.

They are not big enough in their individuality to relay to you much like we've had to do in previous quarters of going through a lot of restructuring charges and major impacts, but we are encouraged that we are getting to the bottom of things that just kind of come out of the, you know, as we've restructured the business that we've had to deal with on a one-time basis.

That number in this quarter was about $2 million reflected throughout the business overall and are recorded in operating expense levels.

When you kind of normalize for that, and we don't intend to spend a lot of time doing those types of things going forward, but it gives us the encouraging sign that relative -- that we had a quarter in quarter one that seasonally is generally weaker than quarter four, was basically flat with quarter four of last year and on an operating basis had improving operating margins.

And that, to us, is a very encouraging sign.

So we're starting to see the positive operating leverage come through as the business continues to improve.

We had no major swings in any expense lines across the business.

Again, a tribute to our folks keeping a very tight control on things.

We don't expect material shift downward in our expense base from this point throughout '04, especially on the nonsalary lines as we've talked about earlier.

Some of the savings that we've put in place on a run rate basis will be offset by slightly higher costs related to Sarbanes-Oxley, which is a very important initiative that we have to complete this year.

Our headcount overall was down about 100 people across the company.

This is largely due to the productivity movements we've made in Australia, the shutdown of the operations in Germany and the slight reduction in Europe.

I'll comment briefly on cash.

We ended the quarter at $38.2 million.

Quarter one was a slightly higher cash burn period for us.

We did expect that, and I think we've made comment to that in past calls and commentaries.

There were a number of reasons for that.

First of all, we did continue to have an operating loss that we needed to fund, and our operating loss was much more of a cash operating loss than accrual based.

We also had cash payments related to some of the '03 actions we took last year to restructure the business.

That totaled approximately $7 million in cash, outflows.

We had a slight retreat in DSO in the first quarter.

We do not expect that to be a long-term trend through the year, and we expect that actually to reverse a bit.

And it was a high quarter for commission and bonus payments, which we also expected every first quarter at the end of the year just by the very nature of our business and the way we pay out our commission structures and our payment grids for incentive payments.

Our outlook for cash quarter two will still be somewhat of a cash burn quarter.

We are still in very good shape with the proceeds of the offering, and the improving operating trends.

At least at the level in which they are improving now, we feel will be more than adequate for -- to fund all of our cash needs.

We expect a working capital investment business continues to improve, and we still have some accrual payments related to '03 actions that will come off in the second quarter.

The overall trailing impact of operating losses combined with those factors will burn some cash in the second quarter, but our outlook for the balance of the year is that we expect to be at about the level we're at now.

We think our net cash position throughout the rest of the year will be a net zero, but there will be quarter to quarter fluctuations.

As Jon mentioned, we continue, and we mentioned this in our release as well, that we still continue to expect that quarter two will be positive at the adjusted EBITDA level.

We continue to expect that one half of that improvement to be a result of the continued growth in our core business and improving profitability.

Q2 is seasonally a stronger quarter for us and the early operating trends in April have reinforced our view that at least our momentum coming off of March is continuing in the business.

So we're encouraged by that.

The balance of the improvement from the current level report in Q1 should be a result of the improved marginal profitability from the reduction in our cost base for all of the actions we've taken.

As we have indicated before, we expect the one-time expenses to trail off and that the full savings from some of the actions and reductions we did last year in either closing offices, trimming headcount and taking expense out of the business to fully kick in by the end of Q2.

It still remains too early to tell if the overall cumulative results for the last three quarters of the year will offset the loss we're recording and announcing today for Q1, but we still think there is, you know, it will be relatively close and so our guidance for the outlook for the year hasn't changed as well.

And with that, I think Jon and I would be happy to take any questions.

At this time, I would like to remind everyone in order to ask a question, please press star then the number one on your telephone keypad.

We will pause for just a moment to compile the Q & A roster.

Your first question comes from Matt Litfin with William Blair and Company.

Good morning.

The question is having to do with revenue growth.

As you see it, obviously you had some currency benefit this quarter and really the last couple of quarters as well.

As you look at it going forward, what kind of a revenue growth business is this?

And maybe you could talk about the effects of currency and what you are expecting, you know, were we to see exchange rates stay where they are today versus, you know, the prior years?

Let me just talk about it generally and then I'll let Rich talk about it from a financial standpoint.

The difficulty with forecasting growth rates for us is it depends a lot on how we get it.

Perm business, you know, obviously falls more quickly to the bottom line, and if we have a continued strength in our perm business, which we are seeing, that will help us more than strengthen our temporary business.

And so that's one issue.

The second issue is that while we are seeing an improved economy, probably certainly in North America, the Australian economy continues to be good, which is a major component as you know, Matt, of our business.

The European economies, including the UK, are still operating in very difficult market conditions.

So when we add -- those are the factors.

Now I'll turn it over to Rich to talk about how that all just spills down into a number.

Yeah, Matt.

I think in our current plans, we're still very -- we still have a relatively modest conservative outlook for the rest of the year.

We think the growth rate will be in kind of the low single digits, you know, in terms of that we continue to improve quarter to quarter, and we'll continue to build as we go through the year.

Now, obviously, that can be impacted a lot by currency trends and what happens.

And as Jon said, the thing that gives us encouragement relative to, again, getting down to the very minute details that we continue to see improvement in weekly operating trends that talk about our weekly revenue and our weekly gross margin continuing to build.

So right now, we don't see it as a runaway number in terms of percentage growth, and that's not what we're basing our guidance on.

It's a very slow and steady progression off of our run rates as we continue to have growth throughout the business.

We don't have the base of assets or the scale at this point to really drive a real high number in a short period of time.

It's going to -- I think in the short term, at least, short term being throughout the year, it's going to be a slow and steady progression.

Okay.

One more, if I might, just looking at the breakout of Highland specifically.

You know, you saw some sequential drop-off in revenue there in North America, yet it was quite strong in Asia Pacific, and I wondered if there was any additional flavor you could give us there?

Sure.

First of all, you know, it's very typical of that type of business.

One of the reasons you saw a bit of a drop-off in revenue is we're probably down year-over-year about 18 partners in that business.

Now, I will tell you that because of the moves we've made, even though we're bringing the revenue base down a touch, it's a more profitable revenue base, which has been our goal all along to make it much more of a profitable boutique level business that could experience both growth, but also increasing profitability.

As far as the flavor of Asia Pac in terms of Highland Partners, it really comes down to the fact that we've had a couple of large assignments that have come in where they've done a great job of building business, and they've seen an improvement in our market.

It's not uncommon in this business that partners can have an off year.

In this case, they had a blow out first quarter in terms of some of the large assignments that came through, and so the leader of that group down there did a great job, and he's had a couple of performers that have really hit a good start to the year.

I think we're -- I think the other thing about this business, just the nature of the business, yet our size is that it's a bit chunky in terms of the ups and the downs, you know, quarter by quarter, but we're confident that by the end of 2004, Highland North America will be in profit.

Okay, thanks very much.

Thanks, Matt.

Your next question comes from Dave Coning with Robert Baird.

Good morning, Jon and Rich.

Congratulations on the good progress.

Thank you, Dave.

Thank you.

Just looking at the Hudson segment.

You've made very good gross margin percentage progress over the past couple of quarters.

I'm wondering if you could give us the temp margin this quarter as well as the breakdown of temp and perm within gross profit and then maybe just a little color around kind of the expectations going forward of where gross margin percentage could go?

Well, in terms of the overall product mix in terms of revenue, perm is representing about 18 to 19% of our total business and represents about 45% of the gross margin.

So the balance would be temp.

Temp would be about 70% of the revenue, about 30% of the gross margin overall.

Okay.

What was the second part of your question, I'm sorry?

Just, I guess, one other question I'm wondering is what the temp margin was in the quarter?

In terms of overall temp margin, I'm getting it.

Hang on.

It was in the high -- it was about 16 to 17% overall.

Okay.

And then the last part of that question, just I guess, what your expectations would be going forward if you'd expect perm maybe to get a bigger percentage of total gross profit and then if we should expect to see the gross margin percentage kind of ramp up through the year?

Well, as we've often said, our gross margin mix can really vary periodically at any period because of the mix, and I want to make a couple comments about that because it's important for everyone to understand.

We have seen probably better improvement in the short term in the perm side of the business than even in the temp side of the business.

And our overall temp gross margin is somewhat artificially low relative to the emphasis that we place on our business.

We think the growing segment of our temp business will be a higher margin business than 16%.

The margins are somewhat lower in the UK, for example, in Europe, and UK is primarily where we have a temp business than say in the U.S.

But the newer business that's coming in in the areas we're emphasizing such as legal, accounting, finance, et cetera, have been generally run in the mid to high 20s in terms of the percentage of gross margin.

We are also, as I mentioned in my comments in the UK, we are actually seeing some new business development in the higher margin areas as well, and we are encouraged by that sign.

A good portion of our U.S. temp business is a profitable but lower margin energy business that has represented a significant portion of our revenue base that we -- that has grown slightly, but it's just a stable, cash flow business that's managed at a much lower margin.

So our numbers get a little bit distorted in that, so we continue to see and we will continue to emphasize on the temp side the areas of growth in the higher margin businesses.

Okay.

That was very helpful, thank you.

Your next question comes from Ty Govatos with CL King.

Hello and congratulations on a nice quarter.

Thanks, Ty.

Could you give us just quickly what the German revenues were in the second quarter, and if it's possible, were those $2 million in nonrecurring expenses clustered in any special area?

In terms of the revenue overall for Germany for the first quarter, it came down to about $400,000.

It was less than a half a million.

Okay.

It's a very small business.

I mean, it was a big expense base.

Okay.

Obviously.

It was close to 100 people that were not very productive.

Gotcha.

The second part of your question, I'm sorry, Ty?

Were those $2 million in nonrecurring expenses in any specific area?

It wasn't any one specific area.

We had a bit of it in North America.

We had a bit of it in -- I would say the bigger percentages were in either North America and Australia, and some of it related to some pre-spend matters where we just cleaned up some tax items.

Okay.

So it was scattered?

Yeah, it was scattered.

Again, that's what we expect to see going forward which is why we're out of the phase of, you know, going through a lot of restructuring issue.

Gotcha.

One final one.

Can you bring us up-to-date for the sales force expansion for North America and what the new guys are accounted for?

We think they're kind of blending in better, Ty, so we're not spending as much time and effort tracking them now.

We want to treat them as regular employees.

So the overall answer is that we're very pleased that the North American team has kept turnover down across the board in terms of their force.

It's a very manageable rate, and we're seeing higher production from those people.

So it's getting harder as that blends in.

Okay.

To track individually, but the encouraging thing is that the operating metrics across the board that we're seeing growth in contractors on billing placements and in revenue.

Sounds good.

Thanks an awful lot.

Mm-hmm.

Your next question comes from Randy Mehl with Robert W. Baird.

Hi, Jon and Rich.

Hi, Randy.

I joined a little bit late, but I was wondering if you could talk about the competitive environment in Australia.

Obviously it sounds like Morgan and Banks kind of reemerged.

I'm wondering what the effect you expect that to have and, you know, whether your outlook has changed in Australia over the last couple quarters?

And then are you still making -- are you still making a lot of organizational changes there, or are we stable and should expect to participate in the growth in that market?

Well, I'll start off and let Rich join in with his thoughts.

I think first of all, yes, Messers Morgan and Banks have gone back into the business so they are competing with us.

I think, first of all, we have lots of competitors, and we worry about all of them, including Messers Morgan and Banks.

They have recruited some people from us.

And there's some people as you wouldn't imagine, there are some people that we would prefer to have stayed with us.

You know, there's also some people we're not as worried about their having left.

And so we treat them as a serious competitive threat just as we would anybody else and, you know, continue to, you know, kind of watch our back, so to speak.

But I think in terms of the organizational changes, I think that for the most part, we've made the organizational changes that we're going to make, you know, in terms of major shifts.

Anything that happens from here is really going to be individual and performance related, kind of normal course of business.

We think we've made some changes that will have a very significant long-term impact on our ability to be competitive in the marketplace in Australia, which is a very dynamic market and, for us, a very important market.

And we think we will continue to see those benefits through the year.

We've obviously seen some of those benefits in the first quarter, which we are extremely happy to see.

Our team there has done a fantastic job, and we expect that we'll continue to get benefits from that restructuring and re-engineering, really, through the year.

Rich, what are your thoughts?

Well, I think I guess I just echo the point that Jon said.

You know, we as competitors, especially in the business that strong where you are the market leader, we have a number of competitors, and whether they are former affiliates or not, it doesn't matter.

I think the key point is that the management team there has really addressed the issue in a positive way.

They have really brought their team together.

They have managed the business extremely effectively in the market where we were probably attacked the hardest by the particular group that you raised.

Our operating results were very strong, and the team responded very well.

So I think we recognize we're in an extremely competitive business.

The management team down there has done a very good job.

Okay, thanks for that.

Have the April, kind of March/April trends in that market, are we still on the way up there?

Yes.

Okay.

Thank you very much.

I appreciate it.

No problem.

Your next question comes from Catherine Tillman with Barrington Partners.

Good morning.

I was wondering if you could provide a little bit more insight into why the experience in Germany was so unsuccessful?

And also just talk about the likelihood of that occurring at other locations.

Is it a one-off situation that's specific, or are there some structural problems involved?

Well, again, I'll start and then ask Rich to add his comments as well.

I'm sure you remember Catherine, that our company is the result of 67 acquisitions by TMP over a two-year period.

And in any kind of roll-up, accelerated roll-up strategy, there are a number of pieces that end up getting put into the equation that are, you know, don't fit particularly well.

This was a situation that had been identified as a problem area when I joined the company in October of 2002, and was something that we had probably flagged in conference calls for every conference call since we've been a public entity.

I think we've announced two or three restructurings in Germany in the four quarters that we've been public.

So we knew it was an issue.

Obviously Germany is a weak market to begin with.

We were in a quasi-executive search type of business, although it was in Hudson.

We had previously closed the Highland business in Germany at considerable expense at the end of last year.

You know, we have probably been guilty of working too hard at making this successful.

You know, in retrospect, and I plead guilty, we spent too much time trying to push water uphill and probably could be faulted for not pulling the plug sooner.

But, you know, so we were in a weak market with a weak business, and I think the thing that probably pushed us over the edge was basically local management.

You know, we had made changes in local management.

We brought in new people who were more effective, but we still had a residue of local managers and you probably know from experience in Germany it's very difficult to fire people, if not in some cases impossible.

That made it very difficult for us to make changes, particularly changes from a cultural standpoint that would make us competitive.

So we felt it was time to pull the plug.

You know, we don't have any other operation that, and obviously as we've gone through a lot of restructurings, we've looked at everything, you know, within our company.

We don't have any other operation that rises to that level of combination of a weak market, weak business, uncooperative management and pretty significant operating losses.

I mean, if you annualize, as Rich said in his remarks, we expected the losses would grow. $800,000 in a quarter times four is over $3 million.

Add a little growth, you are getting to 4 to $5 million in a year, which in a business that we're bringing to break-even is a very significant obstacle for us.

We don't have anything like that around, so I would say we have a parallel.

And just to add to that, I want to amplify an answer I gave to Ty Govatos earlier.

So, Ty, if you are still on the call, I will follow up with him.

I had mistakenly just given him the temp side of the revenue in Germany.

The overall German revenue is a little over $2 million for the quarter.

Still not very big relative to the size and scale of the cost base that we had.

But also, you know, to add to Jon's answer, there is a structural problem in Germany.

We're largely a permanent placement business in continental Europe, and, you know, you have, you know, very high unemployment in an economic structure in Germany that is detailed in virtually every sector of business that is problematic in terms of job growth right now.

And without a fundamental restructure of the way you do business in Germany, it is exceptionally hard to make money -- it was in our industry to make money there.

Just for a little additional color, what were the fourth quarter '03 revenues in Germany?

I'd have to look that up, but it's probably not too dissimilar.

They were not growing rapidly at all.

It's probably closer to 1 million.

Somewhere between 1 and 2 million.

Okay.

Again, we did not have a very productive and profitable operation.

As Jon said, we looked at this for some time.

Thank you very much.

You're welcome.

Your next question comes from Mark Marcon, Wachovia Securities.

Good morning, everybody.

Hey, Mark, how are you?

Good.

Congratulations on turning things around.

Thank you.

You know what they say, it's always too early to brag.

We are feeling more comfortable.

Great management job.

Can you talk a little bit about Highland just in terms of a little bit more color in terms of the monthly trends that you're seeing?

What are you seeing in terms of productivity in terms of the consultants or partners in terms of their revenue production?

What are you seeing in terms of pricing?

Just more color in terms of the trends and where you see Highland competing?

Again, I'll start and ask Rich to comment.

I think, first of all, one of the things that we didn't mention in either of our remarks was we've seen a very successful rebound in Highland Partners in the UK.

So we've restructured predominantly into a London-based operation with a small operation in Switzerland in Zurich.

And we saw a very nice rebound in our London business in terms of revenue fees generated per partner.

And really, I think gives the two of us confidence that we are goint to hit our numbers in terms of Highland Partners.

I would say the trend continues to be modest in our business, a modest upswing.

I'm not sure we're a very good indicator of the market as a whole, but in our business, we're seeing the signs of a steady upswing.

We're seeing greater activity.

We continue to capture some, you know, very important, very nice accounts.

Very nice pieces of business that we think supports our strategy of being a global boutique, and we've had a very strong period in Australia.

Rich, do you want to talk any --?

The only thing I'd add about the trends is that we have seen a slight uptick in the average billings and certainly in the average fee that we're getting.

So I think the group of people we have is a very balanced group of good, high performing partners and consultants who are focused at the right level, certainly at the right price range in terms of the quality of assignments that we're getting, and I think the leadership there has done a good job of making sure we stay focused on that.

Are the average fees going up because of higher profile placements, or is your percentage going up?

No, it's not the percentage.

It's the profile placement.

There's been a directed effort to make sure that -- of where we've been targeting our efforts to move up the value chain.

The pricing pressure and the pricing trends in the market have been -- during part of last year, there was a lot of pressure on pricing.

But as things have started to pick up now, I think it's back to a more normal, steady trend.

Right.

And can you talk about confirms in March relative to Feb and Jan?

I didn't hear the last part of your question.

I am sorry.

Can you talk about where the confirms are in March relative to where they were in Feb and Jan?

What do you mean by confirms, Mark?

On the Highland Group in terms of the confirmed searches that you are getting from orders.

I think our bookings have been just basically pretty stable, and we haven't seen a huge -- it's been just a modest increase in bookings.

Again, remember, we're down in number of partners.

So partners that are active right now, their trends are basically pretty steady.

It's been interesting as we've seen the start of the year, we've had a good start for a number of our partners, and some of our consistently better partners are off to a slower start, which gives us confidence that they are going – because we know they're steady performers.

We have some very strong practice groups.

So overall, the number has just been steady.

And then the key issue for Highland this year has been that we eliminated a lot of the cost base and the losses.

Rich mentioned we were down in Partners.

I think the number is about 20% year-on-year.

Great.

Thank you.

Your next question comes from Ty Govatos with CL King.

Okay, Ty, Rich corrected his answer.

He wasn't off that much.

I owe you a beer.

The development cost, a million 6?

Yeah.

You've never really broken those out before.

Can you give us a sense of where they've been?

Are we at peak?

Any revenues against those?

We have some revenues.

We are at peak in terms of our loss.

We lost about a million 1 in the fourth quarter which was within our corporate expense.

We wanted to give you better visibility on what was corporate and what was not.

So we broke them out separately this time and we'll continue to do so.

Our expectation is that as we go through the year, the losses will reduce.

We have a nice pipeline, and so we're getting, you know, we're getting, we think we are getting some revenue, not a huge amount.

But we think our revenue will build because we have a nice pipeline.

We are also getting some decent cross-selling, which is another one of the reasons and rationales for being in these particular businesses.

You know, our inclusion practice has been, you know, for a relatively small business, you don't want to use adjectives like significant and so forth, but they've been aggressive in terms of assisting and cross-selling and have opened up a number of opportunities to the other two practices.

So we are, again, very early returns.

Very early stages, but we're very encouraged by that.

Okay.

Thanks again.

Tell Rich, it's really two beers.

Okay.

Take it easy.

I heard that.

Again, if would you like to ask a question, please press star then the number one on your telephone keypad.

At this time, you have no further questions.

Are there any closing remarks?

Just one.

If there's any further questions, feel free to contact me at the number listed on the release.

And we have recorded the call.

It will be available after 12:30 Eastern today.

You can access it through our Web site, www.hhgroup.com, and we thank you for your time and attention.

Thank you very much.

Thank you.

This does conclude today's conference.

You may now disconnect.