Korn Ferry (KFY) 2005 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Korn/Ferry International conference call.

At this time all participants are in a listen-only mode.

Later we will conduct a question and answer session.

As a reminder, this conference is being recorded.

Before I turn the call over to your host, Mr. Paul C. Reilly, Chairman and CEO, let me first read a cautionary statement to investors.

Certain matters to be discussed during this conference call will constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Although the Company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, the Company can give no assurance that such expectations will be attained.

Participants on this call are cautioned to consider the risk related to the assumptions and expectations and not to place undue reliance on such forward-looking statements.

With that, I'll turn the conference over to Mr. Reilly.

Please go ahead, Mr. Reilly.

Good morning, everybody.

Thank you for joining us this morning.

We're actually reaching you out from Mexico City, where we're here with our great partners in Mexico and really our dominant practice here.

So we're actually having a series of meetings here.

As you know, we've been touting the economic recovery since last summer.

And despite the up and down jobs reports, especially in the U.S., we've always stressed that our economy is growing.

Today I am pleased to tell you about our solid operating profits in this quarter and, we've -- including Mexico, we attained a $106 million quarter.

Many of our sectors and functional practices were up during the period, led by an exceedingly strong results from financial service.

This marks four consecutive quarters of growth in that sector, and much of that has been driving a lot of our momentum.

Commercial Investment Banking, as well as Asset Management, turned in the highest sub sector growth within the Financial Services area.

Our Industrial practice, which is relatively flat during the recovery, has also improved significantly in the first quarter driven by increases in all regions, including Europe and Asia.

In line with the rising oil prices, oil and energy organizations continue to expand during the quarter resulting in a strong performance for that sector.

On a geographic basis, every region in Korn/Ferry -- every region that we operated in shows revenue improvement, as did every -- as each of the three products and businesses that we have here, Executive Search, Futurestep, and Leadership Development Services.

I belive it shows that our multi-product strategy continues to gain acceptance in the marketplace and that clients are increasingly turning to Korn/Ferry for a variety of human capital needs.

We are confident that as the economic recovery continues to unfold, that the demand for qualified executives and middle managers will rise.

From a longer-term perspective, as the population continues to age and talent becomes increasingly harder to find, the need to develop and retain employees will become paramount, and our Leadership Development solutions will continue to gain favor.

To this end Korn/Ferry has the right strategy to offer clients with the multiple offerings they'll need to insure success in the human capital area.

As I stated on past calls and to many of you personally, we believe that as companies continue to migrate towards the outsourcing of many back office functions, there will be greater demand to use fewer vendors for multiple services.

And that includes human capital.

And to that end, our strategy continues to bear out in Futurestep.

With Futurestep's revitalized business model, we're conducting more and more project-based recruiting engagements and fully outsourced managed service projects.

Increasingly, clients are turning to us to help them fill multiple, if not all of their hiring needs.

Accordingly, Futurestep revenue improved significantly over the quarter, and is generating more operating income in the first fiscal quarter than the previous four quarters combined.

Over the quarter, we continued to add bench strength to our already great team of consultants. 12 new senior client partners and client partners were added around the world in virtually every region.

Perhaps most notable are two new partners we've added in our Houston office, Richard Preng and Eric Nielsen bring deep experience into our global energy practice.

Combined with the consultants we have on ground, bringing these additional resources really makes us a dominant practice in the energy area, and we will continue to produce outstanding results.

One of our three-year strategic initiatives is to evolve Korn/Ferry as an information-driven culture.

It is our belief that to create a culture that leverages knowledge through technology, sophistication, and information sharing provides a professional services company with competitive advantage.

We've also -- we've always been noted in the industry and with our clients as having the leading technology platform.

We plan to push that ahead to the next level in this coming year.

Not only will it allow us to service our clients better, but it should also improve our productivity.

We are encouraged by the continued demand for human capital around the globe, and are confident that we are following the right strategy and direction to maintain Korn/Ferry as the number one global provider in the industry.

And with that, I'd like to turn our call over to Gary Burnison, our Chief Operating and Chief Financial Officer.

Gary?

Thanks, Paul, and good morning, everybody.

Once again we're pleased to report continued revenue growth and expanding profit margin.

Our recently completed first quarter marks the fourth consecutive quarter of both improved revenue and profitability.

In fact, revenue in the first quarter grew 42% over the prior year.

And more importantly, EPS improved by 45 cents, to 20 cents per share.

Revenue was almost 103 million, and including Mexico, is 106 million.

Our consolidated operating margin was 14.2%, and our balance sheet remains very strong with over $93 million in cash.

Now let me review the business segments, starting with Executive Recruiting.

First quarter revenue grew 3.5 million, or 4% sequentially.

This was primarily driven by our European and Asia-Pacific businesses and colleagues.

European fee revenue improved 2.5 million, or 11%, to 24.8 million, highlighted by double-digit growth rates in the U.K., France, Germany, and Switzerland.

Asia-Pacific was up 900,000, or 8% sequentially, driven primarily by gains in greater China and Singapore markets.

Executive Recruiting operating earnings continued to expand, reaching 19.1 million, or a 21% margin.

This represents a 2.9 million, or 18% improvement over the fourth quarter.

European operating earnings improved the greatest in the first quarter, growing to 4.6 million, for an 18.4% margin, from 2 million or a 9% margin in the fourth quarter.

Operating earnings also improved in Asia-Pacific to 2.2 million, or a 17.6% margin.

And in South America, to 300,000, or a 13.3% margin.

As Paul indicated, we continued to recruit new world class professionals into the firm during the quarter.

The number of executive recruiting consultants at the end of the first quarter was 392.

Consultant productivity also continues to improve and is now at an annualized run rate of approximately 950,000 per consultant.

As Paul mentioned, Futurestep turned in a very strong first quarter, with revenue reaching 11.7 million, up 16% sequentially.

The growth was across all regions.

More importantly, operating earnings grew nearly 125% sequentially to 1.9 million, or a 16.3% margin in the first quarter.

Let me now comment on our second quarter outlook.

Due mainly to seasonality associated with summer vacations, we estimate that our second quarter fee revenue will be in the range of 96 to 103 million, and EPS will likely range from 14 cents to 20 cents per share.

That concludes management's remarks.

I'll now turn it over to Robert so we can beginning taking your questions.

Thank you. [Caller Instructions].

Our first question will come from the line of Randy Mehl from Robert W. Baird.

Please go ahead.

Good morning and congratulations on great results here.

I wanted to pursue the productivity in the quarter.

You mentioned annualized about 950,000.

Is this where you would expect to see it top out, or do you think there's some upside to the productivity number?

No.

We think there is upside.

If you go back and you exclude the bubble and you look at Korn/Ferry's history, we've seen productivity as high as 1.1 million, 1.2 million.

And that's what we are targeting, Randy.

So you're still -- still think that at this point 1.1 to 1.2 million is realistic.

And then in terms of the guidance for next quarter, I think your assignments last year in the second quarter were up about 30% sequentially.

Is this something that we could see again or maybe you could explain why we saw it last year and wouldn't expect to see it this year?

Well, I think there are a couple things.

One, if you remember, last summer we were coming off of a very low quarter.

In fact, it was a year ago that annually this business was doing about $280 million.

And today we are on a run rate of almost 410 million in the space of 12 months.

So one of the phenomena is you are coming off a very low quarter, and you'll recall that in the United States last year in September was a very strong jobs report for the economy.

And certainly it's possible.

We'll have to see how September shapes up.

We are going through right now the typical -- we have gone through the typical summer season of August.

Randy, I would like to say, traditionally last it was -- last year it was because of -- we came off a low base starting to pick up.

Traditionally this is our slowest quarter.

Europe almost some countries shut down, like France virtually for August, Scandinavia, a lot of July.

And it slows down here in the summer.

So we always leave this quarter with a slightly lower backlog because of vacations, both internal and our clients.

So I think we have to wait to see what happens to September.

We believe we are in strong shape, but again this quarter traditionally has been our slower quarter because of holidays.

One last question about Europe since you brought it up.

Obviously, the first quarter has the potential to be seasonally weak there.

Your results were outstanding in Europe.

I'm just wondering if there were some particular items or sources of strength that were more one-time in nature, or if this is just part of what you're seeing as better execution in maybe a mildly improving environment?

Yeah.

I think what you're finding there is long people have said the U.S. has lagged Europe by a year, and I think you're seeing the same phenomena.

Europe came off of a slower period economically, a lot of the gains were kind of FX sort of holding their own, but you're seeing activity pick up and the businesses are doing better.

In the case of Germany, it's just market share gains.

We've added a lot of very strong consultants there, and we are really getting a lot of market share there.

So the U.K.'s been strong, continues to produce well, France is a tough economy, we have a great team there.

So I think that you are seeing a recovery in Europe overall, a cautious recovery.

But the summer is the summer there, and August is always a tough month in Europe.

Thank you very much.

I appreciate it.

Thank you.

Our next question will come from the line of Mark Marcon from Wachovia Securities.

Please go ahead.

Good morning and congratulations on the terrific results.

Wondering, with regards to the -- you've had nice margin improvement both in Europe and Futurestep, and I'm wondering how much higher can the margins go in Europe and Futurestep?

Well, in terms of the operating margins on a consolidated basis we had about 14% margin.

As we've talked about before, we're targeting 17 to 18% operating margins for the Company, which we believe we can achieve.

In North America, without any allocation of corporate overhead, the operating margin was about 23%, 24%, something like that, Mark.

And in Europe, it was about 18%.

I think that for North America, you could easily see 3 to 4, 500 basis points improvement.

And probably the same for Europe as well.

Terrific.

And you've made a number of hires after the quarter ended.

Where are you in terms of the total number of consultants right now?

The total number of consultants is about 392.

At this point, as opposed to quarter end?

Yeah, it's about still at that level, Mark.

Okay.

And is it your sense that the new hires who seem like they're -- have fairly impressive resumes coming in, do you think that they could be at the -- fully productive in the first couple of quarters that they are in place, or is there going to be a lag?

Mark, there are 2 types of people we bring in.

First, our process to come in is very, very rigorous, and I'm not sure I could get in, given our process today.

But there are 2 people, I think the people from industry tend to hit the ground running.

So they've been in search, they may take a quarter to transition, but they are hitting really, really hard.

The people that come from industry directly have a lag time.

And although we have a few people that have proven us wrong that have just hit it out of the park very quickly, generally we find those people take a year to kind of come up to speed and learn our business.

So the majority of our hires have been people with search experience.

So there's a mix, but we're finding our success rate with people actually way above our expectations, the people working in -- and clearly not only are they driving great client service, but they're -- they continue to drive the cultural change we've been going through in this organization that we're all proud of.

So they've been very, very productive assets and I think they will continue to help us push the numbers in market share, actually.

Obviously there's some seasonality involved coming up into this quarter, but would you expect to see the same sort of year over year gains in terms of productivity that you've been seeing?

Well, we've given you our productivity targets and I think we fully expect given a healthy market to reach them.

I don't think we can continue 40% year on year growth as a kind of jump percentage-wise, but we fully expect to hit the new targets and we've been managing to them and I think that people questioned us a year ago whether we could, and I think they're only slightly questioning us now.

I think they're clearly in reach and we just have to prove it.

We, assuming any kind of good, stable market that we will reach them.

Okay.

And did you see any sort of fall off in activity in July, besides the normal seasonality, just given what happened with -- for the stock market as well as oil prices and some --

Actually, with July being pretty perfect -- considering vacations, being pretty solid, and we just in July and August always have a little bit of fall off.

Demand's been pretty strong and pretty consistent, and what we are hearing from the field is everyone gets a little nervous with the job reports, except maybe me, that we've been touting we don't think numbers are linear.

If you move quarterly, moving averages are strong and we feel pretty good and the consultants feel pretty good overall.

This is a paranoid business, where you know -- since you're booking out like 90 days ahead for your assignments, you're always wondering what's around the corner.

We feel very, very good coming off the holidays.

We thought the holidays season -- we were a little more concerned because of the build up that the holidays may be a little slower that than they were.

They were stronger than we expected, even though they were off somewhat.

Great.

And lastly, what sort of tax rate are you assuming in your guidance?

The tax rate is about 36% or so.

36.

Is that what it's going to be for the year, Gary?

What's that?

Is that what it's going to be for the year?

Well, I think when you go out to the third and fourth quarters, you'll probably see it increase a little bit, maybe 3 to 500 bips.

Okay, great.

I'll jump back on later.

Thanks.

Thank you.

We'll go to the line of Ty Govatos from CL King.

Please go ahead.

Let me add my congratulations.

Terrific quarter.

Could you tell us what the bonus accrual for the quarter was and give us some indication at the rate you're reserving for the year?

The bonus accrual for the quarter is about $18 million, Ty.

And for the year is completely dependent upon the profitability of the firm.

And as you know we only give guidance on a quarterly basis.

How about if I ask you as a percentage of net or gross revenues, would it continue to run at the same rate as the 18 million?

It really depends on the profitability of the firm.

Assuming in this next quarter that the profitability is similar to the first quarter, you could assume the bonus accrual would be about the same level.

Okay.

One other question.

You implied that you're going to beef up your technology system.

Will that entail noticeable cost?

And if so could you elaborate?

A lot of that's a process and actually tweaking with our existing staff, but Gary, I think with our effects guidance.

Yeah, no, Ty, it will not be material to the results here.

Obviously we've down sized quite a bit.

The corporate and regional staffs are about a third of the size.

We haven't made any kind of meaningful investment in the technology area, and we really want to use it -- continue to use it as a strategic weapon for the firm.

And, but I think in terms of the results you won't see any kind of noticeable increase in SG&A because of any technology spend.

Okay.

Thanks an awful lot.

Again, great quarter.

Thanks, Ty.

Thank you.

Our next question comes from the line of Toby Sommer from SunTrust Robinson Humphrey.

Please go ahead.

Thank you.

Good morning.

I had a couple questions.

Wondered if you could delve a little bit deeper into the market share gain you described in Germany, I think it was.

What are the drivers as you see them for your potential market share gains going forward?

And then I was also curious about what you think, how you think you're going to deploy your cash as the market is still building here?

Thanks.

I think, a few questions on there.

One is we think that as clients still look for solutions orientation versus transaction assistance, they're going to go to firms that can offer multiple product and relationship orientation, that can deliver on a regional or global basis.

And that's been our strategy.

It's continues, I think, to evolve.

It's -- we are seeing the results of even in the downturn, investing, I think a lot of people were asking what we were doing with Futurestep and our Leadership Development services in terrible market, I think they're seeing why now, and our clients are coming along.

So our ultimate market share gain in an industry that has a lot of good competitors has to be with the unique advantages we hold, and it's multiple products on a global platform, delivering solutions to clients globally.

That will continue to drive it.

Now at the heart of that are people.

And we continue -- the reason we've been adding people is for -- to fill holes, either in delivery and segments, or to add more depth to teams so we can deliver on that basis.

So, we will continue to do that, and that's at the heart of our strategy, and we're continuing to make gains every day.

I'm sorry, there was a second part of the question?

There was.

I was interested in how you think you're going to deploy cash over the coming quarters.

You did -- you do have a substantial cash balance.

I'm curious what you may, your thoughts are in that regard.

I was hoping we could get the Microsoft situation before having to deploy cash.

Right now we -- our position is to maintain a conservative balance sheet at the present time.

Whether we'll look at things to expand our services, to help our services we may.

But our tenure right now is, yeah, we have a good cash balance, but after a bit of downturn, we'll probably err on the conservative side right now.

And in the terms of your expectations for additions of recruiters in coming quarters, is this sort of a case that we should think about in terms sort of low- to mid-double digits in terms of numbers of recruiters?

Yeah, I think we expect to keep in the market adding like we have last quarter.

But that's subject to us being able to get the people we wanted.

We've done a very good job I think of internally of even -- one of my proudest moments of recruiting is when we turned down 3 $2 million billers in about a six-week period of time that wanted to join us, but were we felt they didn't fit into our culture.

So, we will continued to do that.

In an up market, we'll probably have a little bit of turnover.

We've been at pretty record low turnover rates for most of the regions, and as we make changes that will result in a little bit, but we think that number will stay low, and we'll continue to add.

One last question.

I was curious where you think gross margin will end the year .

When you say gross margin, what do you mean by gross margin?

Revenue, I'm thinking sort of less the compensation and benefits?

I guess that's the way we have it worked out in our model.

Yeah, well, we don't -- obviously, we don't comment out past the quarter, so it's going to be difficult for me to comment on that.

Compensa -- I will tell you that compensation, the percent of revenue was about 63% in the first quarter.

And I'll contrast that with a year ago, when it was 71.

And sequentially, in the prior quarter it was almost 67.

So obviously, you're seeing what we believe is tremendous scalability in the business, and we think we still have more to go.

Thank you very much.

Thank you.

Thank you.

We now have a question from the line of Kelly Flynn from UBS.

Please go ahead.

Hi, guys, this is Andrew Fones for Kelly.

I was wondering if you could give us perhaps a specific target in terms of the number of recruiters that you might have at the end of this fiscal year?

Again, we are not giving fiscal year projections.

Our number of recruiters has got up slightly.

It remained flat last year as we recruited and made swaps internally versus externally.

I would expect our recruiting will continue at the same pace, if we can find the right people to fill holes and with probably a small turnover, because everyone has a little bit.

So, you'll see some growth, but it's going to be, I think, like this quarter is what I would expect at this time.

Okay.

And you mentioned you primarily have two types of recruits, new recruits.

Could you kind of give us a sense of what you're targeting at the moment, and perhaps kind of what the mix is, or perhaps the target mix in terms of kind of experience of recruits, as versus kind of people new to the recruiting industry?

Yeah, I think what we are finding is we're finding about three-fourths of our recruits coming from our industry.

And about a quarter coming from our clients' industries.

What we do is we just -- we have a very thought-through strategy of where we think we want more depth or resources and expertise, and we hire against it, and we find people we like that we think could do a great job and will fit our culture from either.

So my guess is that percentage will hold currently, and I think as this market continues to grow, the percentage of people actually coming out of not our industry, but coming out of industry, may go up some because what you don't want in our business is just taking people from other places because at someplace that settles out and you have to keep growing the business.

So -- but we've spent a lot of money on training.

We are really reinvigorating our training throughout our organization, from our partners all the way down through our senior associates.

So the new people we are bringing from outside our business are doing very, very well and getting up the curve pretty quickly.

Okay.

Thanks.

And could you give us a sense of the number of new recruits that -- going perhaps into the new Leadership Development practice and perhaps you could give us a sense of how that practice is building out, and I'm not sure if you've given any kind of quantification before, but perhaps if you could give us a sense of the size of that practice now as a percent of your revenue?

No, we haven't reported it as a separate segment.

Some of the business is imbedded in our consulting business.

But we've continued to add -- we've added a couple of recruits in the last couple of quarters in our Leadership Development services that are full-time, and we continue to target in our discussions with probably another half a dozen.

Now, how many we'll end up adding?

I don't know, but we continue to grow it very thoughtfully, and, again, from a revenue standpoint, we haven't broken it out as a segment at this point.

Thank you.

We have a follow-up question from the line of Mark Marcon from Wachovia.

Please go ahead.

Paul, your fees per assignment increased by about 5%.

As color as to what drove that and whether we should continue to expect that to occur?

I think one of the things we've been proud of, and actually despite the doom sayers, was that our fees per assignment held up very, very well in the downturn, and I think it shows the clients feel there's value for services and as the economy picks up, and we've been in kind of a buyers' market the last couple of years, and it's returning more to a sellers' market, where people really need people.

I think you are seeing that reflection in fees.

Interestingly enough, a lot of this quarter's fee increases actually came from Europe and Asia, which is where you'd figure it would be a fee-sensitive market.

But we're seeing both in client attitude and it's showing up in our fees that people are probably loosening up a little bit, and not negotiating as hard.

Where it goes I don't know.

I think as the economy continues to improve and there's a more fight for people I think will you see it go up.

I don't think how long that takes, what kind of uptick we are I think in this present economic environment, if it continues to expand as it has in the last year, you will see a slight -- the same kind of momentum on fees my guess is.

There's a lot that plays in global mix, recruiting mix, all sorts of things.

So it's actually your fee is a percentage of the cash -- first year cash comp that's going up a little bit or is it more the cash comp for the actual recruited position is going up?

You are probably seeing dual things.

You're seeing more pressure on cash comp now than you have, and I think that's probably driving a lot of it.

We've been pretty much holding steady to our fee strategy.

The markets are improving.

The comp is.

I think you'll see in the reports at the end of this year that comp is going up with a lot of pressure.

Terrific.

In terms of the -- in terms of Futurestep, this is the first time we're actually seeing a bit of a pick up with Futurestep going into what is traditionally a weaker seasonal quarter for you.

I'm wondering if you could give us a little bit of color what to expect this coming quarter out of Futurestep?

Are you going to see the same sort of seasonal dynamics that you would on the traditional search side, or is that going to be a little bit different and what would the implications be for margins there?

I think that Futurestep had an absolute outstanding quarter, and they are affected seasonally, too, but they have a fair chunk of their business in Europe, so they're not immune from the European cycle.

But you know what?

That's a group that not only have we been confident on, it's been great producing, but they always surprise us.

We are viewing that they are probably going to have a little bit of seasonality both in the top and the bottom line.

But we'll see.

Gary, do you have anything you want to add?

You know, it's a phenomenal business.

They've done a fantastic job.

We just completed an assignment where we placed about 100 finance professionals in an organization.

We did it in about 7 months.

Those are the kinds of projects that our team is aggressively pursuing.

If we talk about target margins overall, we would like to see 15% or so operating margins out of that business at least.

Great.

So, still have some upside that we probably won't see it this quarter?

We'll see how it comes in.

It's a great business, but again, it goes for the whole business, small fluctuations can hit it a little bit more, but it's growing in dynamic and they are doing all the right things.

They are delivering next to flawlessly.

Client satisfaction scores are high.

They've got a lot of potential contracts in the mix.

Again, a signing of one or two drastically affects their business of their size.

It's a business that we -- I think a year ago, people asked us a lot of questions or no questions on it, people can see why we are excited about it now.

In terms of your account strategy, any comment in terms of market share gains among your top 20 or so accounts across the globe, any color that you can give us there?

It's hard to measure overall penetration of those accounts, but we continue to gain on each one of them.

We report quarterly and the client moved from moving -- doing virtually all their work to a good chunk of their work, depending on the strategy, some companies have -- where they let their regions do a little bit more, and corporate has less of a say, some where corporate has the say, we are doing more of a mandated strategy.

But at those we work at every region and every level to own those accounts.

And I'm very, very happy with the progress.

We've also rolled out a regional account program this year that really is taking hold, and we are going to continue to put fire under that.

We have not let go of our standards of accounts to get in.

The retraining required before something becomes an account.

And our independent board of consultants internally that review those accounts each quarter with the account managers, and it's a lot of emphasis on the process because it's a long-term gain.

But as anything, I would like it to go faster, but we're making great progress.

As I understood you're not giving any color with regards to the size of is the Leadership services.

Is that correct?

Not yet.

No, but I will tell you that they had a phenomenal quarter.

Okay.

And how much did you pay out in bonuses this last quarter, was it around 36 million or so?

It was -- our last year bonus expense was about 45 million, Mark, and we paid about 38, 39.

So there's a little bit of trickle over into our second quarter.

So we have something like 6 to 7 million to go?

Exactly.

Okay.

Great.

And Capex, where would you expect that to be for the year?

It's going to run at the levels it has.

There may a slight increase.

It could be 6 million, $7 million, forward 12, something like that.

Okay.

And then there was some mention about an increase in bad debt expense, can you give us any color there?

Well, it was really the accrual that was increased and primarily because of the increased volume.

We haven't experienced much in the way of actual write-offs, but with revenue being up 42% year over year and the like, a lot of the -- a lot of those kind of variable costs will creep up as revenue increases.

So, you kept the percentage basically flat?

Yeah.

I can't speak to percentage off the top of my head but, yeah, we've certainly kept it up with the growth in revenue.

Okay.

Great.

Terrific.

Thank you very much.

Thanks, Mark.

Thank you.

We have a follow-up question from the line of Toby Sommer from SunTrust Robinson Humphrey.

Please go ahead.

Just curious, you talked about the decision making processes of your customers that some of them have more, perhaps oversight or input from corporate versus some more decentralized.

Is there any way that we should look at your customers in terms of perhaps you being in a more competitive position if you deal with people who are more centralized, because you do have a global platform with multiple products, or do you see that as not a factor?

I think you have to look first, and this wasn't any different than my old businesses, the client is always right.

You can take 2 industries -- 2 clients from the same industry that have exactly opposite cultures and strategies.

So what we do is we look at first the client's attitude to partner, the propensity to buy, the propensity to partner versus us be a vendor, and we use those as criteria when select them as account.

I can tell you some of our success in global accounts has started not in corporate headquarters, but certain regions where we executed flawlessly and then we moved to corporate.

Others we've been in corporate and we started just doing corporate work, and moved to the regions and ended up owning the regions.

So, it sounds easy, in this business as you say you get corporate blessed and you get all their work, it doesn't work that way.

You've got a major global account.

You have clients at the corporate level.

They may -- starting with the CEO and the board, you've got HR which has a say, you have people that run business lines that have a say, you have people that run regions in countries that have a say, and if you want to own those accounts, you work at all those levels.

So, that's why a coordinated, thought-through program is essential.

It's easy to sign agreements, that's great, but you don't want to sign agreements unless you are really getting work, and you're top of mind at those companies.

So our strategy is client-specific.

Sometimes we'll even find an account that we think will be a good account, but we don't feel that we have the right people in the right place at the right time so we will pass on it for another account, so it's very strategic, very thought-through, and we'll continue to attack it on a multiple -- you know, multiple way based on clients.

I will say that clients are evolving.

Years ago, I think they didn't care about the centralization of recruiting and HR.

It's becoming more and more of an issue as companies look at managing their human capital.

So, it's evolving in our direction, and we'll continue to just position ourselves with clients that want a partner.

Thank you very much.

Thank you.

And we have a follow-up question from the line of Ty Govatos from CL King.

Please go ahead.

Hello, again.

Technical question on your direct cost.

If I exclude the bonus accruals, last year that item was running at roughly 42, 43 million a quarter.

It had a big jump in the fourth quarter to 49.

I guess because of some one-time payments, et cetera.

I would have expected that to decline substantially in the first quarter and it was still around 47 million.

Could you explain why that's still up at that level?

Is that from the new hires base salaries, et cetera?

Yeah, I think, Ty, when you cut through it, that would be the rationale.

We are continuing to aggressively bring talented people into the organization.

And the two primary costs of our business are brick and mortar and people.

And the brick and mortar, we're in just about every geographic location you would want to be in, and we have capacity in those locations, and in terms of the people, as we've talked about, we are continuing to add people.

So that would explain it.

Okay.

Thanks again.

Thank you.

And once again we have a follow-up question from Mark Marcon from Wachovia Securities.

Hi.

Just one last follow-up.

In terms of the corporate overhead, is that -- should we take a look at the level of this quarter and basically use that as a good level for the balance of the year?

I would probably bring it down a little bit.

You know, maybe 6 or 7% or so, 8%, something like that.

And I would say that's probably a good level then.

Great.

Thank you.

Thank you.

There are no further questions at this time.

Please continue.

Well, great.

We would like to thank you all for joining.

Obviously, we feel good on a quarter like this, but we don't feel good for very long.

We have to get back out there and work hard.

So we're continuing to push the strategy, and I appreciate the following from this group, and especially from our partners who are really making this happen.

As I tell everyone in the field, when they congratulate Gary and I, and I just tell them we just add up the numbers.

A great group of people.

The strategy is going, and we will continue to chip away.

We look forward to talking to you next quarter.

Thank you.

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