Korn Ferry (KFY) 2006 Q1 法說會逐字稿

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. Riley, Chairman and CEO, let me first read a cautionary statement to investors.

Certain statements made in the presentation today 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, investors are cautioned not to place undue reliance on such statements.

Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties which are beyond the Company's control.

Additional information concerning such risks and uncertainties can be found in the Company's annual report for fiscal 2005.

With that, I'll turn the call over to Mr. Paul Riley.

Please go ahead, Mr. Riley.

Thank you, Rochelle.

Good morning, everyone.

This morning we're pleased to report our first-quarter fiscal results for 2006.

Our first quarter was strong with revenues of 122 million, up 19% over last year.

Revenue was slightly impacted by unfavorable foreign exchange, summer holidays.

But given the fact we lived through a terrorist attack in the UK, record high fuel prices around the globe, and continued uncertainty in the Middle East, the demand for executive level jobs stays strong.

I am also happy to point out that this was a very strong quarter for Futurestep.

Our revenue was 16.8 million, up 43% year-over-year and 13% sequentially from last quarter.

Our balance sheet remained strong with cash at hand at 162 million at the end of Q1, and we continue to survey the marketplace for alliances or business strategies and investments that makes sense, as well as analyzing other returns of capital to shareholders.

We have been investing in our infrastructure since I arrived here in 2001, despite difficult market conditions in those first two years.

We learned a lesson then.

Those investments have paid off for our businesses.

And we will continue to invest internally to improve productivity and equip our consultants with the best available tools to serve clients.

We will step up our investments in recruiting in all of our businesses to make sure that they are well positioned to lead into the future.

Futurestep continues to perfect its RPO or recruitment process outsourcing services.

And the response has been outstanding in the marketplace.

In the past quarter, Futurestep signed major contracts to fill multiple positions in a variety of global, blue-chip clients, in every major region of the world.

This reception in the marketplace is an important validation of our multiproduct strategy and strengthen our resolve to extend the Korn/Ferry brand into the appropriate products and services, to realize our vision to be the leading provider of executive human capital services.

One example is last quarter we took steps to strengthen our leadership development solution systems by fully integrating our executive coaching business into Korn/Ferry.

When we first entered the coaching sector in 2002, we developed an exclusive partnership with a global network of executive coaches.

This past quarter we brought the executive management of this network in as full-time Korn/Ferry employees and as members of our LDS management team.

This allows us to further build the business, offer better referral incentives to our search consultants, and deepen the Korn/Ferry relationships and touchpoints within our major clients.

In pursuing our multiproduct strategy, we continue to evolve our firm from a transactional oriented to relationship-based culture.

Our future success is contingent upon our ability to develop deeper and broader client relationships, which means we must offer a variety of products and services and bring the best teams to bear on every project.

We're going to focus on building our new services organically wherever possible, and we'll continue to invest in our people, our infrastructure, and our technology to support these new products and services.

Within our executive search business, we are maintaining our program of aggressively recruiting highly productive partners.

And this past quarter we brought a number of partners including senior-level hires in Europe and North America.

We recruited regional leadership for our board services practice in Europe, and in North America we brought in exceptional people to bolster our CEO, CFO, and human resource practices.

We are cautiously optimistic about the current quarter, but it's still too soon to see what kind of ripple effect the disaster in the Gulf Coast will have upon energy prices and the overall economy in North America.

Long term, we remain very bullish on the outlook for the demand for improvement solutions and Korn/Ferry's position as the premier provider in this space.

Now I'd like to turn the call over to Gary Burnison, our Chief Operating Officer and Chief Financial Officer.

Gary?

Thanks, Paul.

Good morning, everyone.

We're again pleased to report another solid quarter of operating results with EPS of $0.27 a share, which is a 35% increase over the prior year.

Despite the effects of the summer, first-quarter fee revenue reached 122 million, up almost 19% from the prior year.

I point out that including Mexico, fee revenue was $126.5 million.

More importantly, our operating margin was 15.3%.

That's the 10th consecutive quarter of profitability improvement.

Our worldwide cash balance was 162 million after disbursing all but approximately $10 million of prior year performance bonuses.

During the quarter, we're happy to report that the number of executive search consultants surged 23 to 421.

Now let me review the business segment starting with executive recruiting, where first quarter fee revenue was 105.4 million, up almost 16% from the prior year.

First-quarter revenue was down slightly sequentially due primarily to slower overall confirmation rates associated with the summer.

In Europe fee revenue increased almost 9% over the prior year, while in North America fee revenue was 61.7 million and up 19.5% from last year.

Asia Pacific, fee revenue improved 6.5%, reaching 13.3 million, driven primarily by strength in greater China, India, Japan, and Singapore.

South America fee revenue was 3.4 million and up over 60% compared to last year.

Our executive recruiting operating margin was 21.6% and relatively flat sequentially.

Now turning to future stock.

Fee revenue improved for the seventh consecutive quarter, growing 1.9 million or nearly 13% sequentially to 16.8 million.

Compared to last year, fee revenue grew 43%.

All regions grew sequentially led by North America, which was up nearly 14.5%, and Asia Pacific, which was up 23%.

Our operating margin in the business also strengthened to 11.5% or 150 basis point improvement versus the fourth quarter of last year.

Let me now comment on our second-quarter outlook.

Assuming constant foreign exchange rates, the carryover effects of summer on our beginning backlog and continued investments that we will make across all of our business lines, we estimate fee revenue will be in the range of 118 to 124 million and EPS will likely range from $0.22 to $0.27 a share.

That concludes our remarks.

I'll now turn it over to Rochelle so we can begin taking your questions.

Rochelle?

Rochelle?

Thank you.

And just a moment, please.

Ladies and gentlemen, if you wish to ask a question, please press star then one on your touch-tone phone.

You'll hear a tone indicating you've been placed in queue, and you may remove yourself from queue at any time by pressing the pound key.

If you are using a speakerphone, please pick up the handset before pressing the number.

Once again, if you have a question, please press star, one at this time.

One moment, please.

Our first question comes from the line of Michael Morin of Merrill Lynch.

Please go ahead.

Yes, good morning.

A couple of questions.

First of all you've mentioned that you've integrated some of the coaches into your network.

I just wanted to see if that -- these people are included in the number of consultants that -- that you provide and, if so, if we can back that out to see what the kind of call it organic number would be on a -- on -- for the search business.

And then secondly, you're talking about continued investments in your outlook.

I was wondering if -- should we interpret this to suggest that going forward extracting any additional productivity from your existing people is going to be a bit more challenging and, perhaps, we've come to the end of the operating leverage in the model?

Let me -- I'll answer the first part of the your question.

In terms of the consultant count, there were only a couple coaches that we have included in that count.

So that count reflects the strong growth that we've had in recruiting, as well as the low turnover rate that we've had throughout the firm now for really a couple years.

In terms of your question on productivity, our revenue per partner annualized this quarter was a little over $1 million.

We still believe that we have capacity.

That capacity varies from country to country.

Overall, we think that capacity is about 20% or so.

To your second question, that absolutely not.

What we see in our business is in order to grow them, especially in some of our non-search businesses, that you have to make some investments.

And delivery -- you know, the model is, is if you have to have the people before you promise you can do something.

So we've made a conscious decision to step up the recruiting to make sure that we grow these services where we've gotten great market position to make sure we're considered the leader.

So, you know, it may have some short-term impact.

Long-term, we believe the leverage is clearly there.

And we're going to be very aggressive on the growth.

I think the biggest impact you're seeing on the numbers and outlook is summer.

July was very slow in North America for all of our firms, but August was strong.

In Europe, August is traditionally very, very, you know, poor month.

And, you know, we're seeing that trend again.

So that has more impact on the quarter, I think, then anything is the seasonality.

We're very bullish, but we're not going to use a seasonal slowdown to back off the investment in our business which has driven this now for, you know, many, many quarters in a row outstanding results.

We think we can continue to deliver them long term.

Great.

Thanks very much.

Thank you.

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

Please go ahead.

I had a question specifically on margin in the North American unit.

Wondering where you see the -- the margin potential at the operating line.

I guess around 23% in the quarter.

Comfortable to a year ago.

How high do you think that could go?

Well, as you said, in the fourth quarter the operating margin in North America reached almost 29%.

The fourth quarter was a somewhat unusual quarter.

We had a number of what we would call upticks or higher fees as a result of our placement activity.

This quarter it was about 23%.

If you go back last year, it bounced around between 21%, 23%.

You know, assuming that -- that the business is there, you know, you could easily see, you know, several hundred basis points improvements in the margin over where we were in the first quarter.

Like I said, we did 29 in the fourth quarter.

And then I wanted to get a sense for the -- the EPS growth that you think we should look for kind of stepping back over a period of a couple of years.

Just we've had some hyper growth, I think some real strong growth in calendar 2004.

And we seem to be settling into a slightly slower growth environment.

In terms of EPS growth, how should we be thinking about that on an ongoing basis?

Well, you're obviously probably better at that than we are.

You know, we typically only guide out a quarter of a time.

I will tell you that -- that strategically we are trying to grow all of our businesses and play along the entire talent management spectrum.

So not just strategic hiring of executives, but also outsourced recruiting solutions at the middle management level, leadership development solutions, performance management consulting.

We're really trying to make this a top-shelf human capital firm over the long-term.

And that's how we're building the business right now.

Today, the nonexecutive search part of our business is around 16% or 17%.

We would like to see that doubled over the next several years.

And that could potentially have a different growth rate than the overall executive search business.

I think if you go back historically over 20, 30 years, I think you would find that the core executive search base -- business has a kager[ph] of probably 10% growth or so.

Plus or minus some.

If that's how you look at it going forward, I don't know.

I will tell you that the demographic trends looking out are staggering.

There are, you know, 80 million baby-boomers, 35 million generation x.

Somebody in this country turns 50 every seven seconds.

Europe there's very low birth rate.

And so we really believe that there's enormous opportunity for Korn/Ferry as we look out three to five years.

Thank you.

One last question if I could.

Delve into Futurestep, which as you've said has had some really nice growth.

Particularly was interested in recruitment process outsourcing opportunity.

Wondered if you could give us a little bit more color in terms of some of the types of engagements that you're entering into, and -- and where you see that opportunity going.

Thanks.

Yes, I think the process is simple.

Is that we're taking over either from a project standpoint, we're taking over the middle management recruiting for companies.

Actually they're outsourcing it.

And the growth and the interest in this area is staggeringly high.

And it's not set to any -- any area.

You know, we've had huge contracts in Asia, North America, and Europe, our largest ever signed.

And the activity seems to grow and grow.

And our Futurestep business has become recognized as a leader, one of the leaders in this hot area.

So we occupy unique position in middle management.

We're able to -- you know, we've kept good margins when the industry outsourcing of people business hasn't been historically because of our unique position.

And we provide very, very high values.

So we see it as a high growth area that we think is actually going to collect more steam over time.

We think -- we think this business is just starting.

We're very, very high on the business.

And our leadership team We've got a great leadership team in that business.

Thank you very much.

Thank you.

And our next question comes from the line of Kelly Flynn with UBS.

Please go ahead.

Hi, thanks.

Couple of questions.

First on the guidance.

I know you guys probably don't like to give this much detail.

It's a bit hard to discern whether or not what seems to be slightly disappointing revenue guidance relates to some observed weakness in Europe to date or attempt to be conservative due to the -- the events surrounding Katrina.

Could you give us any color on, you know, the North American and European guidance that you're implying for the next quarter.

And then I have a follow-up.

Thanks.

Kelly, thank you.

We only guide out quarterly, so we are not disappointed in our guidance, number one.

You know, if you -- if you look North America in July was a little slower than -- than we would have anticipated.

However, I'll tell you that August in North America was -- was better than -- than July.

And about what we anticipated.

In Europe, July was -- was pretty good.

But August, as you would expect, was weak, with everybody on holiday.

So, you know, it is somewhat lumpy when you look at the confirmations from week to week.

But I would say overall we're not disappointed with our revenue guidance as we look at them.

Also, if you recognize backlog, the difference between July and August, switching the numbers, our revenue recognition in our industry is basically, for our standard contracts, is over 90 days.

So there's a big difference when, you know, when you start accruing a contract in July versus August.

So it does have an impact forward just on revenue recognition, even if the overall business coming out of the period is the same.

Okay.

Yes, that's helpful, thank you.

Follow-up just relates more to Europe.

Can you talk broadly about, you know, various countries.

You mentioned the events of London having had an impact.

You did miss, at least, my expectations in Europe for the quarter.

Did you miss your own and, if so, how much of that is related to London versus, perhaps, what you're seeing in other countries?

And could you talk specifically about France if possible.

Thanks.

Yes, I think that it's hard to figure out when you look at employment numbers and nonemployment numbers certainly.

We're strongly -- we believe strongly in the UK.

It's been a great market for us.

And it was a little off during the -- during the times.

The big slowdown, you know, for everybody, Germany is -- it's interesting.

I just got back from Frankfurt last week.

And meeting with a lot of German CEO's.

They're very, very optimistic but it's around the election and reform.

I think the election's reforms and combined with summer has made that a tough market.

But people are very, very optimistic that with the new elections and coalitions and moving forward.

In fact, there is a lot of private equity and money going into Germany, so it's interesting.

It's become the place to bet, but it's been the slow spot.

And France has been a pretty good market.

It's -- surprisingly, it's up strong.

And we have a great team there.

So you look at the unemployment numbers and the G&P numbers last year, every indication is that France and Germany should have been horrible markets for us, but they were great markets for us last year.

So it's kind of hard tying in the macro economic numbers with the region.

But the challenge in Europe always is August is slow.

You don't see until the second week in September, you know, where the business really starts coming back.

And, you know, so it always leaves a question mark until things get rolling.

But France has been strong.

UK was a little slower, I think, in the summer than normal, but the economy looks strong.

Business looks good.

And Germany has probably been the slowest market.

Okay.

Now in France, has it been strong consistently, or are you implying that there's been, you know, a bit of an inflection point recently?

Seems like you've outperformed kind of what the headlines would suggest.

But, has it improved recently?

It's strengthened, it's up 8% over last year in this quarter over -- over -- sequentially, and last year it was up for us, too.

So -- you know, France and Germany went to very low lows during the downturn.

But they've both have been -- they both had very, very good years last year.

Germany's fallen off a little bit and I think with the election activity, people have been cautious.

But in France we continue to see growth.

Okay.

Thanks a lot.

Thank you.

Once again, if you have a question, please press star, one at this time.

We have a question from the line of Mark Marcon of Robert W. Baird.

Please go ahead.

Good morning.

Wondering, with regards just to follow-up to Kelly's questions.

In terms of the UK, I didn't hear the -- the specific comments with regard to the London attacks.

If -- if you -- if you saw any discernible impact from that.

Well, it's hard to say if it was -- you know, what the cause and effect was, Mark.

You know, as we -- as we looked at the confirmation activity over the last several months, you know, and you look at Europe, the reality is the UK, France, and Germany are a, you know, very substantial part of our business.

And so, you know, clearly we've seen softening over the last, you know, three or -- three or four months.

How much of that is due to the summer and how much is due to any "Terrorist attacks" in the UK is really hard to tell at this point.

I think you also have to remember, too, we came off of a -- a terrific fourth quarter.

I mean, we -- we managed the business, I think, very well, and we're -- you know, we pushed.

But we had a fourth quarter that I think even surprised us a little bit.

And so when we compare sequentially to just an unbelievable quarter, not just in confirmations but with upticks which is, again, you know, extra fees on engagements, we had a big number to follow.

So it's kind of hard to read in quarter by quarter.

I know you're getting used to us showing big, big sequential numbers for a long time.

But I think, you know, we're not concerned that way.

We're normally concerned as we are with any economic outlook.

But business to bill appears fairly strong to us.

Okay.

With regards to your guidance, just to summarize what you indicated just before.

It sounds like what you're saying is business still seems fairly solid, but the guidance to a certain extent is impacted by the trend in confirms that you had in July, which obviously has residual effect.

And, you know, if you actually look at August, it actually looks pretty decent.

Is that right?

Yes.

That's -- you're much more articulate than I am.

That is exactly right.

With the caveat that obviously in Europe, August, as you would expect, was -- was slow.

Right.

As it usually is.

Okay.

In terms of -- in terms of Asia, can you talk a little bit about, you know, what you're seeing there.

It looks like the year-over-year growth was about, you know, 6.5%.

I'm wondering, is that uniform, is it -- is it across the board or were there pockets of -- of weakness and then, you know, some other pockets that are extremely strong?

Can you give us a flavor there?

Yes, we're -- we're -- Asia's been a great business for us.

It's a business that exceeded its dot-com numbers.

And we're investing hugely.

We've almost in the last quarter doubled our number of fee earners in India.

We've made huge investments moving the head of our Asia practice to Shanghai.

We brought in another very, very senior person into Beijing.

This is after our being market leaders, we're continuing -- we've opened up future stuff in Shanghai.

So we're seeing growth actually, you know, as we look recently almost in all the businesses.

But obviously China and India are going to have significant, you know, long-term growth potential.

We're continuing to see that in this region.

You know, even some of the more developed economies, Japan and Singapore, were up, too.

So it's been pretty broad based.

Are there any pockets of weakness?

I'm just comparing and contrasting the -- admittedly the 6.5% is coming on top of a year ago increase of 56%.

A fairly tough comparison period.

But just wondering if is it slowing down or are there certain areas that are not quite as strong, or is it just difficult to find consultants to meet the demands that are out there?

Yes, you know, we're a market leader there.

We are -- in recruiting, we have two ways.

We are bringing on a number of senior people in the business.

But often, you know, in order to find the people that we really want we do bring from industry.

And that's an investment cycle, as we talk about.

We're doing both out there.

So, yes.

You know, there's -- there's definite last year we did have quarterly some leverage up six and the business coming back.

We see the business very, very strong.

You know, I wish we could say it was going to grow 56% again.

That was quite a number.

But, you know, we do not see any really slowdown in Asia.

Okay.

The fees per assignment continued to increase at a rapid rate, up to 14%.

Do you think that's going to continue?

Is that a function of this -- the scarcity that's out there?

How would you characterize that?

It's a function of both.

We've pushed and we managed to continue to move up market.

We've continued to, I think, you know, as we've been but in recovery, certainly, people are tougher on fees.

We urge our consultants not to take -- to walk away from lower level assignments and take higher assignments, you know, when you're -- when you're much busier.

So, it's a function of both.

We'll continue to push it.

And we think that there's a lot of room for growth [inaudible].

Could you give some characterization with regards to verticals that you saw strengthen versus areas that were a little bit softer?

You know it's funny, year on year -- I mean, quarter on quarter you do get some anomalies like consumer was down.

But if you go year-on-year, you know -- consumer's down 20% quarter on quarter but it was up 20% year-on-year.

So you can't get -- you get too lumpy when you look on quarters.

You know, if you look year-over-year, consumer was up, you know, 9%, 13% for financial services, 37% for life sciences, 38% for industrial.

Technology is -- you know, and education have been flatter.

So down a little bit.

But, you know, the business continues to grow sector by sector.

Overall, probably technology is, you know, for the last couple of years, even though it's improved, hasn't been as strong as some of the other sectors.

So I can't say there's a sector that's fallen off the map.

And this quarter, you know, we had some up or down quarter on quarter, but obviously, the numbers were pretty flat quarter to quarter.

So I can't say there's a sector that's really just knocking it out or a sector that's fallen off the map.

But industrial seems to be very solid in the last year and a half, too, which has been a little slower historically.

Perfect.

Thank you, Paul.

Thank you.

Our next question comes from the line of Kelly Berlin of C L King and Associates.

Please go ahead.

I just had a quick question on Futurestep.

It looks like the revenues year-over-year have been up pretty good yet operating income is flat.

Can you give a little bit more color on that?

Is it just from investments?

Are you going to continue to do investments, or can we see operating margins start to improve?

Absolutely.

We're constrained not by the markets in Futurestep but by delivery.

We are just -- we are just adamant that we're not going to take on anything unless we can deliver.

So we have been bringing people on much more up-front.

We've pushed the business to do that because we think there's so much market activity.

I can't tell you, I've met from the Futurestep global leadership just a few months ago, I was stunned by how many people were in the room versus a year ago.

We're getting great people around the world.

And, you know, I think what you're seeing is just the impact of bringing people on up-front.

And it's going to drive the numbers.

So we are concerned about two things in that business really is making sure we get the quality, so we're bringing people up-front.

And recognizing, you know, the market position.

We could -- it would be very, very easy to show very high margins in that business.

So we're more concerned on getting our market share and positioning this business into a great long-term business.

So we have been hiring like crazy now.

Okay, great.

Thanks.

Thank you.

And we have a follow-up question from the line of Michael Morin of Merrill Lynch.

Please go ahead.

Yes, just two quick questions as a follow-up.

In South America there was pretty big jump in operating margins there.

Was just wondering if there was something of one-off there.

If it's a new level that we should be looking at.

And then secondly, I think you mentioned that there's still about $10 million of bonus payout from the prior year that needs to be paid out.

I'm assuming that this goes out in the current quarter.

The answer to your second question is yes.

In your first question, I would expect that this level of revenue to repeat in the second quarter.

It's obviously a very volatile region of the world, but we're absolutely thrilled with the -- with the results in South America.

Every country down there is showing very, very strong growth.

And we have increased our investments in the region and particularly in Brazil.

So I would expect that -- that this level would sustain itself in this next quarter.

And I just want to add, you know, in especially South America operations is we went through some generational transition, some restructuring that -- over a year ago to put that business in good shape.

And we're seeing the results of it.

And also that I think the Brazilian economy, which obviously is the largest down in South America, is showing recovery and a lot of activity, too.

So we expect it to be -- we expect results to continue.

Great, thank you.

Thank you.

Our next question is a follow-up from Tobey Sommer of SunTrust Robinson Humphrey.

Please go ahead.

Thank you.

I have a question regarding your cash balance and your uses of cash.

I'm wondering given the fact that you've paid out a, you know, a good deal of the bonuses already, wondering, first of all, I guess, how much is remaining?

And what you see as your kind of expendable cash level given whatever cash cushion you may want to weather the next downturn whenever that comes.

Thanks.

I would say the expendable level is, without taking on any debt which I believe is not the right thing to do in this type of services business, the expendable level is probably $60, $70 million.

We ended the quarter with 162 million.

We've got 10 million of bonuses to pay from last year and in the quarter there's, obviously, some bonus that was set aside for the first quarter.

So I would look at it in broad terms of about 60 to 70 million.

We continue to evaluate our use of cash.

And our -- our tenating now is to continue to invest it, as we've talked about throughout this call, in our business.

And we're looking out three to five years and we're going to continue to make investments in infrastructure and in people and in solutions that are meaningful to our clients.

As a follow-up, is that to say to invest you see more opportunity to invest than your cash flow from the business will provide you and actually tap into the cash on the balance sheet?

Or should your -- should your cash flow finance the investments that you foresee?

I think there's a couple of things in there.

One is, first, in the services business that's well run the -- the uses of cash are pretty short-term because they do throw off cash.

So we will be even with our 10 million of bonuses cash positive in the quarter, we expect.

We do have good cash position.

We will in our analyzing potential alternatives, alliances, other uses, acquisitions of cash which we may use or we may not, but it remains an option to us.

We will continue to organically grow in the business.

And fundamentally, we see we're in a -- you know, our core business of executive search is a great business in an industry that's, you know, 10% growth if you don't take market share, more if you do.

And we've got a number of other businesses that are growing tremendously fast.

And we believe there's other businesses we should get in.

And overall, we're producing the margins we think -- you know, we can produce good growth rates long-term and good margins.

So, before we part with any cash we're going to make sure we invest it properly.

And we think we have a good opportunity in front of us.

But we can't tell you we have any particular plan right now.

But we're going -- you know, we are evaluating very heavily opportunities.

That's about where we are now.

If we get to the point we think there's no opportunities in excess cash, we may do other things with it.

Thank you very much.

Thank you.

And we have a follow-up question from the line of Mark Marcon of Robert W. Baird, please go ahead.

Can you tell us where you added consultants during the quarter and what sort of productivity levels do you generally expect from -- from the brand-new consultants?

Well, if you look in terms of the hires that we made in the quarter, Mark, I would say that probably, you know, 55% or so were international and the remainder were domestic.

And in terms of your question in productivity levels, it obviously varies depending on whether the individual has search experience or not.

Typically about two-thirds of our hires have search experience, one-third don't.

The people that do not have search experience could take a year, year and a half to -- to ramp up.

And even those with search experience, it does take some months to get accustomed to our platform.

Although having said that, there are a couple of real stars that have joined us this year, that start producing instantly.

So it's a mix.

But you know, you need all types.

We brought in some great additions at the senior level in North America and the UK that I know will produce day one.

And other people who are great people, who are longer term investments.

And we have to do both.

Yes.

If we were to look at it on a consolidated basis, would it be fair to assume that the new hires on a blended basis might produce around 66% of the existing consultants?

Well, again, I -- I would assume that the new hires, Mark, are going to take, you know, a year, year and a half to fully ramp up.

Okay.

And with regards to the 55% that were added from international perspective, can you give us a flavor for how that was split up between Europe versus Asia/Pac.

Off the top of my head, it would be -- it would be tough to do that.

I would say that there were, if I can recall, there were a couple in Asia.

But the balance was really split up between Europe, South America, and Canada, as well.

That's how I would look at the growth in the number of recruiters that we brought in.

With regards to the fees per assignment, is there any reason to expect that that would slow down at any point in time in terms of the increases that's you've been getting as you've been continuing to move up market in terms of the -- the type of placements that you're involved in, as well as, you know, this general wage inflation for -- for higher level execs?

I certainly hope not, Mark.

You know, we are -- we're pushing at our consultants and we think there's room both in the assignments we take and what we charge.

And -- so, you know, we -- we continue to push that.

We -- even in our plans internally, we push people.

Part of the big plan for growth was average fees.

So it's important to us.

And it's, you know, different parts in the world.

We sit here and talk about North American numbers.

We have an unbelievable story in Canada, what they've done there and the recruits and what they've done with the business over the last year.

I know Americans like to lump them together.

And we operate as one firm.

You know, we -- you know, you have to take the story in each region, in each part and they're different challenges.

But we continue to see opportunities in every market in the world, honestly.

Every single one we think there's growth potential.

And we're pushing the fee part.

So I don't know when it ends.

We don't think it ends short-term.

But we're going to continue to push it.

Mr. Marcon: Great.

Thank you.

Thank you.

And the next question comes from the line of Kelly Flynn, UBS.

Please go ahead.

Hi.

I'm just following up on this France question I was asking before.

I'm -- I'm trying to drill into just whether or not you've actually seen a positive inflection point or is it just kind of more of the same good results.

And I guess specifically, I'd want you to address -- business confidence seems to have picked up there and that is something that we've seen as a leading indicator of business trends for the companies we follow.

Are you seeing that?

And just, again, specifically, have you seen a positive inflection point or is it just more of the same?

Thank you.

Well, I mean, it clearly has trended up.

I mean, there's no question about it.

Confidence is up, unemployment has come down a bit.

And if you look over the last trailing nine months, last three quarters, the business is clearly, you know, trended up.

There's absolutely no question about that, Kelly.

Okay.

Could you share any -- you mentioned some sequential growth rates.

But any year-over-year growth rates that you've seen, you know, in the past few quarters just to give us a sense of the magnitude of any acceleration you may have seen?

Well, in -- if you highlight France, it specifically sequentially we saw almost an 8% increase in fee revenue versus the fourth quarter.

And if you go year-over-year, it's a very healthy increase here of -- looks to be about 30% or so.

Do you know what it was last quarter?

I'm sorry, what did you say?

Do you know what the year-over-year growth rate was in the previous quarter?

I'm trying to get a sense of if you're seeing year-over-year acceleration.

I don't have that in front of me.

My gut would say, you know, it was also pretty healthy.

Whether this quarter's increase was greater, I can't -- I can't tell you that off the top of my head, Kelly.

Okay, thanks.

Kelly, I'll tell you, obviously, the fourth quarter, my guess is the percent growth was higher.

We don't have the numbers here, but it's been ramping up.

And they had a perfect fourth quarter so, you know, we had 8% on top of that.

And again, I was in -- did my European tour.

The attitude is more positive in France.

There's no doubt about that.

Now the attitude's more positive in Germany.

And confidence was up, even the TUBOR[ph] confidence was up last month.

But, you know, the business isn't quite there.

So it's hard to -- it's hard to relate them long-term, it's easy to relate them short-term.

It's hard to relate them.

Okay.

Thanks so much.

Thank you.

And we have a question from the line of Tobey Sommer, SunTrust Robinson Humphrey.

Please go ahead.

Thank you.

Just wondered if you could comment regarding where you're seeing kind of better and a little bit lighter demand in kind of what job categories.

Wondering how kind of CIOs, Chief Technology Officer searches are progressing.

Yes, I can give you overall terms.

I can't tell you quarter on quarter, honestly.

Probably haven't dug into the numbers, but certainly CIOs last year were a big drop increase.

All financial positions are huge right now from CFO to compliance.

Anything to do with finance is still heavily driven.

Sarbanes Oxley, CEO turnovers been increasingly high.

Came off a very, very big year for CEO turnovers.

So -- and usually those types of events at those senior levels have a lot of trickle down that they want to change or modify a team.

So there's -- you can see that we've moved past replacement hiring into kind of a restructuring for growth hiring.

So I think all companies recognize, you know, the growth challenge versus the restructuring challenge.

And we're seeing that hiring taking place now, which is good for us and good for the economy.

We'll have to see how long it continues to go.

But the trends, I think, on the technology and financial jobs and leadership jobs have been still very, very strong.

Were there any kind of specific categories?

It seems like we're maybe a quarter or two kind of into that transition of, you know, focusing on -- on sales and -- and growth-oriented positions.

Are there any, you know, kind of specific job categories that -- that you're seeing disproportionate strength in currently?

Tobey, we're -- we're sitting -- we're in Mexico City today.

I don't have that detail in front of me.

I'm going off the top of my head.

But there was really nothing that came screaming off the page As we looked at this a couple weeks ago.

And that's probably the best I'm going to be able to answer your question here.

Okay, thank you very much.

Thank you.

And there appears -- one moment, please.

A question from Mark Marcon of Robert W. Baird, please go ahead.

Just curious, to what extent did Katrina figure into your -- into the guidance?

I don't think that, you know, in per se -- you know, obviously it's a horrible tragedy and, you know, it's going to have an impact on the U.S. economy and, you know, we, like other companies, have a fund that we're -- that I think people actually rallying around to contribute to the victims of Katrina.

But I guess the question from -- from our -- our pure business standpoint, there's not a lot of executive recruiting in those marketplaces.

So, you know, it's a huge tragedy to the locals, but to our business, the question is more long-term impact on U.S. global economy, what oil does.

What's been amazing to me is, as you know, I've spent a lot of time on TV with economists talking about the job markets for the last year and a half saying they're going to be steady and growing.

You know, we've been right over the last two years.

They've all said when oil hit $30 a barrel the US economy was going to crash.

And here we are at $30 and $40 and $50 and $60.

When you start to get into $70 prices, you really start wondering.

And, you know, that -- that tragedy has also added to the question on oil and energy and costs to relocation.

And certainly, certain job categories will go up in the rebuilding areas.

So it's hard to -- I mean, obviously, it's probably mixed with a little cautious short-term because we know they'll be blipped.

So it probably gives us a little pause.

But, you know, it -- it's hard for us to sit there and quantify it or say, here's, we did this to guidance because of that.

But, you know, we tend to be cautious coming off the summer.

And with these events, tend to be a little more cautious.

Historically, you've been fairly conservative.

I was just wondering if post the tragedy that you ended up, you know, shaving your projections slightly just in order to further compensate for Katrina.

Well, we tried to be -- you know, we try to give the best guidance we can.

You know, maybe our performance of our -- our great partners surprised us and consistently has.

You know, coming off the summer and with the economic thing, sure, we're going to be a little more cautious than if, you know, oil was 20, economy was on all cylinders and everybody was positive, We'd be, you know, all businesses would be much more positive.

So it gives us some pause to see what happens coming off.

But, you know, it's probably one factor in the overall mood that factors in versus saying, you know, Katrina was, you know, worth a penny in, you know, extras on the top-line.

We haven't factored that type in our analysis.

How would you characterize the tone of your clients, particularly the upper level clients that you deal with in the US, in terms of level of optimism relative to where it's been the last few quarters?

You know, I actually think that our clients have been extremely optimistic, I mean, it depends on the sector.

If your in the auto industry, it's tougher going.

You know, oil is the big question, I think, that people wonder what the impact on energy and everything else is going to be on the economy, because -- you know, the Gulf War is late on and people are sitting there, I think, can absorb that, even though they're worried.

They've kind of absorbed that into they're thinking.

And effects, they already absorbed the dollar and the re-emergence of the dollar into their thinking.

And interest rates going up over time into their thinking and people are pretty optimistic.

So, you know, I think -- the -- the Gulf Coast tragedy, I think, is actually spiritually brought people together.

But I think the impact from a business standpoint, people are wondering what energy long-term it's going to do to our economy and the business.

And that is probably the question mark that stops everybody, you know, from being bullish because people have been pretty positive coming up, you know, to this last month.

So -- and I think we were getting ready for people to be pretty bullish overall.

But they're cautious.

Cautiously, I think, optimistic, because we are cautiously optimistic.

All right.

That's fair.

Thank you.

Thank you.

And there appears to be no more questions.

Please continue.

All right.

We thank you all for joining us.

We strongly believe in the long-term opportunities for our industry and particularly our Company.

And thank you all for being here this morning.

And we'll see you next quarter.

Thank you.

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