使用警語:中文譯文來源為 Google 翻譯,僅供參考,實際內容請以英文原文為主
Operator
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 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 will turn the call over to Mr. Reilly.
Please go ahead, sir.
- Chairman, CEO
Thanks.
Good morning, everyone.
Thanks for joining us.
Just reflecting this morning that these calls are certainly more fun now, than they were when I first joined the Company in 2001.
Last quarter we announced that Korn/Ferry had just completed an incredible year, and had attained the highest annual and quarterly profit in the firm's history.
Based on our outlook then, we were very optimistic that the underlying economic expansion fueling our demand for talent and talent development would remain strong into this fiscal year.
With that said, I am pleased to report that Korn/Ferry generated 152.8 million in fee revenue for the first quarter, up 7.5 million, or 5.2% sequentially.
And has set a new record for quarterly profits.
This was the best quarter for our executive search business since October of 2000.
Additionally, executive search consultant productivity is running at an annualized rate of 1.17 million.
The business in the first quarter was driven primarily by strong confirmations in North America and Asia.
With all business units operating at a profit during the quarter, excluding the FAS 123(R) option expense, we reached a record of $0.33 of EPS, which represents a $0.06, or 22% improvement year-over-year.
It has become increasingly evident to me that as the war for talent wages on, that many organizations are becoming as concerned for developing and retaining their work forces, as they are in attracting them.
During the quarter, we took another step forward with our KF-1 company strategy to be the premiere provider of talent management solutions.
With the acquisition of Lominger Limited Inc.
Lominger is up one of the largest providers of leadership development pools for individuals, teams, and organizations in the world.
We believe that the Lominger people, products, and services are a perfect fit with the Korn/Ferry vision of providing clients with a broad array of talent management solutions.
The business fits nicely within our existing leadership development solutions group, and integration is well under way.
We expect the acquisition to contribute approximately 13 million of fee revenue, and about $0.03 of EPS for the remaining three quarters of this fiscal year.
Not only are we making progress on our executive search and leadership development business, but also with our outsourced recruiting and middle management unit, Futurestep.
Last quarter, we were disappointed that after 10 consecutive quarters of revenue growth and 7 straight quarters of profitability, Futurestep posted a loss in the fourth quarter, due to primarily several one-time writeoffs of receivables, as well as some personnel costs and continued infrastructure investments.
Today, I am pleased to announce that we have brought Futurestep back to profitability.
For the first quarter, Futurestep achieved a 21% improvement over the first quarter of last year, with 20.3 million in fee revenue, up 1.8 million sequentially, with strong growth in North America, Europe, and Asia-Pacific.
Futurestep posted 1 million in operating profit at a margin of 5.1%.
Over the past several months, Futurestep has secured several long-term multi-million dollar recruitment process outsourcing assignments.
We believe this outsourcing trend is still in its infancy, and the promise for growth that Futurestep holds is enormous.
Our non-search-related revenue accounted for 16% of our total fee revenue before our Lominger acquisition.
With the addition of Lominger to our leadership development solutions business, and the continued growth of Futurestep in the outsourcing and middle management recruitment, we are moving closer to realizing our vision of becoming a truly diversified provider of talent management solutions.
From our position, and tracking the global labor markets, the trend in declining unemployment and positive job growth remains favorable.
Having just reached its 36th month of positive job improvement, the U.S. economy has added 5.7 million jobs since September of 2003.
Full unemployment has fallen to 4.7%, and white collar unemployment or college degree employment almost 2%.
For the major continental European markets, unemployment has fallen from 8.6% last year, to 7.8% this year.
The U.K. is down from around 5.6%, as the world's second largest economy, and Japan was at 4.1% in July.
As the number of available and talented professionals continues to fall around the world, we are well-positioned to provide the full array of our talent management solutions, and in turn, achieve future growth for shareholders.
During the quarter, we posted significant improvements across every region.
Demand throughout Asia-Pacific remains incredibly vibrant, led by India and China, the region was up over 37% from last year, at 18 million.
North America drove the lion's share of our revenue, in terms of numbers at 75.5 million, a 22% increase over last year, and Europe turned in a healthy 26.5% increase over last year, at 34.2 million.
In addition to every region showing improvement over last year, so too was every market sector we serve up.
With a 52% year-over-year improvement in financial services worldwide, our Asia-Pacific business led the way undergoing tremendous growth at a 20% increase in quarter 1.
In addition, our industrial consumer goods and healthcare markets were up over 20% from last year, despite normal summer seasonality in North America and Europe, demand remains solid.
One of the main tenets of our strategy is to maintain Korn/Ferry as the premiere destination in the industry.
We spend significant resources to attract, develop and retain our best professionals.
And the quarter 1 was no exception.
Over the past three months, we've raised our consultant count up to 466, up 26% from the fourth quarter.
Among these individuals, we brought in 13 new hires and 13 promotions.
I'm also proud of the efforts of of our recent promotees, and I'm sure they will flourish at the partner level.
We will of course continue to look for top-rated talent to bring into the organization throughout the year.
Although the product offerings of Korn/Ferry have expanded, our promise to excellent client service remains the same.
Our unique suite of solutions now includes executive search, middle management, and outsource recruiting, management assessment, executive coaching, succession planning, executive compensation, selection, training, and performance management.
We are deepening our value proposition to clients, and taking on a much more consultative role in helping organizations manage and develop their talent.
I am truly proud of our partners and by the progress we have enjoyed thus far, and encouraged by the untapped potential that lies ahead.
With that, I would like to turn the call over to our COO and CFO, Gary Burnison.
Gary?
- COO, CFO
Thanks, Paul.
Good morning.
Today, we're pleased to announce yet another quarter of growth for Korn/Ferry.
Consolidated fee revenue grew 25% year-over-year, reaching almost 153 million, the second highest quarterly fee revenue in our 37-year history.
Fee revenue has now grown sequentially in 12 of the last 13 quarters.
And including Mexico, fee revenue was nearly $158 million.
Consolidated EPS were $0.31, in the first quarter as Paul indicated, the Company implemented FAS 123(R), which had a negative $0.02 impact on consolidated EPS.
Excluding the effects of FAS 123(R), first quarter EPS grew $0.06, compared to the first quarter of FY '06, or 22%.
We have continued to make measured investments in people and processes, targeted at meeting the growing demand for our services, while maintaining steady profitability.
Our consolidated operating margin, excluding the effects of FAS 123(R) improved 30 basis points sequentially to 14.5%.
Including the negative 1.8 million impact of the stock option expense FASB, our consolidated first quarter operating margin was 13.3%.
Our worldwide cash balance was almost $211 million.
In the first quarter, we repurchased approximately 1.3 million shares, for total consideration of $24.5 million.
Through July 31, the Company has repurchased 2.2 million shares, for a total consideration of approximately 43 million, in connection with the combined 75 million previously announced stock repurchase program.
As Paul indicated, the number of executive search consultants at the end of the first quarter was 466, and that was up 26 versus April 30, 2006, or our fourth quarter.
The 26 consultant additions includes 13 internal promotions.
First quarter annualized revenue per consultant improved to almost 1.2 million.
Now let me review the business segment starting with executive recruiting.
Quarter 1 fee revenue was 132.4 million, up 27 million year-over-year.
North America fee revenue reached 75.5 million, a 22% increase over the prior year.
European fee revenue was up 27%.
Asia-Pacific finished another record quarter with fee revenue of 18.3 million, which was up $5 million, or 37% year-over-year.
In South America, fee revenue improved to 4.5 million, and was up 33% year-over-year.
And 6.4% sequentially, driven mainly by Brazil and Venezuela.
Including Mexico, Latin America fee revenue was 9.2 million, a 24% increase from the prior year.
The executive recruiting operating earnings were 26.7 million, or a 20.2% margin.
Excluding the impact of FAS 123, however, the executive recruiting operating earnings were 28.1 million, or a 21.2% margin.
That's an improvement of $5.3 million, or 23%, versus the first quarter of last year.
Now turning to Futurestep, where fee revenue improved to 20.3 million, and was up over 21% compared to the prior year, Futurestep has now grown in 11 consecutive quarters.
All regions recorded sequential fee revenue improvement, led by Asia-Pacific and Europe, which were up 17.5 and 11% respectively.
Sequential profitability also improved sharply, with Futurestep recording $1 million of operating earnings, or a 5.1% margin, versus an operating loss of 1.4 million in last year's fourth quarter.
Let me now comment on our FY '07 second quarter outlook, assuming constant FX rates and factoring the effects of summer vacation seasonality on confirmation rates, we estimate fee revenue will likely range from 147 to $157 million, and diluted EPS will likely range from $0.28 to $0.32 per share, and that includes a $0.02 negative effect of the FAS-123 stock option expense.
That concludes our remarks, we'll now turn it over to Kent, so we can begin taking your questions.
Operator
Great.
Thank you very much.
Ladies and gentlemen, [OPERATOR INSTRUCTIONS]
Our first question this morning comes from the line of Tobey Sommer with SunTrust Robinson Humphrey.
Please go ahead.
- Analyst
This is Mike Simpson in for Tobey Sommer today.
Just wondering if you could talk a little bit about confirmation trends maybe sell through the quarter, and if they kind of accelerated through the quarter, and maybe also what you're seeing as you exit the quarter and enter through August?
- Chairman, CEO
Our confirmations continue to grow and be strong like our numbers, and August is soft, especially in Europe.
I mean it is the summer months.
It is soft every year.
It is soft in every business.
Our Paris office shuts for two weeks.
That is just Europe.
So relatively they're up from last year.
And they continue to grow.
And we see no signs of an overall weakening economy, despite what other people say, certainly in our business sector, business is very robust, but August is certainly slower.
- Analyst
And then I had a question, it looks like the compensation and benefits expense grew a little bit faster than revenue.
Just wondering if you can find of touch on what is going on there, and maybe get a little more clarity?
- COO, CFO
I think when you look, you know, the comp and benefits ratio this quarter was a little bit higher than it has been historically, if you look, and the G&A ratio was a little bit lower, and each were off by about a point or two, compared to what we've done over the last several quarters.
I think when you look at the quarter we're in now, you will find that the comp ratio may come back a little bit, and the G&A will probably go up a little bit.
We had some fairly unusual placement activity in the quarter, which triggered some profitability related accruals.
But I think that nuance between G&A and comp will switch in this next quarter.
- Analyst
And one last question, if I can, looking at your balance sheet, I just wonder if you can tell us how much of that cash is spendable, and how much is maybe accrual for bonuses?
- COO, CFO
Well, we've, in the quarter, Mike, we put up a $34 million bonus accrual.
We think in terms of operating this business, we kind of ring fence $75 million to run the business very comfortably.
That assumes an unlevered balance sheet by the way.
We have no debt.
And so that is the accrual that is on the books.
- Analyst
Okay.
Thank you very much.
- COO, CFO
Thank you.
Operator
We have a question now from the line of Mark Marcon with Robert W. Baird.
Please go ahead.
- Analyst
Congratulations on a terrific quarter, and continuation of a great year from last year.
- COO, CFO
Thank you, Mark.
- Analyst
I was wondering, with regards to the productivity levels and you're up to $1.17 million per consultant, any additional thoughts in terms of with where that can go?
It continues to move higher.
Where do you see that potentially peaking out?
- Chairman, CEO
Mark, I'm not sure, you know, in up markets, what the peak is, and I think in 2001, we said 1.2, now we believe it is higher.
I mean our average fee goes up, we've pushed very hard and get more disciplined people not accepting lower fee engagements except for strategic clients, and we continue to want to move that number up and have continued to.
So I don't know where the cap is, but we've grown it every quarter now for some time, and we plan to continue doing that, and it is a very strong market, and I think in strong markets you just have to be smarter about the work you do.
And that is a lot of why you see that number continuing to grow, and we hope it continues to grow still.
- COO, CFO
When we came in the business, I remember we talked about 1.2 million as the target, and we're clearly here and now we're looking beyond it, and we actually think we can achieve, it and the thing is we still have quite a bit of leverage within the system.
Our average fees, you I think if you compare it to a couple others, at least on the search side, a couple other firms, they're still below where those firms are operating at, but you know we're proud of the fact that eight quarters ago our average fee was low 60,000s, and now we're almost now to 80,000 globally, and we believe that there is leverage left here, beyond 1.2 million per consultant.
- Analyst
Can you give us a sense for, if you take a look at the top third, top quarter, top quintile, whichever measurement you would typically use to break things down, where that top segment is, in terms of the average fee per consultant?
- Chairman, CEO
You know, Mark, one of 6 the great things, if you look now, when we first got this business, we used to look at a number of people that billed for 1 million in the downturn, and now most of our people do, a lot of the people that don't are just new into the business and coming upstream, so we're very diversified today.
It used to be we worried about, you know, we always worry about our top producers in terms of the values and the people driving the business, but the truth of the matter is that we're just not that dependent on a couple of individuals.
I know we're very diversified.
And you know, which puts another hedge in our business, too.
- Analyst
Sure.
I was asking the question in order to try to get a sense for where the potential could be, in terms of where the average fee, or the average level of productivity or revenue per consultant could ultimately go to.
- Chairman, CEO
I remember at KPMG when the target was 1 million, when I was running the consulting part of the business, then it was 2 million, then it was 3 million, you know, I think the question is, you know, in this business, how smart do we get, in terms of the work we do, and again I think there's two pieces.
I think the productivity of existing partners is not going to go up by doing more searches, I think most of it is going to be in fee growth, which we've continued to manage for existing partners, and there are an awful lot of people that we brought in over the last two years, and as you remember the count, it is 130-some partners, and it usually takes a couple years for people to get to full speed, so we still have those people, especially the ones new to the industry, who are doing well and still coming up to full speed, so we think there is more room, but I don't know what number I can give you.
- Analyst
Okay.
Great.
Then with regards to what you're hearing from clients, you know, we're starting to get some mixed signals as it relates to the economy.
Clearly you're not seeing any signs of that.
What do you think is driving the stronger level of growth that you're seeing, relative to what the overall, you know, labor market indicators would seem to suggest?
- Chairman, CEO
I think that, you know, as people look at unemployment, for the economy, but we're in a whole different sector.
With college-degreed professionals, I think the unemployment rate is around 2%, which is just full employment.
It is 100% employment.
And you're seeing two things.
You're seeing a velocity play, that every time someone moves a job, there is a vacancy to fill behind it.
And that helps our industry.
And then there is just a shortage of people.
And our view is that it is just going to get worse.
If you look at scheduled retirements, and the aging of the work force, and the people 55 or over in senior management positions throughout the Western world.
I see, you know, that is the difference that is fueling our business, and that is not going to go away.
The economy would have to really, really significantly slow down for people not to add there, just because of retirements and replacements, and I think that is going to drive us demographically for a long time.
And in Asia, you know, almost half of our business now is India and China, and those economies have significant growth.
We have outinvested and are much larger, multiples larger than any of our competitors in those markets, and the activity remains very robust, and we don't see an end to it there, but for completely different reasons.
So, you know, we always worry about a slow down, and we're busting out of our office space everywhere, we're being prudent, but we don't see it.
- Analyst
Great.
And then last question, and then I will jump back in the you queue, are you actual seeing as a follow-up, are you seeing any evidence, an increasing number of retirements, you know, and retirements basically being an increasing percentage of the drivers of the searches at this point?
Or is it still kind of the usual mix?
- Chairman, CEO
I mean you looked at, you look at all stats, CEO turnover was way up this year, you're looking at positions, you're getting both, you're starting to see retirements coming, and you're seeing changes in jobs, I mean people are changing more, as people, you know, move for talent, and I think it is a factor of both.
I think the retirement factor is just beginning to hit us.
I think we're still early in that cycle.
- Analyst
Great.
Thanks.
You I will jump back in the queue.
Operator
Thank you.
Our next question then comes from the line of Kelly Flynn with UBS.
Please go ahead.
- Analyst
Hi, this is Matt for Kelly.
Given some of the talk recently about peaking business trends in Europe, obviously you guys have seen the acceleration the last two quarters.
I wonder if you could comment on that.
And just your expectations for European growth, over the next few quarters.
- Chairman, CEO
Macro economically, we see growth.
We see it in the markets.
And August is, you know, the worst month, and Europe, for our Futurestep and search, it always has been, but if you take August out, we just see robust demand, and you know, we do not see signs of slowing in those markets right now anywhere, really.
And you know, it is not just us.
The industry, if you look at the AUSC, or other industry guides, the whole industry is doing well.
We may be, I think we're outgrowing and we're doing better than our share, but the industry is growing in all those markets, too.
So we see no sign of slow down in the executive recruitment market.
We see no sign of slow down in our leadership market.
And our Futurestep business, we actually turn away a lot of work.
And they're very prudent in what they take on.
So demand has not been the issue for us.
- Analyst
Okay.
You can comment on some of the growth within different countries in Europe?
In Q1?
- COO, CFO
I would say first of all, that it was fairly broad-based.
I would say that there was no one particular country that, you know, that looked unusual.
You look at you U.K,. and Germany, and France, and they all had rather solid growth year-on-year.
But I would characterize it much like Paul did, that we're seeing growth in the countries that were operating there, and it is fairly broad-based.
- Chairman, CEO
The interesting part is it is happening in every market sector, too.
Everyone is up.
Every industry is up in every region.
So, you know, we read, too, and worry about economies, and slow downs.
We just do not see it.
And we don't see it in our industry, either.
So I know everybody is looking for the signs of a slow down.
We do not see it anywhere.
- Analyst
Okay.
Thanks.
- COO, CFO
Thank you.
Operator
Our next question comes from the line of Rob [Half] with Fiduciary Management.
Please go ahead.
- Analyst
Good morning, guys.
- COO, CFO
Good morning.
- Analyst
Just a question, I think in the commentary, you mentioned something about Futurestep's, some of the newer business, and maybe longer term engagements that they've seen recently.
I guess I characterize that business as somewhat episodic and shorter term.
Maybe is there a change going on that you're seeing, and what you're doing for your clients in the Futurestep business?
And maybe you could give some more detail on that.
That would be great.
- Chairman, CEO
The Futurestep business actually is evolving into a recruitment, outsourcing business for middle management.
It is the longest term business we have.
As we continue now, that business evolved from single search to projects that had six months to a year duration, to now signing multiple year contracts, to actually be on-site and manage their middle management, or part of the middle management recruiting effort for global organizations, and that business tends to become much more contract oriented and long-term oriented than it has ever been.
So we see that actually, you know, the fruition of it, we think it will be a contractual long-term outsourcing business in the recruitment process function.
And we have made great headway.
We had very little competition, still an emerging space, and again, our battle there has been growing the resources to keep up with demand, and we still turn away a lot of work, and you know, the discipline says that if we take on jobs that were staffed and ready to do and grow our people, we will do very well, so we think that can be a much bigger business.
- COO, CFO
The strategic intent is actually the opposite of episodic actually, and we have got several examples where we have client sites for two and three years, so you know, it is you actually quite opposite, to what you laid out.
- Analyst
And that's, I assume that is the most profitable business when are you sort of up and running, and continue to manage that business, and realize what your costs are, et cetera?
- COO, CFO
Yes, and we can serve our clients better, too.
We will know them better.
And that will not only help our Futurestep business, but help our overall talent management offerings, you know, in the leadership area, in the executive recruiting area.
- Analyst
What would you say is the mix of business that you would say is, you know, doing a one-time engagement for a company that is ramping up in the Far East, I think you gave that demonstration at a, you know, at an analyst meeting, or at an analyst presentation, versus now where you're longer term engagement is there any way to gauge what the mix of revenues is in that field?
- COO, CFO
That's a great question.
It is probably 50/50.
- Analyst
Okay.
- COO, CFO
But I will tell you that there are places around the world, for example, in Europe, certain places where we can do single search in the middle management area, quite profitably, called selection, so that throws that off a little bit.
But overall, it is 50/50 and our strategic intent is to move more of the business to be longer term on-site, getting to know our clients better.
- Analyst
Great.
Thank you.
- Chairman, CEO
Just a few years ago too, you have to realize it was almost 100% single search, and today it is 50%.
We believe it will be 80% of our business in Futurestep, and again, we think the markets, our challenge has been, even at looking at markets to leverage it, or acquisitions, or we're in a unique space and we just haven't been finding anything outside of having to, you know, hire and grow people, because we have a unique product.
- Analyst
Thanks.
Good information.
Operator
Thank you.
We have a question now from the line of Mike Carney with Aperion Group.
Please go ahead.
- Analyst
Good morning, guys.
- COO, CFO
Good morning, Mike.
- Analyst
A couple of just quick details here.
Gary, the interest and income was lower than typical.
What was the reason there?
- COO, CFO
Well, we had more cash that we were earning interest on, so there was more interest income in the quarter.
I presume that's what you're referring to.
- Analyst
Yes, and that is the only, there wasn't any other one-time events.
- COO, CFO
No it was pretty clean, Mike.
- Analyst
And then also, it looks to be that Europe margins have come down a little bit over the last year, not substantially, but you haven't talked about really increasing head count as much in Europe, as you have in North America and Asia-Pacific, so what is the reason for that?
Is that also compensation and benefits there?
- COO, CFO
Actually, our recruiting efforts have been just as robust, and maybe we have mischaracterized something to you, Mike, they have been just as strong, if not stronger, on the continent than they have been anywhere in the world.
And so in terms of the margin, you know, we have made and we continue to make investments in people very, very carefully.
But that's reflected in the margins.
- Analyst
Okay.
So new hires, not necessarily promotions but new hires would be about the same in Europe as they are in the other regions?
- COO, CFO
Yes, in fact I think if you look, it has been probably been a little bit more.
On a relative basis it has probably been a little bit more, in terms of our hiring in Europe relative to other parts of the world.
Asia, we've made a big investment in Asia, too, obviously, but no, I certainly wouldn't, we've given you misinformation if you would get the impression that it is really North American-centered, because it is actually not.
- Analyst
Okay.
- Chairman, CEO
Mike, you I think, that you know, actually we've maintained great margins with very aggressive hiring in Europe.
If you look at our franchise, we're #1 in every region of the world, but we're 2 in Europe, to a European firm really, Zender which is a private firm, and we have been growing and closing the gap, we have moved to the second position, and we continue to grow that market, but we're doing it rather profitably.
I'm bringing on people, which isn't ever cheap in Europe, but we've got great people, we're continuing to grow it, and doing very, very well.
- Analyst
And also, I know there is promotions in the first quarter, but when you talk about continuing to expand the consultant base, Paul, is it 10% something that you are looking at for this year as well?
Or would that, you know, probably trend downwards?
- Chairman, CEO
Well, you know, I think it might be a reasonable number.
What we're trying to do, is first, the numbers we report are net, so we do cancel people out at year-end time.
So you're seeing net numbers there.
And we will continue to do that.
Our discretionary turnover stays low.
But we are looking for great people.
And we will continue to hire and have people join our team, we think who can produce.
It is a tougher market now.
And in terms of recruiting, because the market is good, but we're being very diligent, and if we continue to grow the head count, we will. 10% is probably a lot on a net basis.
But from a gross basis, we will probably add that many people, and we will have some turnover that will bring the net down.
- Analyst
Right.
Okay.
Good.
And then it looks like from kind of the press, that you are growing the leadership development area, and making hires there to a little bit greater extent than you are growing the executive recruitment.
I assume some of that is just to continue to diversify the services.
But do you think that you're going to continue, especially with the new acquisition, continuing to, you know, increase, find experienced consultants in the consulting area?
- Chairman, CEO
What you've seen is, I mean last quarter might have been a little bit of an anomaly in that we grew our leadership business, and got our products up and running, and we were very aggressive probably in the last two quarters of leadership, and it probably that business, if you you look at percentage of hires, was higher last quarter than it traditionally has been.
But our focus on executive recruitment has not changed at all.
So I think you are going to see the bulk of hires have been in executive recruitment.
We build our leadership business out.
We were very aggressive in the last two quarters, opening up in China, putting people in a number of locations we thought we were underserved, getting into the compensation business with recruiting, so the leadership business had an aggressive growth in the last couple of quarters, you will probably see those hirings slow down a little bit over the next few, but we don't think overall hirings are going to slow down.
We have been very aggressive in recruiting in the executive recruiting business also, and that hasn't changed.
The good news is, that we haven't gotten into the investment banking phenomena, we have been very steady, and we're not buying people, and that has helped us a lot too.
The market has gotten tougher but we have really held our discipline, and we're getting people who really want to be here, and believe in what we are wanting to do.
- Analyst
I know a number of consultants have become, it seems like recent periods are excited about the leadership development solutions area, but do you think that, I mean that's really been a business that has been trying to grow for a long time, that never made a whole lot of headway.
Do you think that there is now, it seems like you've talked about that now, now you're going to see a lot higher growth in the whole organizational development consulting area?
- Chairman, CEO
Well, we better, we're making big investments, and we believe so, absolutely.
I mean I think the difference in a lot of firms is, you know, I'm a consultant by background, so, you know, running that business, the person that runs that business, Gary Hourihan, is a consultant by background, our leaders are, and you know, I think we're taking a different approach than the rest of the industry, so we think it is a very robust business.
The clients love the offering.
We've been very diligent about building it.
The Harvard Business Review, you know, in February, wrote on our assessment methodology and why it was unique.
Our Lominger acquisition, if were you to ask them, we loved each other's intellect capital.
It was weird in an acquisition, people usually argue whose intellectual capital was better, both sides loved what each other was doing and integrated their a leader in their field, and they loved being part of the team and we loved them.
So we're being very, very diligent about building it, we think we've showed very, very good growth rates.
- COO, CFO
I think the other thing, too, the backdrop over the next five years is, you know, it can be very, very favorable to us, and if you look at every study, I just saw one from Price Waterhouse, and CEOs surveyed the #1 challenge is finding talent.
It wasn't the cost of crude.
It wasn't terrorism.
It was finding talent.
And Paul talked about the unemployment rate for people with college degrees in the United States, is 1.8% which is probably an all-time low.
And so from our perspective, we look at it and say companies are going to have to be more efficient, at not just the end points of managing talent, but the middle and how they develop talent, retain talent, and now with Lominger, which arguably is the Gold standard in the development area, we can have real conversations and deliver real quality to our customers along the entire talent management spectrum.
- Chairman, CEO
It is interesting, the studies now that we have in China, the #1 issue was finding talent, and today the #1 issue is retaining talent, because people are hiring, can't hire as fast as they are losing people in the competitive market, so the demographics are not just good for us in search there, but it is good for other businesses.
So we've been again, you know, you I think that the challenge is going to be for people to retain, as well as hire going forward, and that's why we're positioning the business that way.
And we will continue to be aggressive.
And I think we will see great growth in the business.
- Analyst
And finally, I think, Paul, you may have mentioned financial services was up 52% year-over-year, is that what you said?
- Chairman, CEO
Yes.
Now we had a great quarter.
We had some big placements.
But, you know, it had a great quarter year-over-year, but we had had an unusually good quarter this year, too.
- Analyst
And would that be, that's just in executive recruitment?
- Chairman, CEO
Yes.
- Analyst
And then where are the Futurestep wins, in these contracts that you need to execute?
What industries are those in?
- Chairman, CEO
They're pretty broad-based.
They're retail, industrial, defense, financial services in Asia, they're pretty well across the board.
It is interesting, in that part of the business, the functional skill and the management process skills are more important than the industry expertise.
You know, you need industry expertise in reaching people, but the management and functional skills are probably more important than the industry.
So I mean there are certainly industries that we could focus on and spend all day in, like healthcare, which has an unending demand for the next 10 years, but you know, we've done a fair amount of work there, but we've stayed away from the delivery side, just because it is so hard to recruit, you know, people in that area, yet we have the leading search practice by miles in that business.
So you know, we're looking at where we can use our expertise.
And I will tell you, the engagements continue to be larger and for bigger companies, so we're very optimistic.
- Analyst
If you got back to 5% operating margin this quarter, is it reasonable to assume that you can get back to double digits pretty fast?
- Chairman, CEO
You know, we have some, I will tell you one thing we learned in Futurestep, too, the growth was so large, we have to balance the growth and delivery with the margins, and I think double digit, hitting a 10% margin would be a great margin with our growth rates, and I think the expectations, we could manage this business to search margins but there is too much growth opportunity, there is a little bit of a lag, it is more of a lag in the process, there is a longer sales cycle for the search, so as we continue to grow, we don't want to strangle the business with too high of a margin demand.
I don't know Gary if you want to give a number.
- COO, CFO
I think that is exactly right.
We don't want to be back in a situation where we were at the end of last year, where we put on some business that we hindsight being 20/20, we probably shouldn't have, we don't want this to be an episodic business, as somebody else called in.
We want this to be a long-term customer oriented business.
And we're going to make sure we create, repeatable processes, throughout the world, to deliver client excellence.
And then I think Paul is right.
We're not going to be overly aggressive with the margin requirements for the folks running that business.
- Analyst
Okay.
Thank you.
Operator
Thanks.
And we have a question now from the line of Michel Morin with Merrill Lynch.
Please go ahead.
- Analyst
Good morning.
Just on the acquisition, wondering if there is anything else out there that you might be interested in looking at?
- COO, CFO
Well, we've had had a fairly robust corporate development effort underway for about a year and a half.
And you know, we started with, believe it or not, kind of 10,000 companies, and have been quite systematic in how we've gone about it, and it has first got to be synergistic with the flagship business, and it has to add real synergies and values obviously to our clients, and so we continue to look.
Lominger is a fabulous business of penetration, it is 60% of the Fortune 500.
Just really the Gold standard in the area of development.
And we're very, very happy with that.
And we're working to integrate that now with our business.
But we continue to look, but it has got to make sense for our clients, it has to be synergistic to the business, and obviously has to create value for shareholders.
- Analyst
And have you, I'm assuming you've been able to retain everyone at the Company?
- COO, CFO
Yes.
- Analyst
And what are you doing to make sure that everyone is staying on board?
- COO, CFO
Well, I think they're excited about the challenge here of taking this great brand, that has been around for 37 years, and to help us create a diversified HR solutions provider, and that's what we're trying to do.
And I think they're quite enthusiastic about that.
- Chairman, CEO
I will tell you, you know, through all of the acquisitions, we've looked at many, many, many, and we have had a couple where we have had serious talks, and dropped out at the end, but this was one where every step it looked better, and we liked the people more.
It is is a fantastic team.
A fantastic business.
And throughout the due diligence process, usually you slow down and you want to investigate, and we finally said let's just close this.
It is just great people and great business.
I've never seen anything like it.
The nice thing it was the cultural fit.
The business fit.
The people.
And we're spending a lot of time with them.
They will get to know us.
And it is just one of those, if we found a the lot of things like this, we would combine them left and right, unfortunately, there aren't that many out there.
- Analyst
Right.
Okay.
Thank you.
And just on Futurestep, given your comments about the multi-million dollar contracts, should we take from that, that we could see revenue growth reaccelerate from current levels?
- Chairman, CEO
We are, here is the challenge with Futurestep, we are balancing the growth.
We think there is plenty of growth in Futurestep.
Yes, we think there is more revenue potential and that growth will, could increase.
But again, we don't want it to get above our ability to deliver.
So we've been balancing those two.
And we've looked again for acquisitions that can leverage it, but we can't find things that leverage in our space.
It doesn't mean they're out there.
But it's got a huge market potential.
We've had, you know, 20 to 25% year-over-year growth.
We think is easily maintainable in that business.
And the question we have is to accelerate the growth, what can we do on the delivery side?
That's been our challenge.
So it is a strong business.
- Analyst
And does there come a time when the pace of investments that you've been making there moderates?
Your press release states, you know, geographic regions and employee, particularly in terms of geographic regions, there is a whole lot more that needs to be done there?
- Chairman, CEO
We've opened, we have made the big steps, we have opened up India and China, which are obviously two huge markets for us, I think geographically we're about everywhere we want to be, and now it is the focus on the clients and the business.
But the business is out there.
In China, for example, we have turned down huge engagements because we just weren't ready.
We were setting up, and we just didn't have the breadth to take on thousands of people, you know, contracts yet, but the business is out there.
We do this right, there is a huge opportunity for us.
- Analyst
And who are you coming up against from a competitor standpoint for those types of projects?
- Chairman, CEO
It is almost, there are some competitors in Europe in the middle management space, but we're seeing very few anywhere else.
It is kind of a wide open small firm, some of the big staffing firms are trying to move up market.
People in our space aren't competing.
It is kind of a wide open market right now, but it is a very tough market to deliver.
- Analyst
Right.
And maybe a bit of housekeeping here, the option expense in the quarter, is that all falling under compensation and benefits?
- COO, CFO
Yes.
- Analyst
Because even if I adjust for that component, and I look at the, you know, the gross margin, so to speak, I'm surprised to see how low it was, and I realize you brought on board quite a few new consultants, but the actual growth rate in the head count has been kind of close to the 10% range year-on-year, so I was a bit surprised to see that number falling off there.
Is there something that we're missing?
You alluded to maybe the G&A.
What exactly is that?
I think you were referring to the fact that G&A would probably pick up a bit.
- COO, CFO
Yes, I think, Michel, when you look at the quarter, I think you just kind of trend this back, you will see that the G&A ratio was, you know, say 16.8%, and the comp ratios was 68.4, the G&A ratio was a little bit lower than it has been historically, and the comp ratio was probably a little bit higher, and I think you will see that switch a bit.
We did, in the first quarter, make some bonus-related accruals that were profitability-based, for some activity that happened in the first quarter.
You know, I don't think you're going to necessarily see that in the second quarter.
But we will see.
- Analyst
Okay.
Understood.
Okay.
Thank you.
Operator
Thank you.
And we're showing a follow-up from the line of Mark Marcon with Robert W. Baird.
Please go ahead.
- Analyst
A couple of quick follow-ups.
First of all, financial services was real strong.
How large as a percentage of the business is financial services within executive search?
- COO, CFO
It is about, you know, this quarter, Mark, it was probably about 26 or so, 26%, something like that.
- Analyst
Okay.
Great.
And then what was the contribution, or what was the impact of FX in the quarter?
- COO, CFO
I think if you look year-on-year, it was about $400,000 favorable on the top line, something like that, Mark.
- Analyst
Okay.
Great.
And the tax rate, do you expect it to stay around this level, or is it going to drift back up to the 40% range?
- COO, CFO
Love it to go lower but I don't think that is going to happen.
I think it should be, hopefully around, you know, 38 or so-ish.
It is a little bit of a moving target.
But we hope so.
We would love it to be lower, but I don't know if that is possible.
- Analyst
And then the Lominger, is going to contribute, primarily it is going to have the impact in North America, correct?
- COO, CFO
Well, they operate --
- Analyst
I know they're international, but in terms of mix.
- COO, CFO
Yes, I mean our opportunity, quite frankly, for that business, one of the opportunities is the international opportunity for us.
But that's true principally today, the majority of their revenue is in North America.
- Analyst
And then in terms of the, if we think about targets in terms of margins, it sounds like you're suggesting maybe 10% on the Futurestep side in the intermediate term.
How should we think, given what we've seen recently in executive search?
Where should we think of those margins as going historically, we've talked about kind of getting to a 17 or 18% kind of margin ex-Futurestep, is that what we're still thinking about or -- ?
- COO, CFO
In the operating margin?
- Analyst
Yes, including corporate expenses.
- COO, CFO
Including corporate expenses.
- Analyst
Yes.
- COO, CFO
Yes, that's not, we've said, you know, five years ago, we said 16 to 18.
Of course then we didn't know about the stock option, FASB.
And quite frankly, you know, we have made investments in processes and people.
I mean it would be quite easy to get those margins today.
But we're trying to invest for, you know, for five years out, for the opportunity that we think is there.
So I think that is a reasonable model, Mark.
- Analyst
Okay.
Great.
And then strategically, what are you seeing in terms of the cross-selling activity from your core executive search consultants?
Vis-a-vis what you're doing in leadership development, as well as Futurestep, how strong of a source of leads have they become?
- Chairman, CEO
We're actually very proud of that.
I think in our last survey, over half of our consultants have said they have cross-sold a Futurestep or leadership process.
In fact, part of our growth in the leadership business, one of the goals is to generate more of their own business, so the cross-selling activity has been very, very good.
So as these products grow, we're trying to keep them together to focus on major clients, but we have unusually high buy-in from our consultants.
We had a survey that said, you know, over 85% of our partners believed in the, strongly believed in our strategy of multiproducts which is huge in a service business.
A 70% rating would be outstanding if you look at professional services.
So our partners believe in what we're doing.
They're focused.
We've got more and more cross-selling.
We have more and more cross-selling on our global platform.
A lot of our pickup in China and India has been a lot more cross-selling from the U.S.
And Europe.
So I'm very, very happy with those trends.
It will never be 100%, but I'm pretty satisfied, and we want to keep it up moving up a little bit more, but it is doing very, very well.
- Analyst
Great.
One last question.
Any unusually high profile searches that may have impacted this last quarter?
- Chairman, CEO
Well, let's see.
The NFL was probably our highest profile search in the last two quarters, but they wouldn't have had a huge, it was a good fee, but again, you know, that fee alone, no one fee can really move our numbers significantly.
- Analyst
You recently got Ford, too, didn't you?
- Chairman, CEO
The work that was announced on Ford was for their general work.
- Analyst
Got it.
Super.
Okay.
Great, thank you very much.
- COO, CFO
Thanks, Mark.
Operator
Thanks and we're showing a follow-up question from the line of Mike Carney with Aperion Group.
Please go ahead.
- Analyst
Two questions, Gary.
First, on the corporate expenses, that looks like it has been relatively flat with the last several quarters, even though you had to include the option expense.
So is there a reason that it would move up from this level?
And it then also, last year, it was lower, and I believe there was a reason it was lower, or last year's first quarter.
- COO, CFO
Boy, Mike, I can't recall last year's first quarter.
It was lower.
I just can't remember the reason off the top of my head.
I would say that it is going to stay around this level.
And if you look back, it has been, you know, it has been rather consistent, a couple of quarters there's blips here and there, but I think that is a good assessment.
- Analyst
So when you included the stock option expense and something else was excluded, was there any specific reason that you, you know, you cut some expenses somewhere?
- COO, CFO
Well, you know, Mike, we're always kind of cancelling out the bottom 10% or so.
That may have contributed a little bit.
But I can't flag it off the top of my head.
- Analyst
Okay.
And then also, on Futurestep, in terms of the actual revenue recognition, on the RPO side, you can't book the revenue until the placements are, until they're being executed, correct?
- COO, CFO
Yes, GAAP is as the services are performed, assuming it is collectible, we recognize the revenue.
- Analyst
So even though you would get a new contract, you wouldn't, you know, that would be meaningless to revenue until you actually start performing some services?
- COO, CFO
Absolutely meaningless to revenue.
It is completely dependent upon the amount of labor and effort that we spend, and whether we deem the business to be collectible which hopefully is the case.
- Analyst
Okay.
Thank you.
Operator
Thanks, and we have a question then from the line of Josh Vogel with Sidoti & Company.
Please go ahead.
- Analyst
Good morning.
With Futurestep, can you give us what percent of the business is coming from the Asia-Pacific and South American regions, versus maybe a year ago?
- COO, CFO
The Asia-Pacific business, I want to say, is 35 to 40%, something like that, Josh, right off the top of my head.
I can't tell you how much of, if that has increased from the prior year, but we've always had a very good footprint with the Futurestep business in Asia.
If you look back over the last four or five years, some of our longest standing recruitment processing, outsourcing customers have been in Asia.
So that's always been a solid business for us.
Now as Paul indicated, we have recently opened up in India and China, and hopefully we will see more of the fruits of that this next year.
- Analyst
Okay.
Thank you.
That's helpful.
And I'm sorry, with Lominger, did you say that was going to be a 13 million top line contribution through the rest of this year?
- COO, CFO
That's right.
Hopefully it grows each quarter, but you know, second quarter, we're hoping for 4 million or so top line, we hope that grows.
- Analyst
Okay.
Great.
Thank you.
Operator
Thanks.
And at this time, it appears there are no further questions.
Mr. Reilly?
- Chairman, CEO
Great.
Well, thank you, all for joining us today.
Again, you know, I think the firm is doing extremely well.
I think what people lose sight, and we spent a lot of time on margins, which we should on our business, we are still significantly investing and growing our business and head count, and we have had strong performance, we've got to deliver every quarter, and we will continue to, but everything looks very, very solid economically, and in the Company at this time.
So we will see you again next quarter.
And thank you for joining us.
Operator
Great.
Thank you.
Ladies and gentlemen, this conference will be available for replay starting today at 1:30 p.m.
Eastern time, and it will be running through September 14th at midnight.
You may access the AT&T Executive Playback service by dialing 1-800-475-6701, and then entering the access code of 841134.
International participants may dial 320-365-3844.
Additionally, the replay will be available for playback at the Company's Website, at www.kornferry.com in the Investor Relations section.
That does conclude our conference for today.
Thank you for your participation, and for using AT&T.
You may now disconnect.