Korn Ferry (KFY) 2007 Q4 法說會逐字稿

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

At this time, all participants are in a listen-only mode and 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, 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 2006.

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

Reilly.

Please go ahead, Mr.

Reilly.

Well, good morning and thank you, everyone, for joining us.

You know, it's great and really satisfying to see our Korn/Ferry One Company strategy taking form around the world and it's quite remarkable and really fitting to be talking to you as we've just wrapped up another year of record revenues and profits.

There is no doubt that the external markets continue to validate our business strategy and our model and our strategy is working.

Since our last call, our two leading industry trade publications have, for the third year in a row, ranked us number one, but what is more impressive is we were the fastest growing for the third year in a row amongst our global competitors, we had the highest increase in average fees amongst them and we had the highest increase in our productivity of revenue per partner.

You know, if you look from a client standpoint today, not only has talent become more difficult to find, it's difficult to retain.

Many of the world-class organizations are as concerned with developing and keeping their skilled workers as they are with finding them.

We believe our strategy and our diversified offerings provide clients with a broad, end-to-end solution that addresses these complex needs.

Korn/Ferry provides its consultants with a differentiated platform to broaden their value to customers.

We have made tremendous progress over the last six years and I'm proud of the results because we believe the results are a direct outcome of the strategy.

I am delighted to announce that the results for the fourth quarter and the full fiscal year set new records for Korn/Ferry.

Quarter four consolidated fee revenue reached an all-time high of $179.7 million with EPS at a record of $0.35.

For the full-year we achieved $653.5 million in total revenue, up 25% over fiscal '06.

In addition to setting records for both our firm and the industry, we also grew significantly greater than our competitors during the year.

Turning to our business segments, executive search continues to be the engine driving Korn/Ferry's impressive growth.

The strength of our executive search business provides the resources and the brand permission for us to introduce new products and services to our clients.

During the fourth quarter, executive search achieved a record quarter $157.1 million, up 24% from the prior year.

For the full fiscal year '07, we generated $567.6 million, a 25% improvement.

Every region posted double-digit growth with Asia Pacific taking the lead at 28.5%.

Not only did we experience strong growth in every region but also in every sector that we serve.

Technology was up an impressive 42% over last year and financial services 36, and industrial 24%.

In order for us to achieve our vision of being the premier global provider of talent management solutions, our leadership development business plays a critical role.

We expect this coming year '08 to be another high growth year for this business as our clients continue to grapple with developing and retaining their workforces.

At Korn/Ferry, we now have the capability to help organizations with succession planning, individual and team development, executive coaching, on boarding, M&A integration, executive compensation, and performance management.

Additionally, numerous initiatives are now under way to further align our leadership business with the search business.

We believe that the combination of our proprietary intellectual property with our world-class consultants will provide a better search product and pave the way for additional cross sales of our standalone development solutions.

Turning to the middle market, Futurestep posted another quarter of sequential growth.

The rally has now reached an impressive 14 quarters.

Futurestep generated $22.6 million, up 21.4% over '06, and for the quarter and for the year, $85.8 million, up 22.3%.

The Futurestep leadership team continues to be focused on evolving our RPO business.

Momentum has been very good moving into the new fiscal year and we are forecasting another quarter of growth for Q1.

Futurestep has hired a number of additional leadership and business development roles to implement the global RPO growth strategy.

In addition, Six Sigma and total quality management training has become an ongoing initiative at Futurestep as the focus on process driven service delivery remains at the center of our approach to delivering outsourced recruitment solutions.

We have made tremendous progress evolving this company.

Just four short years ago, the business was almost exclusively executive search generating a little over $200 million.

Today we're running at over $700 million with almost 20% of our revenues coming from our non-search diversified offering.

During the recessionary years our consultant count hit a low of 389 partners.

Today, almost 500 partners and our productivity levels have never been higher.

You know, there's a new energy about the Company, and a strong vibe in our industry.

The word is out, we really have a different platform.

Consultants from other firms and from industry continue to approach us and our retention of key employees remains very high.

We believe that this is the beginning.

Our goal is to create a multi-billion dollar diversified talent management organization and our focus will remain on the firm's evolution and transformation.

So with that and the quarter's results I'd like to turn it over to our COO and CFO, Gary Burnison.

G.B.?

Thanks, Paul.

Good morning, everyone.

Today we're pleased to announce the completion of a record quarter and fiscal year for Korn/Ferry International with full-year revenue of $653 million.

I'd point out that's the highest in the firm's 37-year history, an increase of 25% from the prior year.

Our fourth quarter fee revenue also reached an all-time high of almost $180 million, and as Paul said, up nearly 24%.

Including Mexico, revenue was approximately $672 million for the year.

Profits also reached record highs in the quarter and for the full-year.

Excluding the net effect of a previously announced non- recurring charge of approximately $0.06 per share, earnings per share were approximately $0.35 in the quarter.

On the same basis and without FASB 123 stock option expense, earnings per share were $0.37, up approximately 19% from the fourth quarter of FY '06.

For the full-year earnings per share were $1.30, or approximately $1.38 excluding the non-recurring charge in FAS 123.

That would represent a year-over-year increase of nearly 27%.

As Paul said, we continue to make key investments in people and processes to ultimately create a diversified HR solutions firm.

This past year, we strengthened our number one worldwide market share position in executive search, while scaling our Futurestep and leadership development businesses.

As a firm, we are very proud of our accomplishments, and notwithstanding our investments, however, our consolidated operating earnings and margin have remained strong throughout FY '07.

Excluding non-recurring charges, operating earnings in the quarter grew $2.5 million, or almost 12% sequentially to a record $23.9 million, while our operating margin improved 30 basis points to 13.3%.

On the same basis and adjusting for FAS 123 stock option expense, total year operating earnings improved $16.3 million, or 21.4% year-over-year to $92.5 million, or a 14.2% margin.

Our cash balance increased almost $42 million sequentially to over $324 million.

In the fourth quarter the firm repurchased approximately 1.4 million shares with total cash proceeds of approximately $32 million, finishing off the first $75 million of share repurchase funds authorized in December of '05 and June of '06.

As of the end of the quarter, the firm has about $50 million remaining in authorized share repurchase funds.

The number of executive search consultants increased five over the third quarter to 490, while fourth quarter annualized revenue per consultant improved 8% sequentially to $1.25 million.

Now, I'll review the business segments starting with the executive recruiting, where fourth quarter fee revenue was $157 million, up 24%.

Fee revenue was up both sequentially and year-over-year in all regions.

In North America, fee revenue reached approximately $87 million, an improvement of almost 24% versus the fourth quarter of last year.

In EMEA, fee revenue reached $41.3 million, an increase of almost 14% from the prior year.

For all of FY '07, EMEA fee revenue grew nearly 22%, achieving a record high of $146 million.

And last but certainly not least, Asia Pacific finished a record year with another record quarter reaching almost $20 million in revenue, an improvement of 24%.

Consolidated fourth quarter executive recruiting operating earnings were up $4 million sequentially while our operating margin improved 80 basis points to 19.9% reflecting continued improvement in consultant productivity for both the executive search and leadership development operating divisions.

For all of FY '07, executive recruiting operating earnings improved over $11 million, or 11%, with operating margin adjusted for FAS 123 option expense down only 150 basis points to approximately 20.7%, and that reflects the investments we've made in that business.

Now turning to Futurestep, where the top line has now grown in 14 consecutive quarters and in our latest quarter, up nearly $4 million, or 21.4% from the prior year fourth quarter.

For the full-year excluding a one-time gain, Futurestep's operating earnings improved $3.9 million, or 116% reaching $7.2 million.

Additionally, Futurestep's full-year operating margin improved 360 basis points year-over-year to 8.4%.

I'd also like to go back to the executive recruiting part of our business.

I failed to point out that our Latin American business has performed incredibly well for the quarter and for the year.

South America fee revenue was up 11.3%, or $1.8 million, attained at $17.4 million for the full-year led by growth in Brazil, Columbia and Venezuela, and our results in Mexico this past quarter and year have been nothing short of fabulous.

Let me now comment on our FY '08 first quarter outlook.

Assuming constant FX rates, we estimate fee revenue will likely range from 176 to $185 million, and diluted EPS will likely range from $0.34 to $0.36 per share.

That concludes our remarks.

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

Thank you.

(OPERATOR INSTRUCTIONS) Our first question will come from the line of Tobey Sommer of SunTrust Robinson Humphrey.

Thank you.

I was wondering if you could dig into the growth that you saw in average fees and maybe give us a little bit more color on how you're achieving such good growth and what the prospects may be going forward for continued opportunities there?

Well, Tobey, I think that the truth is one, not only we've been growing the business, we've been moving it up market.

We're very busy and when you're busy, you focus on raising pricing and taking higher end work, and we think we still have room for improvement.

We're continuing to focus on it and our other businesses, our LDS and Futurestep are actually getting better pricing now, too, and are more efficient.

Our search business is moving up.

The average fee is growing and we feel that in a market like this we need to continue to push those metrics up.

I was wondering if you could comment on the resiliency that you're seeing in the business and maybe some market share gains as a result of having a global platform and seeing demand from multinational companies, for example, perhaps looking for a U.S.

person to go operate a subsidiary in another country or vice versa?

It's amazing, Tobey.

As you know, by far, we have the largest footprint of any of our competitors and a strong footprint.

Our Asia and European businesses are very strong, as is our Americas businesses, but today in certain industries, let's take financial services as an example.

Almost every search is a global search that people are looking for a spec, whether it's in India, New York, or London, the spec looks similar and they really don't care where they come from.

It may be someone even in New York where they want experiences and that person got sent to Asia and wants to come back from another firm or they're in India looking for talent that may be in Singapore, Hong Kong, or New York, or London and we're seeing more and more just globalization where the specs get global.

We just, you know, just yesterday, professional services search, and although it was a North American position, they said likely this candidate, given unique qualities, might be someone overseas who's coming back.

And so searches just by their nature are becoming more and more global.

People are looking for the talent, not where they happen to live at the current time.

So I think that's going to increase as the shortage of skilled managers becomes more pronounced for needs that it's just going to become a more common part of our business and certainly, we're in a great position to execute against that.

Paul, are you seeing evidence of that in the firm's ability and attractiveness to consultants from boutiques who look to kind of ride that increasing demand and perhaps tie themselves to Korn/Ferry to do so?

Well, if you look at our recruiting, it's been really kind of been amazing.

That's what we're proud of that people have chosen to join us but in some cases, yes.

The people where they want a global platform and they want a brand that's globally recognized, you know, we were named to the America 's 50 or 100 most famous brands last year, we're the only people in the human capital space name, that certainly is an advantage.

Other people in boutiques like the very narrow nature of what they do and would prefer to execute in some very shallow area which is boutiques that do well specialize, but I think if you look at the bigger firms we become a very attractive option because we are global.

We operate global.

We've got unique platform, too.

I think what's the real attraction for people to us is one, we're global and we operate global, but secondly, is we have more to offer.

Our search product is excellent and it's certainly our brand but it is really a differentiator that we can offer these other solutions and I believe we're the only firm in our space that really can on any scale.

And I think those two things together and the culture here that's evolved over the last six years are the real attractions.

One last question and I'll get back in the queue.

Your cash balance, obviously, pretty hefty right now.

I was wondering if of you could parse through the different elements including the bonus accruals, when you expect to pay those, and maybe comment given the ample cash balance on what opportunities look like to deploy the cash in other than share repurchase.

Thanks.

Thanks, Tobey.

As we indicated, our cash balance that we finished was about $324 million or so.

We have a bonus accrual on the books of $140 million.

The bonus expense in the quarter was $42.8 million.

We will pay those, substantially, all those bonuses in July.

There will be some spillover to August for certain parts of the world but principally it's all paid.

If you look at this, let's just take this past year, one of the things that we're most proud of is the deployment of our "excess capital".

Looking back, you could argue that we had $100 million of excess capital and we deployed that, we think, very efficiently throughout the year.

$75 million of it or so was in the form of returning cash to shareholders and 25 to $30 million or so was in looking for transformational opportunities to grow the business through acquisition.

And so as we look forward, we probably have, again, that level of excess capital and we are going to, again, invest in the business, continue to look for adjacencies, to buildout, as Paul said, the top of mind brand in human capital, and we're also going to return cash to shareholders.

Thank you very much.

Thank you.

Our next question will come from the line of Mark Marcon of Robert W.

Baird.

Good morning.

I was wondering with regards to Leadership Development Services, can you give us what the plans are there?

And can you, I may have missed it, but how large was it this last quarter both in terms of revenue and margins and I'm trying to also get to what the operating margins look like in individual sub segments if we stripped out LDS.

Yes, Mark.

Thanks.

One of the things that we're going to, we're working on as we at some period of time here we'll break that out to make it easier for people, and the growth of the business has been phenomenal.

We have almost 50 partners around the world today.

The run rate of that business is essentially $50 million globally.

That's up, I'll say, from about $7 million 3.5 years ago.

Strategically, what we want to create is a set of services and solutions in that business to help our clients more effectively and efficiently deploy, develop, retain, and reward their workforce, and it's really that simple.

And as Paul said, the strategy is really to create a differentiated platform for the flagship business, and so that all of our colleagues have reasons to talk to our clients throughout the whole year and can bring a whole host of solutions and services to a company's people issues.

And that's what we're trying to do and we would like to double that business over the next three years and we really believe we can do that.

We've got a fabulous brand.

We've got fabulous people to do it.

I think from a bottom line standpoint and we've invested in that business this year, obviously, you don't recruit that many people from scratch, but I'll tell you, it's a lot cheaper than purchasing and we've got people that believe in what we're building and helping us building it, but we look at it becoming a self-sustaining business this year and it's well on its way.

So we haven't broken out those numbers specifically, but as Gary said, he looks at doing that going forward.

Can you give us a general feel?

I know that it may be a little difficult but because you've got some investors who are probably looking at the operating margins in executive search and you're looking at them year-over-year and even after you adjust for the 123R, it looks like they, at least on the surface, it looks like they compressed and my sense is, it's probably due in large part to LDS, and so it might be helpful to give some sense of that if possible.

Yes I mean, again, Mark, we are investing in all of our businesses so I don't want to just point to our leadership business.

I will answer your question but first, we are investing in the flagship business.

Sure.

This past year, our net partner count is up 50.

Half of those people come from search, half had no search experience.

Over the last 42 months we've recruited 200 partners into this firm.

Our Futurestep business we've invested in.

We're very proud of what we're doing there in the multi $100 million opportunity.

Your point is valid.

When it comes to operating margins, the way that we look at it, when you really compare it on an apples-to-apples basis, Mark, and you take out the FAS 123 and the non-recurring charge, this past year FY '07 our operating margin was 14.2%, last year was 14.6%, a decline of 40 bips.

In the fourth quarter of '07 our operating margin, stripping all that out is 14%.

In the fourth quarter of '06 it was 14.2 %.

So whether you look at it on a yearly or quarterly basis, as you said, there's been 20 to 40 bips of compression of the margin.

And if you were to take the investments that we've made, for example, in the leadership business, you could probably increase the FY '07 margin by 90 or 100 basis points if you isolated that investment.

So you're absolutely right.

Your thesis is right.

The operating margins have actually increased if it wasn't for that investment, but we're trying to build a business again looking out three to five years that differentiates our flagship business and reinforces the whole value proposition to our clients.

It's interesting, Mark.

The same question the Board asked at times and they're looking at the numbers and the truth is, we could keep margins up or even increase them.

All we have to do is slowdown the growth rate from 25 to 20 or 15 so part of it's the investment but we believe it's the right long-term thing to do.

If we had bought a leadership business instead of built it our margins would have looked a lot better, but the truth is, we're investing and it's the absolute right thing to do for the Company.

Totally agreed.

And where do you think the margins on the LDS side can go?

I know it's going to be, at the end of the day, there's going to be cross sales and it's hard to really strip it out, but where do you think the margins for that part of the business or for executive search on a consolidated basis including LDS can go?

Well, I think, the margins on the LDS business should look like a consulting business.

Principally that's what it is.

Now there's a piece of that business where we're actually in the products and publishing of intellectual property.

That's the Lominger business is having very robust margins but we would hope and think that that business should look like any world-class consulting business when it comes to margins.

And to directly answer your question on the search side, we've been pleasantly surprised with the increase in average fees.

And as Paul said, I think that's a reflection of not just the cycle that we're in because, clearly, the growth in our average fees has outpaced the industry but also reflecting strategy of the firm to move the brand up market.

Yes, you've clearly been extremely successful and that wasn't by accident.

I know it was through a lot of proactive moves on both of your parts to make that happen.

In terms of the 123R, what was the total impact for the year?

Hang on one second, Mark.

What was the total impact?

$5.6 million.

Mark.

$5.6 million.

Great.

And what's the trend in confirms?

It sounds like given your guidance for the coming quarter, that even though we came out of a calendar quarter where GDP growth was quite low, you're not seeing any sort of diminution with regards to demand.

No, we haven't.

It's always hard to tell for us in the first month or so coming out of our fiscal year because there's such a big push in April for a lot of different reasons.

So it's really hard to kind of make bold and broad statements, but we continue to see a war for talent, Mark, and continue to see demand from our clients around the world.

So did the confirms, I imagine April confirms were quite good?

Yes, April confirms were good.

I wouldn't say that they were extraordinarily higher than March and May has been good as well.

Okay.

Great.

Thank you.

Thank you.

And our next question will come from the line of Clint Fendley of Davenport.

Yes, good morning.

Paul, I wondered if you could talk a bit about the outlook for hiring consultants at this stage of the cycle, which geography your industry would likely be your focus here?

And I guess looking back, we had about an 11% increase here last year in the average number of consultants, do you think we should expect more or less growth in the upcoming year?

Well the quick answer is good and all.

We've been very disciplined about not buying people, and it's probably why we haven't bought a search firm.

That doesn't mean we wouldn't if it didn't fit culturally, but we want people to join us for what we're doing, not for dollars.

Not that we don't want our people to be paid well and do well here and as we want to make money, and we want to return good return to shareholders.

But we, because of this platform, I'll tell you, we have ongoing recruiting efforts in every region of the world.

We recruited people in India and China, markets where we have more partners than our competitors combined in some of those markets because we've been there so long.

We're continuing to recruit and add people.

We're recruiting people in the U.S, in South America, almost in every country in Europe, in Great Britain.

And so we are very steady, though, in making sure one, they fit the value and believe in what we're building.

And I can't tell you every consultant in this industry believes in multi-product platforms but the ones that do, we are a very attractive alternative, so we're being very disciplined.

We have a good pipeline.

We manage and we'll hire as many people that fit and if they don't fit, we're not going to hire them but so far, we've been attracting a good base.

But I don't think there's, if any firm asks themselves or (they're) number one in every segment in every region, you can find holes, I don't care who you are and McKenzie could do it, [Assenture] could do it and we do the same thing.

We're very disciplined about not just on headcount but being number one in every market we serve in every geography and so we have recruiting needs all over and we will continue to recruit.

And I think we will, you know, you may pay a little bit more as you even out bonuses so people just don't leave money on the table, but we're not paying premiums and I think the outlook looks very good.

Okay.

Fair enough.

And Gary, I wondered shifting gears a little bit, I wondered if you could talk a bit about any type of subtle strategic shifts or even changes as a result of the upcoming management changes here in July, and also any update on the CFO search and any timing expectations for when that role might be filled?

Absolutely no changes.

We're going to continue the journey that we started five, six years ago.

That's absolutely 100% for sure.

In terms of the CFO, we do have a search out, as you know, and we're continuing that process, and we would hope to make an announcement in the next 30 to 60 days.

Okay.

Excellent.

Thank you.

Thank you.

And our next question will come from the line of Kelly Flynn of UBS.

Hi.

This is Matt in for Kelly.

How's it going?

Just wondering if you could speak about the Lominger acquisition, how that's affecting your LDS strategy and then the impact of that in the quarter?

The Lominger business and the Leader Source Business, two investments that we've made over the last several months we think have had an enormous impact on clients and our colleagues.

The businesses have performed ahead of our expectations.

They are helping to differentiate our flagship business no question about that.

They're growing and from a strategic perspective, it's an everything we thought it would be.

From a cultural and people perspective, it's actually been more than we thought it would be and from a bottom line contribution, it's absolutely been accretive.

Okay.

And are you guys disclosing the impact on the revenues in the quarter or is that --

When we announce the acquisition of Lominger, for example, we indicated that they would contribute a penny a share a quarter and they absolutely have.

That's been the contribution, so we're very, very pleased with the financial contribution.

Okay.

All right.

Thanks.

Thank you.

And our next question will come from the line of Mike Carney of Coker Palmer.

Good morning.

Why is D&A down this quarter?

Was there anything unique, Gary?

Well, we're just trying to keep the costs under control as we can.

Our brand is our people.

That's where most of our expenses and when it comes to brick and mortar, we're just not in the real estate business so we try to keep our fixed costs as low as possible, Mike.

So that's just depreciation or, I'm sorry, yes, just falling off and the amortization of the intangibles is not that significant?

Well, we continue to have the depreciation and amortization but we've tried to be pretty careful when it comes to overhead and the like.

Mike, we're proud that we still have hundreds of thousands of square feet of space less than we did when we showed up here, so we've been, we're managing it and we've got some offices squeaking a little bit at the seams but we remind them it's a better problem than the old problems and we focus on profitability and our consultants get paid on profitability, not just on what they produce.

So everybody understands it.

So we manage, I think as you'll look at our overhead numbers compared to the industry we manage it very, very tightly and that's just one other area of fixed costs that we really focus on.

All right.

And out of pocket engagement expenses continuing to increase as a percent.

Is that, what is, I mean that's the cost of the products now; correct?

But why is that increasing?

Yes, Mike, Gregg Kvochak speaking here.

That's primarily the result of the Lominger product, cost of products which is now included in that unreimbursed or reimbursed expense category.

It's going to be a while.

It will be almost another five or six quarters before you can get an apple-to-apple year-on-year comparison because of the Lominger roll in.

But we haven't seen any, to answer your question, there hasn't been any kind of cost creep there or inefficiencies, that's for sure.

And clearly, the cost of doing business is going up, but there's no kind of leakage there of any significance.

Okay.

So that's just so as the growth and the product revenues grow, that's what's growing that?

Right.

And it's just being rolled in in this year, I mean the acquisition so you're seeing growth the last few quarters.

And the last question here.

On the contract termination charge, is that just, was that just yours, Paul, or does that also include Gary's change?

I think that's primarily me.

It's interesting on the accounting rules, even though I'm staying and there's an acceleration, half of my equity would have vested July one and we had to take a charge for it anyway.

So that's our accounting for stock options expense and a lot of it is just an acceleration and even money that I'm not, that I don't get that's been deferred out by accounting standards we've taken the charge and most of that is me.

Okay.

One more question here.

On the European margin this quarter was a little bit lower.

The revenue growth wasn't as high as the other regions but was there any reason for any, you know, one-time reasons for that?

No.

I mean, in the quarter as we laid out and we have a three-year strategic plan that we always update and present to our Board and going into this year, we had goals and thresholds and we're very proud of our results.

We absolutely delivered on our operating plan and because of that in the fourth quarter there was some profitability-based bonus accruals that, as Paul said, the first determinant of our reward system is the profitability of the firm overall, and we hit our operating plan and you see that in the fourth quarter.

I think one of the, as you look at margins and bonus for us is, as you add people, you always have that extra expense of getting them online and for some very productive people, or people from other industries actually, paying them a little ahead of our normal bonus system as they adjust in the first year.

So as we grow, again, it's one of the costs of growth but we think it's the absolute right thing to do and we're very balanced and think even given all the people we're adding producing exception by bottom line.

Thanks.

Thank you.

Our next question will come from the line of Michel Morin of Merrill Lynch.

Good morning, guys.

I was wondering could I, maybe I missed it but did you actually provide the fee per search this quarter and for the year?

Yes.

Good morning, Michel.

The fee per search in the quarter was almost $85,000 and for the year it was almost $81,000.

Okay.

And then I think, Gary, you've mentioned in the past that one of the reasons why it's a number that even though it has been growing is still below that of your main publicly traded peer.

Is the geographic mix in particular and some of the fees in Asia in particular may be lower?

Can you give us some color, some added color if you were to just isolate the Americas for example, what that would look like?

In terms of our average?

Yes, geographically, can you give us some ballparks as to where the numbers would be?

Yes, that's something that we've never broken out.

Clearly, we're very, very proud of the increase in our average fee over the last 13 or 14 quarters.

It's gone from $55,000 globally to $85,000 globally.

Part of that reflects the economic cycle that we're in, but also there's no question about it objectively.

We've outperformed the industry in terms of velocity of growth and we think that reflects the brand, the fabulous people that we've brought into the business and we have in the business as well as the strategy to move the brand up market.

It's hard for us to predict exactly where that's going to go over the next several quarters, although directionally over the long-term, we would expect that to move up because that is the strategy.

We are broader than any other firm in this industry.

Our footprint is much broader.

We're in 40 countries around the world.

Our Asia Pacific business is probably two times as big as anybody else, which we're very, very proud of and we continue to see growth there.

So when you do look at our global average fee to some other competitors, you very much have to take that into account, but I will tell you that if you look by region, the increase in the average fee absolutely holds true.

Okay.

Great.

That's helpful.

And then just as a follow-up to the earlier question on the reimbursable expenses, would it be possible to break out what the actual dollar amount that was related to the product sales?

I don't know if I can do that on the phone but I think directionally where we're headed is trying to break out our leadership business, and when we will do that, we're working on it now, Michel, I think it will make it a lot easier, and certainly we can do that in a separate call.

I don't think we have all that data with us, Michel.

All right.

That's fine.

And then just finally on the tax rate, 36.6 or so for the full-year.

That seems a bit lower than maybe what we would have expected.

Is that the right number to be thinking about going forward or was it maybe a bit lower also than what you had expected?

Well, we try to be as creative as we possibly can in the tax area, I think we've demonstrated that now consistently for 21 quarters.

The rate for the year was approximately 37%.

Last year it was approximately 36%.

For next year I'd probably use 38%.

All right.

Great.

Thanks very much.

Thank you.

(OPERATOR INSTRUCTIONS) And we'll go to the line of Josh Vogel of Sidoti & Company.

Hi.

Good morning.

Good morning.

Could you maybe quantify for us the executive fee revenue across the tech, financial services and industrial sectors?

I'm sorry, say that again?

Can you quantify the executive fee revenue for tech, financial services and industrial, because I know earlier you gave us the year-over-year growth across those sectors.

If you just look, for example, in our fourth quarter in the financial services is about 24% of our business or so, 23%.

Life sciences is if you combine that with healthcare, it's probably 17%, industrial is 23%, technology is 17 to 18%, consumer is 15 or so percent.

So as you look at our footprint and our business geographically, it's very diversified with essentially half the business in North America and the rest throughout the world.

And when you look from an industry perspective, it's also equally balanced and that's one of the things that we do look at as we're growing the business and adding people.

That's one of the things that we've focused on I think vis-a-vis a number of our competitors would have segments that go to 33 or almost 40% of their business.

We have purposely taken a balanced growth strategy and I think it actually, it's why I know a lot of people still see this industry as deeply cyclical, we don't believe it is.

I mean we think, sure, we'll be affected by economic cycles but we think this is a profitable business even in down times managed properly and with a broad portfolio, so we're proud of the balance in our industry segment.

Okay.

That's helpful.

Now, it just seems the growth in South America slowed dramatically in the last three quarters of fiscal '07 and just curious, are you seeing any near-term or longer term catalysts within that region that should get the top line moving?

Well, we hope so.

Absolutely.

If you were to, the thing that's a little bit misleading here is we really do look at the business as Latin America and because we don't own 100% of our partnership in Mexico, which clearly has 65% market share at least.

If you were to combine, if you were to look at our Latin American business overall, you would see the growth would rival any place else in the world, and the quality of our business is absolutely second to none.

We have had in South America, like many of our clients, some demographic trends that we inherited, say, three, four years ago, and we have actively over the past two to three years invested in our business in South America and we're going to continue to do that.

We haven't seen any kind of deterioration or drop off at all in client demand with respect to South America.

And I'd just say that there are two factors in our South America numbers.

Again, if you were to combine our fabulous Mexico business, the stats would be through the ceiling but isolating South America, Gary's demographic changes as we've had a number of retirements we've managed through.

We've added new people.

We've put a new leader in a few years ago and we're very happy with the progress and no doubt, if you look at Brazil and Argentina and Venezuela, we've had choppy economies.

For Chile and Columbia, which no one would have said it was going to be a stable economy five years ago, have been the stable economies in the region.

So we're going through both the demographic and cyclical change but we think we're well positioned and we've got some great people down there now.

And I would also point out that South America is a market many of our competitors have either exited or franchised, and we are absolutely committed to Latin America and South America.

Okay.

Great.

And just a quick housekeeping question.

Including the convertible securities, should we be looking at a share count between 52 and 53 million for Q1?

I'll let Gregg answer that.

Probably fairly close to where it is now, 47.5 to 48, somewhere in there.

The convertible is already counted in the fully diluted.

That's right.

There's no additional shares on the quarter.

Okay.

Great.

Thank you.

Thank you.

And we have a follow-up question from the line of Tobey Sommer of SunTrust Robinson Humphrey.

Thanks.

I was wondering if you could let us know what the EPS impact was from currency in the quarter?

The EPS impact from currency.

I cannot off the top of my head say that.

We've got the just revenue.

Yes, I just can't do that off the top of my head here, Tobey.

We'll have to do that on a call, sorry.

That's all right.

And you mentioned a pretty sizeable figure for non-search percentage of revenue.

Do you have a longer term goal for that that, I don't know, maybe as part of your current three-year plan or anything like that you could share with us?

Well, today again the non-search part of our business is about 19 or so percent.

We would like to see that as part of our strategic plan to be at least 25% and that's what we're aiming for, but again, it's not necessarily a numbers question or a diversification strategy.

It's really to differentiate our platform in our firm and really to create the top of mind brand in human capital and we're very, very proud of what we've done so far and we're going to continue to make investments into those businesses.

We also look at those businesses being, as having their own market opportunity, so we want all to grow.

We all want them to be the best and the largest in their space and we'll let the market tell us whether the leadership business can ultimately be 50 or 100 or $200 million, we're going to let the market tell us where Futurestep is going to be 150 to 250 or more, and the search business we believe there's opportunities, too, so although we want a diversification, we had a goal this year to get to 20 which we were within rounding of.

We're going to continue to expand them but we'll grow them as fast as the market and our opportunities allow us to.

Okay.

Thank you.

And then a question kind of longer term.

Over the last several years, we've seen a stricter regulation, particularly in the U.S.

as it relates to public companies and that has manifested itself in a shorter executive tenures at public firms.

I'm wondering if, you know, what kind of impact you see if the press reports are right that maybe the regulatory regime could be in store for a little bit of relaxation and what that may have, what kind of impact that may have on executive tenure?

Thanks.

I think executive tenure is just, just tenure in general has gone from almost 30 years, 40 years ago is every decade it's dropped and it's not just the executive, it's at every single level.

And I remember, to date myself a little bit, when someone had two or three jobs on their resume you wouldn't even look at it, today you wonder why if they only have two or three jobs on their resume, so it's not just the executive.

I think it's the phenomenon which is even increasing everywhere, even slightly increasing in Japan.

So that velocity factor, obviously, is good for our business in that way because it increases the demand for search and it increases the demand for other services.

We see nothing that says that's going to change.

And I think even recessionary times may slow it down, the velocity a little bit as people are more cautious, but I actually think given the shortage that number is going to stay up even if regulatory businesses change, it could get more restrictive.

I'll tell you a number of CEOs have been moving into private equity and private equity is becoming a bigger part of our business also.

So people are going to hire people somewhere and people are short of talent no matter whether it's public companies, private companies, private equity, whatever the format is, there's a big demand for our services.

Thank you.

Thank you.

And we also have a follow-up from the line of Mark Marcon of Robert W.

Baird.

Couple of questions.

First, just on the productivity levels and related to that, the fee per search trends, you continue to see increases.

How far, how much further do you think we can go in terms of seeing increases in productivity?

Mark, you've been asking this for about 20 quarters now.

Yes, it keeps going up.

Well, I mean, look, the growth here was quite extraordinary.

Uh-huh.

There's no question about that.

So we wouldn't want to signal the people that this pace of growth is something that you should put in a model, that's for sure, but directionally, it reflects the strategy of the firm.

I just cannot tell you, Mark, when we will see that manifest itself.

It's hard to say.

The revenue per partner per consultant is $1.25 million globally and as we've talked about, we have the broadest footprint in the industry.

And we continue to see growth in average fees and productivity throughout the world from South America to Asia to EMEA, and we hope that over a long period of time that we continue to increase that average fee, but we just cannot tell you when exactly and to what extent the pace is going to continue.

With your differentiated strategy and there's going to be clients that that appeals to, is there the potential that you could get into the 1.5 and maybe even all the way up to $2 million?

Mark, I remember in my old life and in my public accounting days when we told partners they had hit $1million, they couldn't believe it and then it was $2 million, then it was $3 million, you know, who knows over time?

Uh-huh.

I think all we have to say is we've complete, we (even) surprised ourselves in a relatively short time of how much it's increased and we could pat ourselves on the back but the partners have done a great job and the market has been good.

We continue to understand that productivity is the key to bottom line growth, and we continue to push that arrow.

So I don't know what the number is but we're going to continue to push it and we understand it's important.

And to do that, though, we're going to continue to make investments in our business, and that has some impact, as you've pointed out, on the margins, Mark.

Which areas aside from LDS and Futurestep, are there any practice areas or any geographies where we should expect to see a greater level of investment in over the coming year based on what you're currently seeing?

I don't think the strategic push has changed, Mark.

We're number one everywhere in the world but Europe.

It's only because we've had a competitor that's been there a long time.

Sure.

We've closed the gap so we'll continue to push to close that gap.

We've had a dominant position in Asia and we don't want to lose that and we believe that despite all the hiring and investment we've made in China and we will make investments in terms of retention because we are the only place for competitors to go for recruiters.

We understand that, but we're continuing to hire from industry and we will continue to invest in that region.

Again, in the U.S.

we're number one in every market segment and despite being the largest, we've made an announcement on people in our leadership business and our forward practice, we hope to continue to make announcements in that space and other spaces.

And so we're investing in hiring everywhere where we have holes in South America, we've been steadily investing.

So I don't know if you'll see a dramatic shift outside of where we are right now.

I think part of our growth differentiation is a belief that Gary and I have had that you can grow everywhere at the same time in this business if you hire the right people, and I can't think of a region, maybe outside of Mexico where we're just dominant, dominant market share that we don't have room for improvement in growth.

Great.

I'll follow-up a little bit more off line.

Thank you.

Thank you.

And we also have a follow-up from the line of Kelly Flynn of UBS.

Hi.

You commented that financial services was a main vertical driver, I think you said up 36%.

Can you comment on how big of an impact private equity was in that and maybe quantify the impact?

No, I can't quantify the impact.

The financial services business, as we talked about, again, we have a pretty balanced portfolio.

It's about 23% of our overall business, but we continue to see growth in that business in investment banking, the capital markets, the derivatives area, the hedge fund area.

All these used to be exotic markets are now mainstream markets, and we've seen the growth that you read about in the papers about private equity, but it's certainly, it hasn't been something that has moved the needle in a material way that would distort the numbers.

It's been pretty balanced growth there.

I would add that technology actually grew faster this year, which shows a comeback.

And I think the bellwether for me, which really started three years ago for us, is watching the industrial practice growth which is really a broad barometer kind of of the global part of our business.

We've had just a very steady strong 20% plus growth in that now.

I know a year in a row, so we've got very, very broad-based growth and we're not, the nice thing is we're not heavily reliant on any one factor.

Okay.

And just lastly, sorry to ask this again, I just want to make sure I didn't miss anything.

Did you guys disclose the organic growth in the quarter and if not could you give that?

When you say in the quarter, quarter year-over-year, there's probably, Gregg, I don't know, a percent or two, due to the acquisitions being made.

It's no more than that, that's for sure.

Okay.

Great.

Thanks.

Thank you.

And it appears there are no further questions, Mr.

Reilly.

I'll turn it back to you.

Great.

Well thank you, all, for joining the call.

We're obviously, again, proud of the quarter.

Proud of the results but we know we earn our pay every day and it's been a good economy.

We've been very focused and Gary and I will continue to be focused going forward on continuing to deliver the strategy and continuing to deliver results because we know that's how we're measured.

So thanks a lot for joining the call and we'll talk to you all soon.

Thank you.

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