Korn Ferry (KFY) 2009 Q1 法說會逐字稿

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

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

Later we will conduct a question and answer session.

As a reminder this conference is being recorded.

Before I turn the call over to your host, Mr.

Gary D.

Burnison, 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 that 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 number of risks and uncertainties which are beyond the Company's control.

Additional information concerning such risk and uncertainties can be found in the Company's Annual Report for fiscal 2008.

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

Burnison.

Please go ahead, Mr Burnison.

Thank you and good morning and thanks for joining our first quarter conference call.

Despite the continued unsteadiness in the global financial markets as well as normal summer seasonality, we're pleased to report that our business grew 11% in the quarter with EPS of $0.36 a share, which is essentially flat from last year.

The better news for us, however, was that our newer businesses, Futurestep and Leadership Development, were up 22% and 38% respectively.

The quarter was driven by solid results in our executive recruiting business.

Year-over-year North America was up over 7%, Europe was up over 15.4% on a constant currency basis and South America increased an impressive 33% on a constant currency basis.

From a market's perspective our industrial business remains our biggest market.

Today our industrial sector represents almost 30% of the Company.

For the quarter the industrial business was up 2% sequentially and 40% year-over-year.

Conversely the financial services segment is still struggling and was down 5% sequentially and down 8% year-over-year.

We have a very balanced portfolio, both from the solutions we offer as well as the global footprint in which we operate.

Today, nearly 55% of our total revenue comes from outside of North America and over 20% of our revenues are being generated from offerings other than the executive recruiting.

In fact for the 19 consecutive quarters in a row here, Futurestep has grown the business sequentially.

This quarter, Futurestep grew 22% year-over-year with a 9% operating margin.

Our leadership business continues to grow as well, reaching $18.1 million in the first quarter, about $72 million annualized, up 38% from the prior year.

Lominger had its best profitability quarter in the Company's history with a 30% operating margin.

As we continue to evolve our organization, we remain committed to our vision of being the premier global provider of talent management solutions, to be regarded as the top of mind brand in human capital, known for unsurpassed quality, where the most talented colleagues serve our clients each day.

Our mission is to enhance the lives of our clients, candidates and colleagues through our actions and the delivery of unsurpassed leadership and talent solutions.

We've laid the foundation for achievement of our vision through six primary areas.

Over the next year we're going to continue to institutionalize how we go to market, creating a proactive consultative solutions based go-to-market approach.

Next, we're going to have a tenacious focus on client service and excellence and efficiency the Korn/Ferry way, part of which incorporates the Korn/Ferry advantage, a systematic approach to client delivery that we rolled outlast year.

We're going to continue to evolve this platform with new offerings and in fact over the next three quarters, we're going to rollout a new state-of-the-art information platform that we've been working on for the past 15 months or so.

Over the coming year we're going to continue to extend and elevate the Korn/Ferry brand.

In a few weeks we're going to launch the Korn/Ferry Institute, which was founded to serve as the premier global voice on a range of talent management and leadership issues.

Our goal with the institute is to commission and publish groundbreaking research, as well as bring executives and professionals to the institute for ongoing leadership training and development.

We're going to continue to scale our non-search businesses.

In our Futurestep business, our outsourced recruiting business at the middle management level, our goal is to narrow our focus and concentrate on the RPO segment.

In our leadership business, we're going to expand our offerings to develop a fully integrated leadership consultancy with outstanding growth and profitability.

Finally, we're going to continue to pursue transformational opportunities along the broad HR spectrum.

As we extend our brand, we're going to continue to identify adjacent talent based service capabilities that we can offer our clients.

By following the strategy which has born fruit for our firm over the past several years, we remain focused on the long-term leadership and talent needs of our clients.

The true measure of our success is reflected in our clients' ability to attract, retain, and develop world class talent.

Of course, there's no way of knowing how long the economic environment will remain challenging; however, we're convinced that our strategy will deliver long-term value for our shareholders, clients and colleagues.

And make no mistake, regardless of whether the seas are choppy, our destination remains absolutely the same.

We're going to create a multibillion dollar diversified HR solutions business.

Finally, I'd like to thank you for your continued support of Korn/Ferry, and at this time I'd like to turn the call over to our CFO, Steve Giusto, for a more detailed review of the quarter.

Steve?

Thank you, Gary, and good morning, everyone.

We are off to a good start in fiscal 2009 and today we are pleased to announce another solid quarter of revenue and earnings for Korn/Ferry International.

As Gary stated, fiscal '09 first quarter fee revenue grew 11% versus the comparable quarter of fiscal '08 to $205.7 million.

On a sequential basis revenue was down $2.5 million or 1.2%, as the month of June and July began our typically slower summer period.

Revenues for the quarter were better than we had forecast during our last call, but were down sequentially for the first time in almost five years.

We believe this is partially due to the broad economic environment, but more significantly the result of typical summer seasonality.

Over the Company's almost 40 year history the end of the first and beginning of the second fiscal quarters, which bracket summer months, have generally been the weakest.

Last year, we enjoyed unusually strong revenue results during the summer so we're pleased that our revenue results this year exceeded last year's total.

Diluted EPS in the first quarter of fiscal 2009 was $0.36 per share, flat with the year ago quarter and sequentially.

First quarter operating margins improved sequentially to $23.8 million and were 11.5% in the quarter compared to 9.7% in the prior year fourth quarter.

Our operating margins are improving, but continue to be impacted by the transitional costs of pairing lower performing professionals and the investment costs of adding professionals to our faster growing businesses and geographies.

Our operating margins in the year ago quarter were 13.5% due to the strong revenue results I just mentioned.

Because of the impact it has on operating margins, let me now discuss headcount.

The number of executive search consultants at the end of the quarter was 537, up 23 consultants or 4% from the fourth quarter of fiscal '08.

Of this total, 16 were promotions from senior associate to client partner in our normal annual process.

Annualized revenue per consultant was $1.28 million, an improvement of 5% year-over-year.

The number of consultants at the end of the first quarter of fiscal year '08 was 516, so year-over-year consultant count is up 21 or approximately 4%.

While we're optimistic about the prospects for all of our businesses, we believe it's prudent to carefully monitor productivity and efficiency efforts during this period of economic uncertainty.

Now let me review the business segments in a little more detail starting with executive recruiting.

Fiscal '09 first quarter fee revenue reached $174.6 million, an increase of $14.8 million or 9% year-over-year and down $2.9 million or 1.6% sequentially.

Fiscal '09 first quarter North America fee revenue was $94 million, up $6.7 million or 8% year-over-year and down 4% sequentially.

In North America we gained ground during the quarter in industrial and life sciences and healthcare markets, but lost ground sequentially in other areas.

In the first quarter, North America financial services practice was off approximately 26% both year-over-year and sequentially.

At the end of the fourth quarter of last year, we had significant uptick activity that did not recur in the first quarter of the new year.

We expect continued challenges in the financial services market broadly in the short-term.

Underlying market conditions in Europe remain strong in our first quarter.

Europe fee revenue grew 15% or $6.9 million versus the first quarter of fiscal year '09 reaching $51.6 million.

On a sequential basis Europe grew 3%.

Year-over-year, 15 of 19 local country markets have improved, driven by growth in the industrial, technology and financial services sectors at 46%, 20% and 12% respectively.

In the first quarter of the year Asia-Pac revenues were $ 21.4 million, lower by 5% than the prior year's first quarter and off sequentially by about $2 million due primarily to slower market conditions in Australia, China and Japan.

Year-over-year the regions largest practice, industrial, grew nearly 39%.

All other major specialty practices were down year-over-year with financial services and consumer goods down 9% and 31% respectively.

We continue to believe that underlying secular growth conditions remain strong in the Asia Pacific region and we are budgeting for growth for the remainder of fiscal year '09.

In Latin America, fiscal '09 first quarter fee revenue improved by 50% year-over-year.

We are the clear market leader in Latin America and aim to extend that lead in the coming year.

Fiscal '09 first quarter executive search operating earnings were $31.7 million, off by $1 million or 3% year-over-year and up $4.4 million or 16% sequentially.

Consolidated executive search operating margin was 18.1% and was off 240 basis points versus the first quarter of fiscal '08.

Sequentially, executive search operating margin improved 270 basis points driven primarily by strong fee revenue, a stable cost base, and profitability improvements in our Leadership Development Solutions division.

Futurestep had another in a long string of strong quarters and is really making progress in its RPO strategy.

Futurestep's fiscal '09 first quarter fee revenue improved $5.6 million or 22% versus the first quarter of fiscal '08 and $500,000 or 2% sequentially reaching $31.2 million.

Futurestep has now grown in 19 consecutive quarters and all geographies in Futurestep grew on a year-over-year basis.

Sequential fee revenue gains were achieved in North America and Asia Pacific, while Europe was down 5% due to summer seasonality.

Fiscal '09 first quarter sequential fee revenue growth in North America and Asia Pacific were 1% and 12% respectively.

Futurestep's fiscal '09 first quarter operating earnings were $ 2.9 million, flat sequentially and up $800,000 year-over-year.

Operating margin was 9.2% in the quarter, an improvement of 110 basis points over the prior year.

We believe the business is achieving the sort of scale we need to create operating leverage over time and that should lead to sustainable margins at or above 10%.

Now let's turn to the balance sheet.

At quarter end our worldwide cash and marketable securities balance was $295 million.

During the quarter we made our annual bonus payments and yet we remain somewhat over capitalized with excess liquidity for operations or acquisitions, a position we think prudent given the economic environment.

We bought back a very modest amount of our stock during the quarter and there's now approximately $43 million remaining of the $50 million of share repurchase funds authorized by the Board of Directors in October of 2007.

Let me now comment on our outlook for the second quarter of the fiscal year.

August new business was seasonally weak in North America and Europe, an expected result due to summer vacations for both our people and our clients.

New business improved in Asia-Pac in August.

We had two less business days this August compared to a year ago and on a same days basis revenue in August was similar to last year.

We, like many of our clients, are finding it tricky to predict our results because parsing up seasonal versus cyclical trends is virtually impossible when the economy is uncertain.

Because of seasonal weakness and economic uncertainty, we estimate that second quarter fee revenue will likely range from $185 million to $200 million and diluted earnings per share will likely range from $0.26 to $0.33.

This estimate assumes that exchange rates stay where they are and it also anticipates a typical seasonal rebound in September and October, which historically have been good months.

Our people are focused and enthusiastic about this coming year and we aim to continue evolving our talent management solutions to meet client needs.

That concludes our prepared remarks and we would be glad to answer your questions.

Thank you.

(OPERATOR INSTRUCTIONS) Our first question is from Andrew Fones with UBS Securities.

Please go ahead.

I'm sorry, we will be moving on to Kevin McVeigh with Credit Suisse.

Please go ahead.

Hi, Gary, hi, Steve.

Good morning.

Steve, quick question on the guidance.

You had said that it assumes a seasonal rebound in September and October.

How were you thinking about it from a cyclical perspective?

Well, that's the toughest question right now, Kevin, is where are the macroeconomic trends going and we read the papers each day and some days there's good days and some days there's bad.

I think that we still believe that there are some cyclical headwinds, but that we're continuing to perform well despite that.

So September and October, as I mentioned, tend to be strong months for us.

People come back from summer vacations and begin thinking about business again and we tend to get a bump up, but those seasonal trends have to offset the fact that the macroeconomic environment is still pretty choppy.

Okay, and then just I don't know if I'm over reaching on this, you bought back a little stock.

Does that kind of give the sense that maybe things aren't as weak as you would have expected given the fact that you're releasing some of the cash on the balance sheet or was it just there was an opportunity in the quarter?

Well, we're a long-term supporter of our stock.

We think the stock is going to be worth more over time and so on a pure evaluation basis we're almost always optimistic about what we should do with our cash in terms of returning it to shareholders.

We bought back a very nominal amount during the quarter and primarily it's because our view is we need to be very prudent with the balance sheet because the economy is uncertain, and so as I said, we're happy to be modestly over capitalized at this point.

We're going to remain so.

We want to be opportunistic about acquisition opportunities in this sort of environment.

We want to be prepared for any sort of eventuality and I don't think that you can take our buyback activity as any indication of whether we think the stock is right or wrong.

It's just we always think the stock is a good buy.

Great.

And then just two housekeeping items.

LDS, what's a current annualized run rate on that?

A little over $70 million of revenue.

And then when you say FX remains the same, Steve, what rate are you assuming?

Is that the average for the quarter or where it is now?

Where it is now.

Okay, so that is as of, I guess, yesterday?

Yes.

Okay.

Thank you.

Thank you.

Next we move to Tobey Sommer with SunTrust Robinson & Humphrey.

Please go ahead.

Thank you.

Congratulations on a good quarter.

I wanted to ask a question about average fees per search and kind of see if you could parse out or give us a little bit more color on what the average fee growth is kind of on an intrinsic basis within some of the sectors that maybe are challenging, for example financial services in the US.

Are those fees and is compensation in segments that have been under pressure now for a couple of quarters are those seeing average fee increases despite the fall off in demand?

If you look at our, Tobey, if you look at our average fee over the last several quarters, we're very proud of the fact that we have moved the brand upstream and we've taken the average fee from $55,000 to $90,000.

We believe that longer term we have significant upside to continue to move the brand upstream.

With respect to financial services, we haven't seen any kind of trends that you're alluding to recently, although financial services typically has a higher average fee than other parts of our business, but it's -- for us we've got a very, very broad portfolio with half our business outside the United States and in many countries the compensation levels are not what they are in western economies, although in those emerging markets, they are increasing.

They have been increasing and I think that trend is going to continue.

Thank you.

Just to follow-up on that.

Is there a sense that intrinsic fee growth, is it higher in those non-western economies as compensation does catch up because of global competition for those individuals?

I think if you look out over the next five years, absolutely.

Some research that we're going to publish tomorrow would suggest that two thirds of executives in the United States would be more than willing to look for employment opportunities in those emerging markets and the reality is that 80% of the world's population is in those emerging markets.

There's a huge labor arbitrage and they're looking for skilled managers to manage that arbitrage.

So we would think and it's quite reasonable to conclude that the compensation levels for executives will increase in those emerging markets over the next five years.

And what is your thought process on adding to headcount at this point?

Have you opted to promote more internally because those individuals are known quantities and have demonstrated they can work within your system or do you have a bias more towards experienced individuals that you could lift out of boutiques?

Yes, Korn/Ferry, we've historically for 39 years done both.

That's really been our operating philosophy and will continue to be the operating philosophy of the firm.

If you look over the last four years or so, we've brought in over 200 new partners, consultants into this firm, half essentially have had search experience, half have not.

This past promotion cycle, which impacted the consultant numbers that Steve just went over, I think we had almost 20 or so promotions and if you look back historically, we've always had that kind of balance.

Tobey, just let me add one thing.

You should expect us to continue to add headcount in our emerging businesses of Futurestep and LDS as those businesses continue to scale.

Okay, thank you.

And so maybe a low single digit year-over-year rate of growth in headcount for fiscal '09 is a kind of reasonable assumption?

We've never really disclosed that, Tobey.

The life blood of any services business is its people and we are continuing to be opportunistic with respect to adding talent into our Company and yet being mindful of the economic conditions that we've been facing, quite frankly, for three or four quarters now.

Thank you very much.

One last question regarding guidance.

I was wondering if you could describe what the seasonal rebound sequentially has typically been from August into the September-October time frame, just to give us a sense for what kind of historical change you may have seen in the business during this quarter.

If you were to look historically, I don't think you could necessarily make a broad sweeping conclusion like that.

I would tell you that to pick one part of our business, say North America, we typically expect August new business to be about 10% or so below what it had been the previous few months and that's exactly what we've seen.

Than in the September-October time frame you would expect the North American business to rebound about 10% from the August new business activity, and we'll just have to see how that plays out.

Okay, thank you very much.

Thank you.

Our next question is from Michel Morin with Merrill Lynch.

Yes, good morning.

Gary, I was wondering if you could elaborate a little bit more on the new initiatives that you alluded to in your prepared remarks.

You mentioned a new platform, you talked about elevating the brand and also on the Korn/Ferry Institute.

Specifically on elevating the brand, is this new advertising campaign, what are you planning there and on the platform, is it a technology specific?

Yes, thank you.

One of our strategic pillars is to continue to extend the brand and elevate it.

In terms of elevating the brand, I think we've done a good job measured by average fee, how it's increased over the last 17 quarters or so, but I think we have a long way to go and a lot of opportunity.

And so there's a number of initiatives we've got around elevating the brand.

In terms of extending the brand, 22% of our business today comes from outside of executive search, yet the firm is primarily known as an executive search firm.

From the branding last year around The Art and Science of Talent to a number of initiatives, such as the KF Institute which is really more than a think tank, it's really designed to produce a stream of consciousness towards people issues around the globe, at Boards, CEOs, line unit executives and longer term a place where we develop executives as well.

We are going to unveil that in the next few weeks.

And again, this is something that we have had planned for several quarters.

In terms of the information platform, when you look at many of our businesses, when you cut right to it, that is the business we are in.

We are in the information business.

And we have been working on now for almost a year and a half a state-of- the-art, Google like information platform that ultimately will connect all of our businesses around the world, all of our geographies and markets.

And in the next two quarters we are going to be rolling that out.

The initiatives around client excellence and client service are ultimately geared at driving not only a more systematic approach to how we do our business in 40 countries around the world delivering, obviously, more value to our clients, but also longer term making sure that we are running a very, very efficient business.

Will any of these initiatives have a meaningful impact on G&A expenses beyond the current quarter and your current guidance?

No.

Okay.

All right, and then I think you mentioned also in the prepared remarks that the LDS segment has produced some improved profitability.

Could you quantify that a little bit for us?

Well, as we mentioned, Lominger had its strongest quarter ever with 30% operating margins and then the core LDS business is marginally profitable and is improving.

So the revenues are growing.

We're aiming for improved operating margins in that business over the remainder of this year and into the following years.

We'd certainly like the business to get large enough so that we can breakout its results and then become much more transparent about that.

It's getting to that level and we're preparing both internally and then subsequently externally to report those numbers.

And by the time we do that we would expect that the overall operating margins for the business would be kind of in the low single digits and then moving up towards double digits in the next couple years.

That's really helpful, Steve, and then the non-Lominger part of the business, that was, you said, marginally profitable.

Is that a new development, was it losing money until recently?

It's been somewhat profitable in some quarters and then it kind of has waxed and waned, but we're getting to levels where we think that the profitability is sustainable.

Great.

Thanks very much.

Thank you.

Next we move to Mark Marcon with Robert W.

Baird.

Please go ahead.

Good morning.

I was wondering if you could talk a little bit about what you're seeing in Asia-Pac, particularly I think you mentioned that China was a little bit down this past quarter.

Do you think that's just a temporary blip or is it your general sense that the macro uncertainty is spreading over there as well?

Well, I don't believe that the world is decoupled and so that today if you look, the consumer spending in the United States is probably three or four times the size of the economy in China today.

As you look out longer term and as companies continue to tap those growth adjacencies outside of the western markets, the growth is very exciting and very promising for our business.

If you look at our Asian business, it has essentially tripled or so over the last several years.

Our team is excellent.

If you look at this quarter, April-May, we're slower than we thought, Mark, and hard to pinpoint that as to why.

Broadly speaking you would look to financial services and consumer.

They were weaker in Asia this quarter and that clearly explains some of the weakness over the prior year.

But obviously, in terms of the future, Asia represents a tremendous opportunity for us.

We have 200 people in China today, almost 10% of our work force, and we're continuing to invest there.

What are they generally saying?

Are they saying that things haven't decoupled and therefore things should slowdown over there or do they expect things to pick up in the near term?

Mark, they're actually pretty optimistic about the remainder of the year.

This is a seasonally weak period in Asia-Pac as well.

There could have been some marginal impact in China specifically around the Olympics, hard to gauge that, but certainly there was a modest impact from people just getting excited about that particular event.

But broadly I would say that we're, and as we said in our prepared remarks, optimistic about the prospects for growth in that entire region over the remainder of this year and then as Gary said, certainly we look at that region over the long-term as particularly attractive.

Great, and then you made nice progress in North America in terms of getting the margins back up sequentially, despite what is a choppy economic environment.

How should we think about things assuming that the uncertainty stays with us for some time, is this a good level of profitability in North America to think of or how should we think about it?

Well, it's all revenue dependent, right?

If we continue to see the progress in revenue that we experienced in this quarter, then we should see similar levels of profitability.

If these cyclical headwinds got stronger and revenues were challenged, it would be more challenging to keep this level of profitability and to the extent that we can even improve upon the revenues that we saw in this quarter, then we potentially have some operating leverage.

And when you consider, as Gary said, that the growing percentage of our revenue is coming from outside executive recruitments, we're expecting to see improved profitability over the next year to two years in LDS.

We're continuing to expect some strong profitability in Futurestep, if it can continue its momentum and then in the executive search business, it's just a matter of remaining disciplined about the size of our infrastructure in regards to the scale of our revenue.

Did LDS and Futurestep see pickups in their orders in August or did the same sort of seasonal variance occur over there?

August is tough in all areas.

I don't know about you.

I took some time off in August.

I think a lot of our people did and I actually think in a cyclical downturn that people tend to take a little bit more time off at this juncture of the year just because it's so challenging to operate in this sort of environment people need to take a break and I think that's what happened with our clients and with our people.

And in terms of the new initiatives, are those going to add some incremental costs or did you already, have you already been investing behind those and therefore already started spending for it and if we get some benefit that will all just be additional margin.

Yes, Mark.

We've been, that's been in our quarterly numbers now for some time.

So there's not going to be any kind of spike in terms of G&A and the like.

Okay, great.

Thank you.

Thank you.

Next question will be from David Feinberg with Goldman Sachs.

Please go ahead.

Hi, can you hear me?

Unfortunately I have you on speaker.

My handset is broken, I apologize.

We can hear you.

First question is on headcount.

Last year the bulk of your headcount additions came in the fiscal first quarter, the year before that it was a little more even.

Trying to get a sense as we look into fiscal '09 how you are thinking about headcount.

Did the bulk of your hiring already occur and should be flat from here on out or will you continue to add?

Well, a considerable amount of the headcount growth in Q1 is from promotions, so it's a movement from one segment of our work force to another.

It changes the partner headcount, doesn't change the overall headcount of the business, so it's marginally more expensive just because people get promoted.

But then in terms of growth from the outside, as Gary said, we're pretty opportunistic at this point and the questions that we're getting about headcount and about investments in the business, et cetera, are all relevant and we're trying to manage the P&L the best we can, but also as I mentioned, we've retained significant amounts of balance sheet strength because we see periods of economic uncertainty as opportunities for us as the largest firm in the space and the best capitalized firm in the space to be opportunistic.

So I would think with regards to headcount that we're going to be careful about it, but we want to take advantage of the opportunities that we see during this year to add talent to the business because that is the long-term driver of growth.

Okay, turning my attention to Futurestep, you talked about strength across all of the geographies.

Can you give a little more color by industry, was there any one particular industry that was hiring and also given the global nature of that business from time to time, was it one or several clients that was hiring across all those industries or was it separate clients within those industries or geographies, excuse me?

Well, it's a little tough for us to do it by industry in Futurestep because we're focusing on the RPO business, so what -- we tend to get some larger contracts that could be in any industry and so we certainly have some focus on particular industries, but I wouldn't say the strength came from any particular industry.

It's just coming from our continued expansion of the RPO opportunity.

Yes, it's again, for us it's a multi $100 million opportunity.

We're very proud.

I'm very proud of our Futurestep team.

The Asia business of Futurestep has been a beacon of the entire firm, the growth in that business was 33% in the quarter.

But if you look across the portfolio of Futurestep, it really cuts across industries.

Korn/Ferry very much mirrors the global economy.

I can think of a large auto manufacturer where we've filled over 160 positions for.

I think of an insurance company in the US where we filled 80 positions for.

I think of a New Zealand company where we filled multiple positions.

So it really has cut across industries and I think if you look from a geographic perspective, Asia had phenomenal results in the first quarter.

And then one last question on FX, I think you talked about a $9 million positive top-line benefit in the first quarter.

Can you talk about how that flowed through to operating earnings?

Is your FX impact at corporate operating margins below or above.

Well, for most of our businesses we bill and collect in the same currencies, so it is a ratable impact generally and I would guess that we got a little bit more than $0.01 worth of benefit during the quarter.

Thank you very much.

Your next question will be from Andrew Fones from UBS Securities.

Yes, hi.

Thanks and I apologize earlier.

I appear to have a little technical difficulty and I apologize as well if this question was asked while I was dialing back in, but first of all I was trying to understand the fee per search metric.

I think you did about 9% growth this quarter in executive search fees.

And if I strip out leadership I think that was about 7%.

You mentioned in the release that you saw 15% growth in fees per search, but also the number of searches were up and I know there's a timing difference in terms of when you actually record searches, but could you help me understand how the 15% growth in fee per search growth and searches translates into the 7% growth in revenue?

I'm not certain I understand the question.

Yes, perhaps just simply speaking could you explain how you calculate the 15% fee per search growth rate that you had in the release, thanks.

Andrew, I think we'll probably have to check that.

I think that if you look our average fee in the quarter was about $88,000 and if you were to go back four quarters ago, it was probably $87,000 or something, so the 15% that you're referring to, we're just going to have to check that off line.

Okay, thanks.

I guess I had another question on fee per search as well.

I was calculating that you're average kind of fee per search in 2008 was about $93,000 across the Company.

I was wondering how that varies within your different practices, leadership versus finance, consumer and so fourth.

Could you give me some, perhaps some color on the relative fee per search in those areas?

Thanks.

Well, first of all we need to separate out the leadership business.

The leadership business is moving towards being a full integrated consulting business where we're not doing small assignments, but rather we're doing multimillion dollar organizational design type of consulting engagements.

So as we build that business to create a multi $100 million leadership business, that's what you're going to see there.

In terms of the search business, the numbers, again, that you're referring to are not consistent with at least how I look at the business.

Last year I think our average fee was around $90,000 or so and that compares to $81,000 the year before and that's up considerably from $55,000, probably about 17 quarters ago or so, Andrew.

If you look from a geographic basis, there is a fair amount of disparity, obviously, particularly in the non-western markets in which we operate and where we're investing, where the compensation levels are clearly less than the United States.

Then from an industry perspective, the one that would stick out would be financial services, where the compensation levels are higher and our average fees would be higher as well.

Could you give us kind of a ballpark estimate on financial services?

We don't disclose this stuff separately.

We disclose average fees per search on an aggregate basis and we don't disclose it on an industry basis.

Okay, and then the new hires, could you tell us which markets those are in, please?

The new hires, if you look at the increase in consultants in this last quarter that was primarily driven by our annual promotion process.

We have brought outside talent into the firm, like we've done over the last seven years, very consistently but in this particular quarter it was largely driven by promotions, Andrew.

Okay.

Did you say that you had a 23 and 16 was through promotions?

Yes.

So there were some hires also?

There were and you would find that that would very much mirror Korn/Ferry, half of it off the top of my head, Andrew, would be in North America and half would be outside.

Okay, thanks and then just kind of one final one.

Obviously, Michael Page has been in the press a lot lately as Adecco as shown interest in the Company.

Any thoughts there in terms of the impact on your business if Adecco were to buy Michael Page or any just thoughts generally in terms of the M&A market?

Thanks.

Well, I'm not going to comment on a specific circumstance like that.

I would say, broadly speaking, that my views that volatility creates opportunity and we're seeing quite a bit of opportunity.

For us, like we've operated the business now for almost seven years, we're very disciplined and pragmatic in how we unveil all of our growth initiatives and we're going to continue to be.

Okay, thank you.

Thank you.

It appears there are no further questions, Mr.

Burnison.

Okay.

Well, thank you very much, my fellow partners and colleagues.

Appreciate your support.

We believe that we are building a world class business here.

We are clearly well on our way towards building a multibillion dollar diversified services business with 22% of our business coming from outside of the flagship executive recruiting and at the same time we're very proud of the progress we're making in the executive search market.

And again, I would just reiterate that although the environment certainly has been choppy, that only alters our course and not our destination.

I thank you again for the time this morning and we look forward to talking to you again.

Thank you.

Thank you, ladies and gentlemen.

This conference will be available for replay for one week starting today at 11 a.m.

Eastern Daylight Time and running through the day September 16 at midnight.

You may access the AT&T Executive Playback Service by dial being 800-475-6701 and entering the access code 959418.

International participants may dial 320-365-3844, also using the access code 959418.

Additionally, the replay will be available for playback at the Company's website, www.kornferry.com in the Investor Relations section.

And that does conclude our conference for today.

Thank you for your participation and you may now disconnect.