Korn Ferry (KFY) 2009 Q3 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 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 2008.

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

Burnison.

Please go ahead, sir.

Well, thank you, and good morning, everyone.

It goes without saying that this is one of the most difficult economic environments that the global business community has ever faced.

The speed in which companies have reduced their outside spend for all services has been absolutely unprecedented.

In fact it was just six months ago that we achieved the highest revenue in our Company's nearly 40-year history.

Although we remain the leading brand in the industry we have not been immune from a turbulent market that is affected virtually every company conducting business today.

The question for us, however, is not just to report on the climate but to tell you what we're doing about it, so let me comment on our operating philosophy during this turbulent period.

Number one, we're going to preserve our top-line capacity and we're going to remain aggressive in the market.

Two, we're going to proactively position ourselves to create a great company that links a client's strategy to its most precious resource, its workforce.

A Company that can not only help clients finds great talent but as importantly, help them more effectively and efficiently deploy, develop, retain and reward their workforce.

Next we're going to accelerate through the economic turn.

The strongest companies make their best moves in tough markets.

We're going to continue to focus on a transformational strategy and we're going to remain consistent in our decision making.

We're not going to run below deck in tough times just as we didn't over extend ourselves during periods of economic tailwinds.

Ultimately we're going to continue to make the best decisions for our shareholders, clients and colleagues.

Lastly, in this unprecedented environment we believe that the primary financial operating metric for our business is cash flow, as defined by EBITDA plus stock-based amortization expense.

Since September 2007 when this credit crisis began we started tapping the brakes in response to an uncertain market.

We moved swiftly, planning to reduce our annual operating expenses by over $200 million.

For the quarter our fee revenue was $136 million.

It was down about 27% on a constant currency basis.

FX did have a significant impact in the quarter.

We achieved $0.08 pro forma EPS with a 4.1% operating margin that reflects the effects of our cost saving initiatives that we talked about on the last call, and Steve will get into more detail on that.

In December, as we reported on our second quarter earnings call, we indicated that businesses and clients significantly curtailed outside spend and people initiatives, and as a result new business at Korn/Ferry fell off shortly in November.

Since that time on a regional basis December through February were relatively flat in the Americas while EMEA and Asia-Pacific deteriorated slightly.

On a positive note I'm pleased to report that our leadership and talent consulting businesses are performing capably and actually grew in the quarter.

They were up 14% over the prior year and 2% sequentially.

In fact our [Lominger] business had one of its best months every in December.

We think this trend indicate that clients may feel more need for advice on leadership capabilities that are required to succeed in a down market and I believe these results illustrate that our diversified strategy is working.

We're going to continue to scale this business.

Revenues from our Futurestep outsourcing business declined more than our Executive Search service during the quarter and that reflects the tremendous global reductions can in the mid-level workforce.

Although that market has been hard hit -- and you read about it every day in this downturn -- there is a marked increase in activity and interest for our RPO team worldwide.

In particular governments are becoming interested in the RPO solution as they look to fill roles created by the demographic trends, as well as the stimulus packages around the world.

As in overall percentage of our business, Futurestep and the leadership businesses represent about 28% of the top line.

We're going to use this time as an opportunity, an opportunity to create change and to further our strategic agenda.

We're going to continue to further institutionalize our go-to-market strategy to outperform the market, we're going to create a more consultative solutions-based business model to drive integrated revenue growth, and we're going to refine our operating model to deliver positive cash flow.

We've always been an entrepreneurial organization, pursuing new opportunities and following our clients.

During the quarter our industrial market has built on two initiatives we launched last year around sustainability and infrastructure.

In addition, our governmental sector has made considerable progress this quarter.

We just secured preferred provider status in the United States with the GSA for most of our services.

An aggressive and collaborative go-to-market approach with Futurestep is under way to capture areas addressed by starp -- TARP and the stimulus package.

Illustrating our strategy and in an effort to drive growth from our global and regional accounts we have established a new initiative called the Office the Chief Executive Premiere Client Partnership.

Its primary objective is to further develop an integrated market approach focusing on our top client opportunities across all of our businesses; in other words, to align the top opportunities that we have with the resources of this Company.

I'm excited about it and it's going to unlock new areas for cross introductions.

Another acceleration and change strategy is our Client Advantage program.

We launched it last fall in response to the market and the goal of that program is to increase awareness, to create a broad-based systematic awareness of all of our talent management solutions, both internally and with clients and prospects.

We launched a series of Client Advantage programs during the quarter for companies struggling with tough issues during this time, such as compensation design, morale, leadership development.

As a result clients are engaged and our consultants are collaborating more than ever to build awareness of all of the firm's solutions.

As we steer through this economic turn in the road one thing remains the same; that is our industry-leading brand.

It continues to be resilient and steadfast in the face of unprecedented headwinds.

Our trusted brand is a permission brand that will continue to elevate and extend through strategies such as the scaling of a new on-boarding solution or the KF Institute -- the Client Advantage program that I talked about earlier -- as well as our CEO On-Board practice, which landed several prestigious opportunities during the quarter led by the New York Fed president and CEO search.

We obviously remain committed to delivering unparalleled solutions and service.

The KF Way that we've talked about in the past deals with driving consistency and quality and client excellence across all of our businesses.

That was further validated this quarter when we posted our highest client satisfaction scores ever.

We completed the roll out of our new information platform, which is an integral part of the KF Way, as well.

These are indeed tough times.

You can pick up the newspaper, look at the internet, watch TV.

But we believe that our orientation has to be to capitalize on the opportunities that the environment presents, to accelerate and transform ourselves as the premiere global provider of talent management solutions.

In the short term we're going to remain diligent in our efforts to preserve our top-line capacity.

We'll remain aggressive in the market and maintain positive cash flow businesses.

We're going to use this market as an opportunity to refine our business model, to push the envelope, to drive culture change and to create shareholder value, to embrace innovation that will be incorporated in our go-to-market and client service approach for years ahead.

Our employees around the world and our management team have faced cycles before.

In fact, seven years ago we as a company faced the greatest challenge in our 40-year history without the strength of today's BS and diversified solutions and we later went on to outperform the market.

The global economic crisis is not self inflicted but I assure you that when the economic clouds clear we're going to come out of this stronger than ever, well positioned for scale and much closer to our clients.

At this time I'd like to turn it over to our CFO, Steve Giusto.

Steve?

Thank you, Gary, and good morning.

This has been a challenging quarter.

After more than five years of sustained growth and successfully executing despite a modest global slow down in the last 18 months in our third fiscal quarter the macroeconomic environment became much worse and we were finally caught up in the crisis.

As is evident cross virtually every industry and geography there/s been no where to hide.

Our salvation is that we have one of the most liquid, well-capitalized balance sheets in the industry, giving us the financial strength to withstand the blows delivered by the economy.

This quarter's results include two separate issues unrelated to our ongoing operations that I want to identify now.

First, as previously announced we did reduce the size of our global headcount during the quarter, resulting in a restructuring charge that I will detail later.

Second, during the quarter we recorded an impairment charge related to equity investments we hold on behalf of our employees as part of a long-term deferred compensation arrangement and I will discuss that charge in the balance sheet section of this call, but now let's discuss operations.

As Gary stated, fiscal '09 third quarter fee revenue was $136.2 million, down over 30% from the prior-year's third quarter and down 28% sequentially.

While some portion of that revenue decline is due to holiday seasonality and fee revenue fell off only 27% year over year on a constant currency basis, most of this very rapid decline was due to a sharp reduction in economic activity late in November that has yet to recover.

As we mentioned in our last quarterly call we had begun reducing the size of our infrastructure more than a year ago in anticipation of a slow down and then we accelerated the downsizing in this third quarter.

By taking these actions quickly and aggressively we have been able to retain a reasonable level of operating profitability in the third quarter despite the steep revenue decline.

Earnings per share for the quarter were $0.08 per share before the cost of downsizing and the impairment charge.

For the quarter we had a GAAP loss of $0.52 per share.

Fiscal '09 third quarter operating earnings were $5.6 million before a $16.8 million restructuring charge.

This remet -- represents a 73% year-over-year decline in operating earnings.

Given the dramatic market conditions in which we are operating management believes the most relevant operating measure currently is a company's ability to maintain or generate cash.

We measure this internally using the metric of EBITDA plus non-cash stock compensation.

During the third quarter of fiscal 2009 we generated $12.8 million in cash flow as measured insured using this metric.

In order to align our cost structure with lower revenue expectations we reduced the global headcount of the firm and consolidated certain real estate.

These action are expected to save an annualized approximate $60 million in operating expenses.

The costs of making these reductions totaled $16.8 million.

Included in this total is $3.3 million related to consolidating a few office locations, which were not contemplated in the estimated costs we described last quarter.

The remainder represents separation obligations to the people who left the Company during the third quarter.

Approximately $5.5 million of the restructuring charge was paid in cash before quarter end.

The remainder represents future payments that will be made primarily in the fourth quarter.

The costs of our restructuring reduced EPS by $0.24 per share net of tax.

To give you further data on our downsizing let me now discuss headcount.

The number of Executive Search consultants at the end of the quarter was 497; down 38 consultants sequentially from the second quarter of fiscal 2009.

Revenue per consultant was $850,000 for the quarter, down 34% year over year.

Now let me review the business segments in a little more detail, starting with Executive Recruiting.

Fiscal '09 third-quarter fee revenue reached $116.6 million, a decrease of $56.4 million, or 33% year over year, and $43 million, or 27% sequentially.

All Executive Recruiting operating regions declined versus the third quarter of fiscal '08.

Fiscal '09 third-quarter North America fee revenue was $67 million, down $27.8 million, or 29% year over year and 27% sequentially.

The toughest markets were consumer goods, financial services and technology, with somewhat better in life sciences and healthcare.

Underlying market conditions in Europe were weak in our third quarter.

Europe fee revenue declined 34%, or $15.9 million versus the third quarter of fiscal year '08, to $30.4 million, On a sequential basis Europe declined 25%.

In particular the UK, France and the Middle East suffered during the quarter.

In the third quarter of this year AsiaPac revenues were $13.6 million, a decrease of 46% over the prior-year's fourth quarter and off subsequentially by about 36%.

Particularly hard hit were Australia, Hong Kong, Japan and India where business was more than half.

In South America fiscal '09 third quarter fee revenue decreased by 15% year over year and for the quarter South American revenues reached $5.7 million.

Fiscal '09 third quarter Executive Search operating earnings before restructuring charges were $16.3 million, off by $12.8 million, or 4% year over year, and down $10.3 million, or 39% sequentially.

Consolidated Executive Search operating margin was 14% versus 16.8% in the comparable quarter a year ago.

Executive Search absorbed $11 million of the restructuring charge.

Now let's turn to Futurestep.

Futurestep's fiscal '09 third quarter fee revenue dropped over $8.5 million, or 30% versus the third quarter of fiscal '08, and $9.5 million, or 33% sequentially to $19.6 million.

Geographically business was weaker in North America than the rest of the world.

Futurestep's fiscal '09 third quarter operating loss was $2.5 million.

Operating loss represented 13% in the quarter, as revenues fell faster than it was possible to lower costs.

Futurestep absorbed $5.8 million of the restructuring charge and continued to lower headcount with the goal of being cash flow neutral or better by the first quarter of fiscal 2010.

But given the speed at which revenue has declined even aggressive initial cost cuts were not adequate and we expect that Futurestep will not be profitable in the fourth quarter and will burn modest cash on an operating basis.

Now let's turn to the balance sheet.

At quarter end our worldwide cash balance was $289 million, up approximately $12 million sequentially even though we paid $12 million for the acquisition of LORE and $5.5 million in separation costs.

We had a strong quarter of cash collections.

Included in our cash are certain marketable securities we own in trust for those employees who are participants in a deferred compensation plan.

These assets, mainly mutual funds, are classified as available for sale and must thus be carried at the lower of cost or market.

Because of the extensive decline in the overall stock market many of these securities have market values well below their original book value.

When market values change we adjust both the assets and the related liability.

Adjustments of the liability we owe participants are recorded in compensation expense.

Adjustments of the market value of the assets are initially recorded as a reduction of stockholders equity.

Then to the extent the reduction in asset value is determined to be other than temporary we must record an impairment charge through earnings.

Because the mutual funds market value has been significantly below market for more than six months in the third quarter we recorded such a charge totaling $15.3 million, or $0.36 per share.

This adjustment has no affect on our operations, does not impact our liquidity and has no net effect on our balance sheet as it causes, in effect, a reclassification within the equity section.

As I said at the inception of my comments we face a tough market with a strong and liquid balance sheet.

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

As we stated in our press release revenue visibility in this market environment is poor.

We have confirmation data from February and the first week of March.

Presuming that confirmations continue at the same pace as the first five weeks of the quarter for the remainder of our fiscal year, revenues in the fourth quarter would be approximately $110 million.

We cannot predict whether confirmations will continue at that pace and our actual revenues could differ from this extrapolation.

Because this extrapolation is lower than revenues in the quarter we just reported we are taking additional steps to lower our cost structure, with the goal of remaining at least cash flow breakeven on an operating basis in the fourth quarter and throughout this rough market period.

At cash flow breakeven we would not be profitable on either an operating income or net income level, and in order to bring the cost structure down we expect to incur an additional $10 million to $13 million of separation cost that will be recorded in the fourth quarter.

To the extent either our revenues are worse than the extrapolation or we cannot reduce costs quickly enough we could fail to remain cash flow neutral for the quarter.

I'd like to finish our remarks with a personal comment.

During this past November my family was faced with a significant medical issue which is ongoing.

Given the remarkable and challenging times the Company is facing I cannot with good conscious provide the Company with the level of effort and commitment required while also balancing the level of commitment I must provide my family at this time.

I am therefore accept a new role with Korn/Ferry as senior strategic advisor to the CEO and am relinquishing my responsibilities as a proxy officer and as the Company's Chief Financial Officer effective no later than the end of our fiscal year.

I'm enthusiastic about the opportunity to help Gary steer the Company through these choppy waters, even if in a reduced role, and I'm appreciative that Gary and our board of directors have agreed to this arrangement and are supportive of my family and me in a very challenging period personally.

That concludes our prepared remarks.

We would be glad to answer your questions.

Thank you.

(Operator Instructions).

Our first question is from Andrew Fones from UBS.

Please go ahead.

Yes, thank you, and, Steve, I'm very sorry to hear the personal news.

If I could start, I was wondering if you could just talk a little bit about typical seasonal trends, November through February, and the typical pick up that you would see in the new year, whether the comments you've made about stabilization, January to February, looking at the trends year over year, i.e., you've seen an actual pick up in the number of confirmations in February, or whether this was an actual stabilization in terms of number of confirmations in February from January to February?

Well, this is not a typical seasonal period.

We clearly suffered worse during November, December and January than has been the case in past years, and the stabilization that we saw towards the beginning of this new quarter is difficult to extrapolate to the rest of the quarter.

Normally our fourth quarter is extraordinarily strong and so you would expect in a normal environment that there would be certainly stability, if not strong growth through the fourth fiscal quarter of the year, but I think that's pretty difficult to predict at this juncture of the economy.

We saw a level of decline in November into the end of the calendar year that was steeper and quicker than probably any time in the Company's history.

And I think if you parse some of the information that's out there on our primary public competitor and then other private companies in this sector it's clear that the entire industry is under siege and that clients are broadly pulling their horns in very rapidly.

So we're optimistic about the long-term prospects for the business, but we're cautious about the near term and as we said, Andrew, we're trying to do our best to maintain cash flow neutrality or better in this very rapidly evolving environment, but it's tough out there right now.

Yes.

Just to clarify that point, was this stabilization in the actual number of confirmations in February or in the year-over-year trending confirmations?

It sounds like it's in the number of confirmations,

Yes, that's a fair assessment.

Okay.

Could you tell us based on if you hit the guidance number in Q4 what you would expect to pay out in bonuses in the year?

Well, that's completely dependent on the profitability, Andrew, as you know for the full year, and so we have to wait and finish up the quarter, drive hard, and we'll come to that conclusion like we always do after the fourth quarter and going through the year-end process.

I'm just trying to get a rough sense of the cash impact in terms of bonus payments at the end of the year if you were to hit the cash neutral estimate for Q4?

Again, I'm going to -- we're going to wait until we go through the end of the year.

I will tell you that this Company is very well capitalized so I don't think that -- the bonus payment is -- it's not going to materially move that conclusion.

Last year I think we paid -- and you guys can correct me -- I think our bonus expense was something like $155 million, in that neighborhood.

Obviously, given the economic environment this year it's going to be it's going to be less than that.

Yes, understood.

Okay, thanks.

And then just one final.

In terms of the additional restructuring that you'll be taking, if you could perhaps give us some help in terms of thinking about how that might impact the consultant count in the different regions?

Thanks.

Well, obviously what we're trying to do is size the infrastructure for our projected revenues and as we said it's tough to project revenues in this environment, but we are taking a similar level of reduction in headcount in the fourth quarter that we took in the third quarter.

We're doing it as quickly and as humanely as we can.

Part of the difficulty in terms of predicting results for the fourth quarter is it does depend in some measure on how quickly we're able to make these changes to the size of the infrastructure and we're going about it now but this is a people business.

And as Gary said in his remarks, what we're trying to do is retain as much revenue potential in the business as possible and so the choices that we need to make around people are challenging and ongoing and reflective of the environment.

Right, right.

Okay, thank you.

Our next question is from the line of Tobey Sommer from SunTrust.

Please go ahead.

Thank you, just a couple of questions.

I was wondering if you could characterize what demand was like at the C level and contrast it with what demand has been like below the C suite?

Thanks.

Thanks, Tobey.

That's a very, very broad question and the C suite can be open for interpretation as to what that is.

I would that say generally speaking that given the banking system and the crisis that surrounds the world banking system that CEOs around the world have become extremely cautious and because that safety net isn't out there necessarily have really hoarded cash and that is consistent around the world.

In terms of large cap companies, the hiring activity has been significantly reduced.

At the middle market there is still activity.

With respect to your question on "C suite," however that's defined, versus lower down in the organization it's probably true to say that at the top of the house there continues to be activity and as you go throughout -- go down in an organization that activity decreases significantly.

Thank you very much for the context.

Just a question about pricing.

With this industry-wide, as you said, unprecedented, steep and deep fall off are you seeing any behavior from the limited group of global competitors in terms of pricing and in the general construct of how the business is conducted?

No, it goes back to that -- Tobey, (inaudible) it goes back a little bit of the same answer.

At the high end you really don't see much price sensitivity.

As you go down through an organization it definitely becomes more price sensitive.

Our average fees were about $90,000, $91,000 this quarter, same as last quarter, up from $55,000 18 quarters ago, so we're happy that it held in the quarter and our goal is to continue to move that up and that's where one of the big opportunities for us is.

Just wondering if there are any -- anything you're feeling from competitors who perhaps don't have the same strong balance sheet that you have to be able to be a little stricter on the price?

You hear stories, right, but I would say that in terms of something to respond systematically without generalizing, no.

Thanks, one last question.

Any reversals of bonus accruals that impacted the financials in the quarter and would you expect any in the forecasted quarter for April?

Thanks.

We lowered the amount of bonus we accrued in this quarter but we did not reverse any accruals of bonus, so consistent with the level of profitability that the business was generating we obviously accrue based on that run rate of results but no material reversals of anything.

Okay, thank you very much.

Thank you.

Our next question is from the line of Kevin McVeigh from Credit Suisse.

Please go ahead.

Great, thank you.

I wonder if you could dissect the cash balance a little bit, Steve.

The $289 million how much is available and we don't know the specific range for the bonus pay out but just kind of the component to the cash, if you could?

Well, included in that total as I mentioned are certain amounts that we hold in trust for our employees and we disclose that in our public filings; that's about $60 million.

The remainder is available for operations and that include the amount that we might pay out in bonuses at the end of the year and that includes amounts for working capital, and then we have a significant excess over those two demands that we continue to maintain.

So, look, three or four quarters ago we would hear from the Street that we were over capitalized and what were we doing with the cash and we said at the time that we thought it was prudent to remain over capitalized and we feel very good that we're in that position currently because it provides us a significant cushion to operate in this difficult economy and we think that the amount that we have in excess of our day-to-day needs is adequate to put to -- to provide liquidity through this tough period.

That's helpful.

Steve, if you could frame out -- obviously there's going to be another restructuring charge, what type of revenue run rate are you taking the SG&A down to as you think about, obviously, the first and then the second, what type of run rate would that be going forward?

Well, we gave you an extrapolation of our current level of confirms and it's difficult to give guidance, obviously, in this environment but if you look at where we think revenues are coming out for the quarter and then if you listen to our thoughts around stabilization you can conclude that that's more or less the level of revenue that we're sizing the business for.

You can't get too far out ahead of this and cut revenue potential out of the business.

That would be folly and that would be contrary to our goal of preserving the brand and then accelerating out of this economic slow down, so we're sizing the business as efficiently as we can to our expected revenues and our expectation is that while the business has been hurt during the last quarter and a half or so that we will find bottom relatively soon.

Great, thank you.

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

Baird.

Please go ahead.

Good morning and, Steve, sorry to hear that things haven't developed in a better way.

Thank you.

Had a question with regards to AsiaPac.

Can you -- what was the constant currency revenue growth rate there?

Hang on one second, Mark, and Gregg will -- Gregg's here with us, we'll get it.

Yes, constant currency growth rate, Mark, are you are talking sequentially or --

Year over year.

Year over year would have been down 25 -- I'm sorry, down 41%.

Do you sense that you're maintaining market share in AsiaPac or doing better or worse?

It seems like that area has dropped off pretty dramatically.

It has.

I will tell you that the quarter's obviously impacted by the Chinese New Year and events like that.

Yes, we believe that we are absolutely maintaining market share.

Our team, for example, on the mainland China is as strong, stronger than any other team.

We've been there for 13 years, Mark, and our sense from the leaders in Asia is that there is an increased level of activity.

China has been strong and I think that this -- the overall fall off reflects the global economic crisis from Australia to Japan to the United States to Europe.

Yes, I clearly appreciate the economic fall off.

As you know we can compare various companies operating over there and it just seemed a little bit steeper without being too obvious about what I'm speaking of, but has there been any change in your leadership over there?

No.

We have taken the approach, Mark, for now seven years of very consistent decision making, and when it comes to acquisitions, when it comes to adding people I think you know our principals and we've applied that consistently.

There have been some others that have taken a little bit different route and I think that that explains some of the difference that you're alluding to.

So we're going to continue to do what we've done over the last seven years.

We're going to add talent into the Company, continue to extend and elevate the brand, look for transformational opportunities that give our consultants reasons to talk to clients throughout the whole year, and that's the game plan.

It looks like, despite the revenue shift, you were able to maintain a pretty decent level of profitability over there.

Is your cost base over there a little bit more adjustable than, say, what it is in Europe, or how should we think about --

Before Steve answers that question I was going to say that.

Mark, to your question it's one thing to look at the top line and talk about share but the other is the bottom line and I think our team in Asia has done an incredible job navigating through these waters with respect to profitability.

Yes, Mark, I would say that traditionally since I've been at the Company Asia has been one of our most profitable operations and that's how Gary and I measure success is profitability, so -- and certainly it is a more flexible operating environment than is the case in Europe.

Europe for any services firm is the most difficult place to adjust cost because the laws and regulations of the various countries in Europe make that more challenging.

So when you look at those -- at the three major regions in which we operate our ability to adjust the size of the infrastructure is most inhibited in Europe and that's where we would probably have the greatest challenge in terms of maintaining our goal of cash flow breakeven or better.

And how -- to what extent do you think you will be able to make adjustments in Europe?

Well, we will.

We will make adjustments, it's just whether the speed at which we would like to make change will marry up with the hurdles you have to go over in certain countries in Europe to make those changes.

So we will make changes, it just may be, first of all, less speedy than we would like and it may be more costly than we would like, so both of those have an impact in the short run on our profitability.

That said there are markets in Europe that we expect to be much bigger in over time and so part of our thinking through this process is consistent with what we've said for the entire Company is to retain a level of revenue potential in very important markets in Europe, perhaps with the knowledge that we could have modest cash losses in those markets but that it's important for the long-term strategy of the firm.

Could you talk to the ex -- to what extent Europe is a little bit different now in terms of the way it's structured than it was during the last downturn, particularly with respect to the variability of compensation for the individuals over there?

Well, I don't think it's -- in terms of going back now eight years, Mark, we have modified, as you know, the developmental and compensation model of the Company overall whereby the first filter is profitability and then the second filter is regional performance and the third filter is not only what you drive for the Company but how you do it, and so that's been consistent now for seven years or so.

In terms of the -- if you look at the salary levels across the board, not just Europe, I think that they have held.

Those are really -- if you talk on the search business they're more advances and treated as draws against total fee billings or total bonus potential.

That's been -- I think that that's probably reflected wage growth, if anything, over the last seven years.

If you look at our leverage structure on the search business overall, again, that's been something that we've deployed rather consistently.

So I don't think there's any real significant changes over the last, say, six years, 6.5 years.

There probably are some changes, though, going back seven years to the way the Company was managed previously.

Great.

And then what was the bonus accrual for this quarter?

$8 million.

Okay.

Great.

And then can you talk just a little bit -- obviously it's a very challenging time -- in terms of how are you going to assess what the -- what a steadier state or more normalized level run-rate level would be?

How are you going to go about that process?

(LAUGHTER) Well, it's really -- number one I think it's what -- the banking system globally is under siege and that has to get, it has to get stabilized, banks have to lend for companies to really start to invest and for there to be economic growth and I think that is what we're looking for first and foremost.

And our own assessment -- and I hope we're wrong, but our own assessment is that we are several months away from the banking system getting rationalized, then there's a period of time, a lag after that, by which banks are lending and capital is flowing and the companies are making investments.

So that is first and foremost in our minds as we're operating the business, Mark, and then also following our clients.

As you know, in the search business if you take the United States one proxy for the business is unemployment and the college educated unemployment rate you can look at that, as well.

But first and foremost we really do believe that it's credit and the flow of capital for small and big companies to invest.

So it sounds like from those comments that you would essentially -- you're not going to make any long-term decisions based on what you're currently seeing until you see some signs of stabilization on those elements first.

Is that a correct interpretation of what you just said?

Well, when you say long-term decisions such as?

Long term to medium term, well, in terms of staffing levels, expense levels, things of that nature?

Yes.

No, look, we're -- our long-term destination here hasn't changed at all.

We are going to create top-of-mind brand in human capital, multi billion dollars diversified HR solutions business.

The strategy essentially revolves around giving our consultants reasons to talk to clients throughout the whole year, to broaden the conversation, that absolutely has not changed and we're going to continue to -- again, I think it's very important to have consistent decisions, whether it's in -- whether the winds are blowing against you or you have tailwinds and we're going to continue to deploy consistent decision making.

We will continue to add talent into the Company.

We're continuing like we've done for many years to systematically look at investments, look at reasons to talk to clients.

That's going to continue.

Now certainly you do, in making those decisions, need to be mindful of the short-term operating environment but you do in good times.

In good times you have to be mindful of the long-term operating environment, so we're going to continue to be consistent here and I think that's what we've shown.

Okay.

Thank you very much.

Thank you.

Our next question is from the line of Ty Govatos from C.L King.

Please go ahead.

Yes, one technical question.

If the $110 million in net revenues were to continue and annualize that what would you aim for in consultant count?

Well, Ty, one of the things that we've tried to do, as we mentioned, is keep as much revenue potential as possible and so most of what we have done in terms of headcount reductions has been in the leverage of the firm, so in the support functions, et cetera.

But also as we noted during the call we have had a net reduction in partners of about, oh, a little less than 10% and we would have to continue to look at the level of staffing that we have worldwide.

And I think it's a little too broad a question perhaps for us to answer it on a call because you'd have to do it market by market, And as I said just a moment ago there are certain markets where we would accept modest amounts of cash burn because of our long-term goals in those markets and there are others where we would not and we are literally going through that on a person-by-person basis and on a market-by-market basis.

So I don't know that I can specifically give you a number of consultants, but to the extent that we remain at a run rate consistent with the extrapolation in the fourth quarter, our headcount'is pretty much in line for the partners.

Okay.

The -- excuse me -- the other question is a little bit more theoretical and you've alluded to it.

Once you get below those top five or six big search firms there's a dramatic fall off in players and one of the things I remember at the bottom of the market last time is that you started to get more knocks on your front door from some of these senior consultants.

Have you started to see that yet or is it still too early in the game?

We are absolutely.

Yesterday I had six interviews.

We -- again, Ty, I want to -- we have consistently deployed this strategy and so we are looking to continue to build out this Company in all three business lines and you've seen some of those boutiques that have gone out of business in this kind of environment and we -- thank goodness we've kept the dry powder because our balance sheet is rock solid and the point in keeping the dry powder was to use it in times like these.

So, yes, we have.

Okay, thanks an awful lot, Gary.

And Steve, I, too, am sorry about that.

Thank you, Ty.

Okay.

Thank you.

And our last question today is a follow up from the line of Tobey Sommer from SunTrust.

Please go ahead.

Thank you very much.

My question has been answered.

Thank you.

Well, listen, I first of all our -- the Company's thoughts and leadership teams' thoughts go out to Steve and his family.

This is clearly a challenging time for him and I look for his continued support.

These are challenging times and we are going to absolutely orientate ourselves to taking this opportun -- taking the volatility that surrounds us and to really have the view that this is too good of an opportunity to waste.

We are going to absolutely continue to further institutionalize our go-to-market strategy, we're going to create a more consultative solutions-based business model and we're going to refine our operating model to deliver positive cash flow during this unprecedented time.

And in this time I'm so proud of the Korn/Ferry colleagues that we have around the world and I thank them for their continued support and dedication and I thank our shareholders for being with us in good times and some more challenging times.

So with that thank you very much for your time today and we'll talk to you next time.

Bye-bye.

Thank you.

Ladies and gentlemen, this conference will be available for replay for one weak starting today at 11 AM eastern daylight time and running through the day March 18th at midnight.

You may access the AT&T executive playback service by dialing 1-800-475-6701 and entering the access code 990365.

International participants may dial 320-365-3844 and enter the same access code, 990365.

Additionally the replay will be available for play back at the Company's Web site, www.kornferry.com in the investor relations section.

Again, everyone, we thank you for joining us today.

You may now disconnect.