Korn Ferry (KFY) 2010 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, and 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 release relating to this presentation and the Company's annual report on fiscal 2009, and in the other periodic reports filed by the Company with the SEC.

With that said, I will turn the call over to Mr.

Burnison.

Please go ahead, sir.

Well, thank you, Cathy, and good morning to all of you.

Today we are pleased to report our first sequential quarterly revenue gain in over a year.

I don't need to say that the past 12 months have been a high speed ride for almost every business around the world; certainly we are no exception.

It was less than a year ago that we were producing the most revenue and cash flow in the Company's history, and then just 60 days later, our industry was off well over 40%.

Unemployment in the US and around the world had risen dramatically.

The global equity markets cratered, credit evaporated and consumer confidence plunged.

For the second quarter of this calendar year, the Association of Executive Search Consultants -- the AESC, which is our trade organization -- reported that the search industry was down nearly 50%.

Despite the environment and the fact that we've had to eliminate over $300 million from our cost structure and have asked our colleagues to make significant personal sacrifices, I am prouder today of our organization than I have ever been.

As I previously talked about publicly, our goal during this unprecedented time would be to preserve the franchise, position the Company for growth and accelerate through the economic turn.

We established an operating boundary of positive cash flow, which we have clearly achieved; in fact, we ended the quarter with $266 million in cash, substantially higher than forecast.

Over the past year, we have been able to outperform the competition, uphold our number one market share and manage our balance sheet.

Great companies make their best moves in this kind of environment.

Despite the recession, we have made true progress against our strategy to further transform Korn Ferry and the industry.

We have made two acquisitions in this down market, driven initiatives to extend the brand and made significant progress towards strengthening our own talent.

Our vision and strategy have remained consistent, and vision is to be the premier global of talent management solutions.

We are absolutely confident that we are poised for long-term growth by following the following six core strategic initiatives.

First, institutionalizing how we go to market, bringing consistency and measurability to our client targeting,development and execution on a global basis, and integrating all of our businesses.

Second, to continue to deliver unparalleled client excellence by incorporating our research-based leadership IP into our recruiting processes, and through our new state of the art technology platforms.

We are also extending and elevating the brand, using our research and subject matter experts through a vast array of online and offline events, publishing a social media initiatives.

Our work in the CEO and Board space remains robust.

We are currently working on 28 succession projects to a variety of clients.

Revenues are up over 20% in this solution.

Our team has leveraged the (inaudible) IP in building a world-class succession offering, and with the addition of Whitehead Mann, we now greatly expand our penetration throughout EMEA.

Fourth, we are going to continue to scale our leadership in Futurestep businesses.

If you look at the diverse array of talent management offerings that we have developed over the past couple of years, it is absolutely remarkable.

Today's Korn Ferry offers a comprehensive suite of solutions organized around strategic and organizational alignment, leadership, and executive development, and talent and performance management.

In fact since the outbreak of this great recession, our leadership business has performed remarkably well.

Our recruitment in mid-level search business Futurestep was up 3% sequentially, due primarily to significant wins and improvement in Asia.

Organizations are increasingly calling on Futurestep to discuss their overall talent architecture, and during the quarter we secured three notable long term RPO assignments.

We are going to continue to be steadfast in pursuing transformational opportunities along the broad HR spectrum, giving our consultants reasons to talk to clients throughout the whole year.

I am pleased to report that the integration of Whitehead Mann has proceeded according to plan.

We now have a platform to drive sustainable number one market share position across EMEA, and in particular the UK and France.

And finally, we are striving to create a life-time career destination for our colleagues.

I'm convinced that backed by a world-class brand and our significant financial position, the firm has remained in a superior position for attracting people.

During the quarter, in addition to the fabulous colleagues that we added from Whitehead Mann, we have enhanced our colleague base -- for example, by adding 12 new partners, adding depth in the areas of asset management, private equity and our CEO and Board team.

The good news, I think, for most businesses around the world is that today there's a sense of economic normalcy.

The same is true at Korn Ferry.

In fact, new business is up from what we hope to be cyclical lows.

But regardless of a V or a W or a U or an L, I am convinced that by planting the seeds now we are even better positioned to help leading organizations around the world manage their people strategies, and in turn transform themselves.

As always, I thank you for your support and interest in Korn Ferry.

And at this time, I'm going to turn it over to our Chief Financial Officer, Mike DiGregorio.

Mike?

Thanks, Gary, and good morning, everyone.

As Gary said, after several quarters of sequential fee revenue contraction, market conditions around the globe are showing meaningful signs of stabilization.

In fact, at $116.8 million, fiscal '10 first quarter marks the first quarter of sequential fee revenue growth in over a year.

In the first quarter, fee revenue grew $9.8 million or 9% sequentially, and excluding the addition of Whitehead Mann in mid,June was up $4 million or 4% sequentially.

Furthermore, the overall market improvement has been broad-based, with all of our operating regions and divisions posting fee revenue either flat or up compared to the forth quarter of fiscal year '09.

Just as importantly, we have continued to focus on controlling our cost base, and to operate the firm at positive cash flow levels.

After the payment in the first quarter of the majority of fiscal '09 bonuses and the purchase of Whitehead Mann, our worldwide cash and marketable securities balance stands at a very strong $266 million.

Our firm continues to be the most liquid and well-capitalized in the industry, with substantial financial resources to invest in future growth opportunities.

As previously announced, in connection with the acquisition and integration of Whitehead Mann, we have taken additional aggressive actions to rationalize the firm's cost base by eliminating redundant consultants, support staff, office space, and other G&A expenses.

These carefully planned cost saving actions will help our UK, France, and overall EMEA region achieve greater profitability while maintaining critical consultant and execution talent necessary to take advantage of the long-term upswing in the demand for our services that typically follows a recession.

Combined, these cost saving actions are projected to result in approximate annual savings of $18 million.

Total restructuring charges in the quarter to achieve these savings were $18.2 million or $0.28 per share, comprised of $8.4 million for severance costs and $9.8 million of facility consolidation charges.

The total cash flow impact in the first quarter of these restructuring actions, as well as actions completed and announced in the third and fourth quarter of fiscal '09, was approximately $9.4 million.

Excluding the impact of the restructuring charge, pro forma operating losses in the first quarter narrowed to $6.8 million, a favorable improvement of $2.1 million sequentially.

At the bottom of the fee revenue trough, management continues to believe that the most relevant operating measure is the firm's ability to maintain and generate cash.

Internally, we are managing the firm to positive adjusted EBITDA, defined as EBITDA plus the amortization of stock compensation and other long-term deferred compensation.

During the first quarter, the firm generated adjusted EBITDA of approximately $2.4 million.

Excluding restructuring charges, fiscal '10 first quarter loss per share was $0.05, down $0.41 versus the first quarter of '09, but improving by $0.06 sequentially.

On a GAAP basis, fiscal '10 first quarter loss per share was $0.33.

At this point, I will turn the call over to Gregg Kvochak, our Vice President of Finance, who will review some of our operating segments in a little more detail.

Gregg?

Thanks, Mike.

Starting with our executive recruiting segment, on a constant currency basis, and excluding the effect of the Whitehead Mann acquisition, executive search fiscal '10 first quarter fee revenue was flat versus the fourth quarter of fiscal '09 at $92 million.

Year over year on the same basis, fiscal '10 first quarter fee revenue fell $77.5 million or 44%.

As reported, and including the addition of Whitehead Mann, consolidated first quarter executive recruiting fee revenue was $101.3 million, up $9.4 million or 10% sequentially, and off $73 million or 42% year-over-year.

As previously stated, overall market conditions have shown meaningful signs of stabilization in the quarter, with all executive search operating regions and specialty practices either flat or up sequentially.

Executive search newly opened assignments were up nearly 20% in the three months ending July '09 versus the three months ending April '09.

In North America, first quarter fee revenue was $55.3 million, down 41% or $39 million year-over-year, but off only $1.5 million or 3% sequentially.

Sequentially, the life sciences, health care, and technology specialty practices grew in the first quarter, with the consumer goods, financial service and industrial practice posting only moderate single digit declines.

Newly confirmed assignments in North America grew approximately 10% in the first quarter versus the fourth quarter of fiscal '09.

Year-over-year, all major specialty practices were down.

Underlying market conditions in Europe also improved in the first quarter.

On a constant currency basis and excluding the addition of Whitehead Mann, Europe first quarter fee revenue declined 56% or $29 million year-over-year, but grew sequentially $700,000 or 3.4%, reaching $23.5 million.

With the addition in the quarter of $5.8 million of fee revenue from legacy Whitehead Mann operations, Europe fee revenue grew $8.5 million or 41% sequentially to $29.2 million.

13 of 19 individual country markets grew sequentially in the first quarter.

Organic growth in the UK was 32% sequentially, 27% in Germany, while France was essentially flat.

On a specialty market basis, the largest organic sequential gains were achieved in the consumer goods, financial services and technology practices.

In the Asia Pacific region, constant currency fiscal '10 first quarter fee revenue was off 39% or $8.2 million year-over-year, but up 16% or $1.7 million sequentially, reaching $12.4 million.

Eight of 13 Asia Pacific country markets grew sequentially, led by Hong Kong, up 35%, India up 26%, and Japan up 23%.

The consumer goods and financial services markets were the largest sequential growers in the quarter, up 45% and 33%, respectively.

In Latin America, first quarter fee revenue measured in constant currency was off 32% or $2.4 million year-over-year, and down approximately $260,000 or 5% sequentially.

At the regional level, sequential growth in Argentina and Chile were offset by a moderate decline in Brazil.

The number of executive search consultants at the end of the first quarter was 501, up 41 sequentially and down 36 year-over-year.

The net 41 consultant additions in the quarter include 64 new hires, primarily as a result of the Whitehead Mann acquisition, offset by 23 terminations.

The average fee per search was approximately $75,000 in the first quarter, and was up 1% sequentially and down 14% year-over-year.

Annualized first quarter fee revenue productions per consultant grew 6% sequentially to approximately $750,000.

Excluding the restructuring charge of $18.2 million, consolidated executive search pro forma operating earnings were $5.1 million, down $26.6 million year-over-year but up $1.7 million sequentially.

The consolidated executive search operating margin was 5% compared to 18.1% in the first quarter of fiscal '09 and 3.6% in the fourth quarter of fiscal '09.

Including the Whitehead Mann related restructuring charge, the first quarter operating loss was $13.1 million.

Consolidated executive search operations generated approximately $11 million of adjusted EBITDA in the first quarter.

Now turning to Futurestep, measured on a constant currency basis, first quarter fee revenue fell 45% or $14.2 million year-over-year, and 4% or $600,000 sequentially.

On an as-reported basis, Futurestep first quarter fee revenue fell 50% or $15.7 million year-over-year, and was up 3% or $450,000 sequentially.

Geographically, business was strongest in Asia Pacific, where first quarter fee revenue was up 5% sequentially on a constant currency basis.

Futurestep's consolidated operating loss narrowed in the first quarter to $815,000 from a loss of $2.1 million in the fourth quarter of fiscal '09.

In the first quarter, Futurestep did achieve its short-term objective of operating at essentially cash flow break even, defined as adjusted EBITDA.

I will now turn the call back over to Mike to discuss our outlook for the second quarter of fiscal '10.

Thanks, Gregg.

Based on recent monthly new business trends, the global demand for our services has stabilized, and along with the macro economic environment and labor markets, has begun to show some modest signs of real improvement.

Given these trends through the month of August and considering the impact of a moderate decline in new business due to summer vacation seasonality, fiscal '10 second quarter fee revenue will likely range from 110 to $120 million.

Regardless of seasonality and consistent with the first quarter, the firm's near-term goal remains to operate the business at positive cash flow, defined by the measure adjusted EBITDA.

However, if new business trends were to weaken later in fall, the firm will likely take additional actions to rationalize the cost base to maintain positive cash flow.

Finally, in the near-term, the firm will continue to take advantage of its strong financial and market position by selectively hiring unique talent that we believe will in the long run optimize our growth potential and maximize shareholder value.

At this point, that concludes our prepared remarks, and we would be glad to answer any questions that you may have.

Thank you.

(Operator Instructions).

Our first question comes from Andrew Fones with UBS.

Go ahead, please.

Yes.

First I wanted to just kind of drill down in terms of the impacts of FY '10 by division.

If I understand correctly, it added about 5.9 million in revenue in the quarter.

And did you say that it added 5.3 in EMEA?

So I guess half a million across the other divisions, is that right?

The figure was $5.8 million, and that is just in the EMEA region.

And remember, Andrew, too, that was for about 45 days or so.

Right.

In the quarter.

Yes.

That was going to be my other question, but so 5.8 in EMEA, can you give us the numbers in the other divisions, please?

Essentially, no.

Was it fairly de minimus in the other areas?

Yes, that's what Mike just said -- essentially nothing.

Yes.

Oh, sorry.

I see, essentially nothing.

Okay.

And then in terms of the cost savings, the 18 million that you mentioned annualized, how should we expect those to kind of flow in over the next couple of quarters?

Are we likely to be at that annualized rate in two quarters or three quarters?

How should we think about that.

Essentially, a lot of the actions were taken at the end of the quarter, so they will start to roll out pretty much this quarter.

So we won't necessarily get the full impact during the quarter, but we expect to complete the majority of those actions by the end of the quarter.

So you are saying that a lot of the actions happened in Q1, but there are some outstanding that will be concluded by the end of Q2?

Yes.

What Mike said basically was some happened very late in the first quarter.

So we likely will not realize the full impact of those savings in the second quarter, but certainly by the third and fourth quarter we should be at the appropriate $18 million annualized rate.

Yes, we mentioned before we had -- the savings were roughly split between people and real estate costs.

And so again, the bulk of the people actions were taken, and so we will start to get those -- some of the real estate actions -- again, the majority of those were taken as well, but some will actually roll out here during the quarter.

Okay.

Thanks.

And then in terms of the bonuses, have you finished paying out bonuses, or was there anything else left to pay out in the second quarter here?

There is a small amount that we will be paying, have paid and will pay here in the second quarter related to '09, yes.

Okay.

Great job, guys.

Thanks.

Thank you, Andrew.

We will go next to Kevin McVeigh with CSFB.

Great.

thanks.

Hey, I wonder if we could just walk through the cash balance a little bit.

Obviously a real nice job preserving the cash on the balance sheet.

Given that the majority of the bonuses have paid out, as you think about use of capital, has that changed recently?

And I guess specifically, are you reconsidering the buy back near-term?

Or just kind of thoughts on use of capital overall, and what is the exact amount that's available?

Well, let me first, before I have Mike comment on the specifics, just say that obviously we have come through an unprecedented time.

And literally our business in the industry fell off 50% in the span of weeks, and as we set up our contingency plans nearly two years ago, one of the operating boundaries was cash, And so in terms of your question, if you look back, I think we have been fairly consistent and disciplined in deploying cash, and it has been in three areas, in terms of, one, returning cash to shareholders; secondly, in terms of acquisitions to continue to build out solutions that differentiate our flagship search business; and three, generally investing in the business.

And that would be our operating model going forward.

I would like to see another quarter or so to see what really happens in the global economy before we comment publicly about that cash.

This has been a period of time that has been extraordinary, a period of time when CEOs have hoarded cash, and I still believe that credit is tight.

We are on the road to recovery in terms of the banking system, but credit is still tight.

And so I think we need to be mindful of that.

So Mike, why don't you -- ?

Yes.

Basically, and as we talked about cash and marketable securities at 265, and there's roughly 65 there related to the e-cap assets.

And as we have said, we have got some small amount of bonuses being paid in the quarter.

So investable cash is in the 190 to $200 million range.

And as Gary said, clearly we continue to look at the opportunity in time for buy back, and also, very selectively again, acquisitions -- looking at businesses and opportunities to improve on the business.

Again, we clearly -- we are not yet at the point of operating earnings breakeven, but we said the focus is on cash flow.

We think it is our job to do the right things to maximize long-term shareholder value.

If we had to focus on maximizing short-term profitability, we could do some other things, but we don't believe necessarily that's going to help grow value in the long-term.

So we are still cutting costs selectively at the same time, but trying to do the right things to grow the business.

That's great.

And in terms of, Mike, the cost actions -- I know we took an additional 18 million -- is it fair to say that all of the prior -- the benefit from all the prior cost actions or this 18 million, has that already been realized in the P&L?

It's just this incremental 18 million as we think about the rest of the year and you go to third and fourth quarter?

For the most part, the previously discussed actions; however, we did take additional actions during Q1 and have already taken some additional actions during Q2, and we will actually continue to selectively constantly take actions.

This is -- cost cutting is not a kind of one-time event in our view.

It is something that we have to be doing all of the time, looking at the business.

And if you are going to make investments, as we are doing in select areas to build the value of the business at the same time, we are looking to make cuts where we can be more efficient in the way we operate our business.

So the big ones -- the restructurings -- yes, have been implemented, but we are not going to stop taking actions to cut costs.

Great.

And then if I could just sneak one more in, Gary, as you think about kind of this circle versus the last cycle, what has been -- obviously it has been very, very severe and very tight -- if you could just kind of take us through your thoughts, where we are today relative to the last cycle, and as we think about kind of how the business (inaudible plays out going forward?

Well, as you know, the last cycle -- if you look at, for example, unemployment levels and the like, particularly college educated, essentially last cycle, they kind of doubled.

This cycle they have done that as well.

The overall level of unemployment is obviously much higher than it was.

As you said, the severity, the speed of this decline, has been absolutely breathtaking.

Last time it trickled out over several quarters.

And the thing we are waiting to see right now is, in the last cycle there was a jobless recovery, and that is the question here.

I will tell you that the uptick in business that we have seen over the last three months -- so call it summer -- compared to spring is certainly -- doesn't follow the typical pattern that you would see, and so I think that that reflects a couple of things.

It reflects, I think, a sense of economic normalcy on the part of CEOs that flat is the old up, if you will.

And then secondly, the severity of the cuts that were made were quite significant going back over the last few quarters.

And I think those two things help to explain why we have seen an uptick in our business despite the fact that unemployment continues to grow.

So there's green sprouts, but let's be candid.

The green sprouts need water and sunshine.

And so there needs to be job creation, and the banking system is on the road to recovery but it is not there yet.

And so those are the two things that we keep a pretty watchful eye on in our operating model.

Great, thank you.

Thank you.

We have a question from Clint Fendley with Davenport.

Good morning, Gary, Mike, congrats.

Thanks.

Morning.

I wondered if you could comment on how the competitive dynamic might have changed in the China and India regions as a result of the downturn; specifically, do you expect any consolidation like we have seen in Europe?

Consolidation of industries or you are talking about search providers?

Search providers?

Well, if you look at both of those markets, even though they represent 45% of the world's population, I mean, there is actually rather -- for consultative services, it's still a young and immature market.

So when you look at the providers in both of those markets, we are the leading provider in both markets, and it is very, very fragmented.

And so you've got the bulge bracket firms that each have some level of operations, but then after that, it is very fragmented, In China, there's a big focus on the internet and the like, so there's firms that are doing business that way, but I don't really see that in terms of our strategic focus.

I don't think that's going to impact our business.

I guess that was the heart of my question, given that the fragmentation and the fact that any downturn there appears to have been pretty short lived, I guess it is safe to say there hasn't been very much of a change in the competitive dynamic in any of those areas then?

No, I think that's correct.

Okay.

Great.

Thank you, guys.

Thank you.

We have Mark Marcon with R.W.

Baird.

Good morning.

Nice to hear the comments about things improving.

I was wondering, Gary, if you could talk a little bit about what your sense is -- it sounds like the pick up in engagements is broad based.

Do you have a sense if any of that is just kind of pent up, maybe some engagements previously contemplated by clients that they just had to put on freeze and now they're unfreezing, or do you think it is truly a real pick up?

Yes, well there's really no way -- I mean, we placed over 30 executives a day, so it is very, very hard to generalize.

If I had to generalize, it's what I said earlier, Mark.

I just think that the cut backs -- there was such a -- when the equity markets cratered in October, CEOs immediately had an inward focus, and there was tremendous efforts around cash preservation and rationalizing one's cost structure.

And at some point, you kind of get -- you get immune to things and then there's a sense of normalcy, and you get on with life and you start to figure out what is the new world order look like and how do you grow your organization.

And so I would attribute it more to the severity and the slope of the decline rather than anything else, Mark.

Okay.

And then in terms of the -- in terms of normalizing, when you look at the new engagements that you have been getting over the last couple of months, are the terms for fees getting back to normal, or are you still seeing some that are kind of scaled back?

I think you are -- we don't have any great hopes in the next quarter that our average fees are going to rise (overlapping speakers) -- it's certainly not going to -- that's not going to happen.

But again, you can't -- I think you have to look at this as a journey and a continuum, and if you go back -- this is now my 30th earnings call.

If you go back over that time, there was a point where Korn Ferry's average fees were 50, $55,000.

Today they're 75.

Now sure, they were 92 four quarters ago, but we are moving the brand upstream -- there's no question about it.

But I don't see any kind of macro trends around wage inflation and the like that would suggest some near-term spike in average fees.

Okay.

I was -- I meant more just in terms of the way that you were being engaged and kind of the full service search as opposed to something that would be a little bit more abbreviated.

Yes, No, no, no, no, no.

I mean, look, we have -- I think everybody in the business has had to be extraordinarily creative over the last several quarters, but I don't think there's anything material there, Mark.

Okay.

And in terms of the bonus accrual, what was it for this quarter?

Bonus accrual for this quarter was about 11.56 -- mid 11s.

Mid 11s?

And would you say that that's a pretty good -- if we were to stay around this sort of a run rate, is that kind of a good way to think about it?

It's in the ball park --

I mean, obviously it depends, but --

I mean, yes.

I mean, generally speaking, it is probably in the ball park, but our objective is to try to grow this thing a little better so we can share the wealth a little bit.

Okay.

And then how -- Gary, you made some comments about LVW -- obviously nobody really knows.

And we obviously have some stimulus that's occurring currently that may or may not be sustainable.

So it is hard to say exactly how things are going to go.

But the question is, if this ends up being, say, plus or minus 50 million kind of a run rate that we are going to be at for the next few years, how should we think about profitability?

And part of the background for the question is that when you were the CFO of the organization, and you and Paul were engineering the last turn around, you were able to generate double digit operating margins, even at a 400 million revenue run rate.

Obviously, the scope of businesses wasn't as great and the long-term opportunities were probably less geographically diverse and less diverse from a service perspective.

But I am just trying to think about, how are you thinking about profitability if you think things aren't going to go back to prior peak levels?

Well, that's a great question.

We think about it all the time.

The bottom line answer is we want to wait over the next quarter and see what happens in the global economy.

And so over the next three to four months between now and the end of the calendar year, we want to get a sense of what's happening with the banking system, what's happening with job creation, and if consumers come back and start spending.

Our goal is, as you know, going back a couple of years into this thing, was cash was absolutely the operating boundary.

As we sit here today, we still believe in the short-term that that is the metric.

However, we are mindful of the fact our goal is to not only grow the Company but to grow profitability.

So we are committed to operating earnings and we are going to assess that over the next three to four months.

And so if the world as you described is the world that we see, then we are going to do something about it.

But again, you have to look at this as a continuum.

I mean, remember that 7.5 years ago this Company had less than $20 million of cash on its balance sheet, it had bank debt, it had a run rate of kind of 260 million.

So once the jobless recovery -- when there was job creation, we grew the business the first year 38%.

I mean, that was the growth rate coming out of it.

So we are trying to look at this as a continuum and trying to build long-term shareholder value.

We are passionate that we have to continue to build solutions and services that differentiate our flagship business.

We are absolutely committed to that.

I think there's an enormous opportunity here long-term; but at the same time, Mark if the -- if the hypothesis of the thesis that you are laying out is correct, we have to do something about it.

Yes, I obviously don't know.

I am just wondering, and it doesn't seem like anybody truly knows.

But I was just wondering if there was anything that occurred that has happened structurally that would prevent you from achieving margins that you previously were able to achieve, but --

No, I mean it's -- the thing -- we have been very conscious.

I mean, if you look at our businesses and our operations -- you could pick countries around the world or regions -- we're essentially operating in some cases at a 1/3 capacity to 50% capacity, right?

So our revenue per consultant is 800,000 bucks, a little bit less than that.

That number is 1.4, 1.5 million or so, but we have done it before.

We have consciously made the decision right now to focus on cash flow neutrality and managing the balance sheet and preserving capacity.

So you could pick countries -- I mean, Italy, we are running at 1/3 capacity.

Dubai, we are running at 1/3 capacity.

So over the next few months, we will have to see how the economy plays out and we will have to make decisions against what we think the next 24 months are going to look like.

At this point, we have made the conscious decision to preserve as much capacity as we possibly can, and that is what we have.

Great.

And can you talk a little bit about LDS and what you are seeing on that side?

The business is running about $70 million or so.

I am absolutely -- I'm more convinced than ever that the suite of solutions we are building will differentiate our flagship search business over time.

We are excited about it.

I also believe that (Inaudible) -- the intellectual property we have proves that we can create ASP businesses, software as a solution that are more scalable than just people.

We have got an enormous effort underway there.

But essentially, since this great recession broke out the business has been flat; and although I would like to say it was better than that, I am very proud.

When the search industry is off 50% or so, and our leadership business is essentially flat, and our product business there is up, I think that tells a good story to shareholders in the long-term.

But that's not going to be built next quarter.

That's -- again, that's a journey.

Sure.

That's quite impressive in this environment.

Thank you.

Thank you.

We have a follow up from Andrew Fones with UBS.

Yes, thanks.

I was hoping you could talk a little bit about the recent confirmation trends -- particularly July, August, I guess typically can be a little bit seasonally weak -- what you saw in terms of trends there recently?

Thanks.

I think the way to characterize -- summer is up 20% over spring.

And how would that look typically seasonally?

Greg, you want to take a shot at that one?

Andrew, as you know, usually our -- the end of our first quarter as it relates to July, confirmations start to tail off a bit.

I think this year, although July was not as good as June, it was higher than our expectation.

So based on that, we really believe we have a solid backlog, and the truth of the matter is, August was a pretty good -- outdid our expectations as well.

So we have a good backlog and have started the first month of our fiscal second quarter on very solid ground, really across the world.

Yes, thank you.

I guess kind of looking at your sequential growth in the first quarter, excluding Whitehead, you were up more than you were up excluding last year, looking back over the prior five years sequentially.

So you were up more this Q1 than you were on average over those prior five years sequentially.

So kind of thinking big picture about what could have driven that?

Obviously, we are at high levels of unemployment.

To see your business kind of rebound this quickly, even during potentially weaker seasonal months, just wondering your thoughts are there and perhaps just generally?

But if you could also touch on whether you think that maybe companies have cut too far in some instances and are now trying to perhaps scramble a little bit to back sell?

Thanks.

Well, yes.

That's a good question.

First of all, we -- three months does not make a trend, so that is the overriding message there.

I wouldn't call anything.

I think it is still across the globe for organizations to get a net new hire into a new company is extraordinarily difficult.

The fact is there are still millions of people that are unemployed around the world, and so we are quite mindful of that.

I will tell you that this uptick has certainly -- it would be statistically an anomaly if you looked back over the 50 year search industry, if you were to look at search industry revenue and unemployment levels and the like.

And so as we look at it, we believe that the slope -- the double black diamond was very, very steep.

And it really -- what we said earlier is what is driving this is that there is a sense of economic normal.

And after you have rationalized the cost structure and preserved your balance sheet and restructured your debt, you start to make plans for the future, and that is really more than anything what we believe is driving this.

Gary, if you don't mind, let me add a couple of things.

First of all, I think the premise of your question by its nature is a difficult one because we know that the current environment is not comparable to the last five years during this period, just given the nature of the whole macroeconomic environment, so you really can't compare, just because of that.

However having said that, I think again we said before, the Company, in the process of restructuring, was very aggressive as to total costs, but was very careful and selective in cutting the consultant base and the people that really drive value and didn't go quite as deep there, and I think that was a conscious effort to protect part of the asset base that would help us.

So I think the Company actually did a good job of leveraging that talent base, and that is how we are going to get back more business, and our objective is to beat competition and do better and get market share.

And just in terms of the -- kind of the nature of the confirmation trends you saw in July and August, you described them as being a little bit better than you had expected.

Was that fairly broad-based across geographies?

And then LDS, have you seen kind of a similar trend there as well?

Well, two things.

First of all, yes, the recovery was fairly broad-based across geographies and businesses even.

And as Gary said before, the LCC business fundamentally flat.

But in a period like this, that we are very proud that it has maintained its leal of revenue over many quarters.

Okay.

Thank you.

Thank you.

We will go Ty Govatos with C.L.

King.

Yes, how are you?

By the way, terrific quarter.

A couple of technical questions.

These 41 new consultants, which was 64 new hires and 23 terminations, did the 64 new hires obviously contain the 12 new partners you brought on other than Whitehead Mann?

Yes.

Where were they located mostly?

What regions?

There were -- it was spread between North America and Asia, Ty.

Okay.

When you say the bonus accrual looks right at the current levels given what you are currently doing, I would assume that you have accrued in there for the new consultants, both Whitehead and the outside?

Yes.

Okay.

Now I am probably going to push.

12 from outside seems to be far more than anybody else in the industry is acquiring.

Am I missing something, or are you hiring that many more than everybody else?

Well, I can't speak for the competition.

I can only tell you that I fundamentally believe that this is the time that you create change.

I mean, you plant the seeds now if you have got a solid balance sheet.

So we are trying to make the balance between our shareholders, our colleagues internally, our clients and long-term growth.

And so I believe that this is a time where you can move the culture, you can move the compensation system, you can top grade and upgrade talent, you can make acquisitions.

I mean, this is the time to do it, not at a time where there are 40 mile per hour winds behind you, and business is coming in from all sides, and valuation levels are extraordinarily high.

This is the time to seize opportunity, and we just to balance those kind of four pillars, Ty, and that's what we are trying to do.

All right.

Seems like you are on a good track.

Thanks an awful lot, I appreciate it.

Thank you.

Thank you.

We now have a follow up from Mark Marcon with R.W.

Baird.

A couple of quick questions.

One, this -- and they relate to Whitehead Mann.

First of all, how much -- should we just assume that the 5.8 million, since it was roughly 45 days and FX rates probably aren't that different now than they were during most of the quarter, that we just essentially just double?

It is actually -- it was actually 16.

It happened on the 11th, so you have got 19 days -- 50 days in total there basically --

Okay.

-- so the business is basically running at a decent rate, but that was 50 days of business.

Okay.

But essentially, if we adjust for the days, the revenue run rate should likely be a --

Yes, we can't predict, but we see no reason why it should change substantially.

Okay.

And can you give us a sense, now that you have got Whitehead Mann on board, how that is going?

What is the interaction between your legacy London office, the new partners over at Whitehead Mann, how well are they being integrated, what the steps are that have been taken to integrate them and how you are managing accounts with them?

I think it has gone extraordinarily well.

And now going forward, we are not going to be able to report those numbers separately, because our goal has been to create an integrated business, and that's what we are doing.

So we started the integration weeks before, and it ranged from the back office to real estate to the go-to market strategy, and we with established go-to market teams for both organizations, brought them together.

And today we are going to market together, and we are seeing the fly wheel impact of business that has been sent from the legacy Whitehead Mann colleagues to the United States.

I think of Calgary as something that happened in the last couple of weeks.

So I think it has gone extraordinarily well, Mark, but it is early days, and it is all in the execution.

So we're pretty diligent about that, but I think it gives us a platform for growth throughout all of EMEA.

Great.

Thank you very much.

Thank you.

And it appears there are no further questions, Mr.

Burnison.

Okay.

Well, thank you, everyone, for your patience and your interest in Korn Ferry.

As I said, this certainly has been a remarkable time looking back now over the last 12 months.

But I am proud today -- ironically, I have never been prouder.

We set the operating boundaries around cash and the balance sheet and capacity, and I think we have done everything we said we were going to do.

So with that, again, thank you very much for your time this morning, and we will talk to you soon.

Thank you.

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