Korn Ferry (KFY) 2012 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 conference over to our host, Gary Burnison, let me first read a cautionary statement to investors.

Certain statements made in the presentation today relate to future performance, plans and goals will constitute forward-looking statements in 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 relines 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, and the release related to this presentation are in the Company's annual reports for fiscal 2011, and in other periodic reports filed by the Company with the SEC.

Also some of the comments today will reference non-GAAP financial measures such as adjusted operating earnings, investors should review our reconciliation of non-GAAP financial measures to the most directly comparable GAAP financial measures contained in the release relating to this presentation posted at the Company's website at www.kornferry.com.

With that, I will turn the conference over to Mr.

Burnison.

Please go ahead.

Thank you.

Thank you everyone for joining us and good afternoon.

Today we reported fee revenue of about $186 million, and an operating margin of slightly over 9%, and our balance sheet continues to be absolutely pristine.

The good news for a very, very cyclical quarter I would say, with an early Chinese New Year this year, was that our leadership and talent consulting solutions business was up 11% year-over-year.

It was about $28 million for the quarter.

Futurestep also showed growth in the quarter, it was up 11% year-over-year, and performed very, very well, and both of these continue to signal to us that clients are saying that we have got more things to talk about, and more flexibility to help them with their broader talent needs.

The other good news is that our productivity was up and our average fee continues to rise.

On the more challenging side, our executive recruiting business year-over-year was down slightly.

Again in a very cyclical quarter, and it would be down about 2% on a constant currency basis.

We continue to view the world outside in, and that is through the lens of our clients.

And today, that lens reflects a fight for growth and relevancy, as well as doing more with less, that is clearly the new normal.

With that, we see a strong opportunity to capitalize on the environment by leveraging our brand and linking our talent management capabilities to our clients' business needs.

So our strategy, which we believe is differentiated and is working, provides us the ability to help global organizations not only attract, but also to engage, develop, and retain the talent they need for a competitive edge.

We continue to drive a proactive, consistent, integrated solutions-based approach, systematically targeting global and region client opportunities, and more importantly, aligning our people and intellectual property to drive much deeper, more scalable client relationships.

I am also very proud of the fact in terms of the progress we are making around our intellectual property, which we believe will be a substantial competitive differentiator.

Our IP is also being embraced with institutions of higher learning.

Today about a third of the Top 12 business schools in the United States are using our IP.

We continue to not only elevate the brand as witnessed by the average fee, but we continue to extend the brand.

Today 86% of our Top 50 clients are using at least two of our three service lines.

Our work at the top continues to accelerate, and as importantly, about a third of those engagements at the Board level were for the Fortune 300 companies in excess of $10 billion.

I am pleased with the efforts of our colleagues around the globe, and the results that we are achieving by driving a solutions-based approach to clients.

Every quarter we continue to further broaden our service offerings, broaden the conversation with our clients, build larger relationships, and elevate our brand, and more importantly, really over time fortifying our image as the Company to turn to for talent, and that is the heart of our strategy, is to make talent management synonymous with our brand.

And so with that, I would briefly here turn it over to Bob Rozek, who has recently joined us.

Gregg Kvochak is also here.

Bob comes from us with a very distinguished background, he was a partner at Price Waterhouse, was most recently the CEO at Cushman and Wakefield, was the CEO of Las Vegas Sands, and worked at Kodak, so I am very, very happy that he is joining us, and that we can welcome him as our partner.

Bob, do you want to make a couple of comments here?

That would be great, Gary.

Thanks a lot.

Good afternoon everyone.

As you know, this is my first quarterly earnings call with Korn/Ferry, and I am very happy and excited to be working with Gary and the fine team that he has assembled.

My first couple of weeks at the Company has been extremely positive, and I am very confident and experience to-date will be reflective of what we can expect as we move forward.

As I begin to look at and understand the Company's growth strategy, I believe that my background in building up company infrastructure will really fit nicely with the Company and enable the Company to meet its ambitious growth plans.

I look forward to working with Gary and his team, and now I will turn it over to Gregg Kvochak to review the operating results for the third quarter.

Thanks, Bob.

Demand in the third quarter for our market leading recruitment and talent management consulting services was impacted by both year end holiday seasonality, as well as the continued sluggish worldwide economic recovery.

Our fiscal 2012 third quarter consolidated fee revenue was $186 million, down $14 million, or 7% compared to the second quarter of fiscal 2012, and flat compared to the third quarter of fiscal 2011.

Measured on a constant currency basis, our firm's third quarter fee revenue was at $189.5 million, down 5% as compared to the second quarter, and off 50 basis points year-over-year.

Monthly new business trends improved in January compared to December, and for the entire third quarter the total number of newly-opened combined executive search and leadership talent consulting assignments was down 10% sequentially, and off 7% year-over-year.

Due primarily to the decline in fee revenue, both operating earnings and margins slipped in the third quarter from what was reported in the second quarter of fiscal 2012.

Our fiscal 2012 third quarter consolidated operated earnings were $16.2 million, down $9.2 million, or 36% sequentially, and off $4.3 million, or 21% year-over-year.

Operating margin was 8.7% in the third quarter, compared to 12.7% in the second quarter of fiscal 2012, and 11% in the third quarter of fiscal 2011.

Excluding the negative impact of a net $930,000 adjustment in the quarter to an estimated restructuring liability that was originally recorded in a prior period, third quarter adjusted operating earnings were $17.1 million, down $8.3 million, or 33% sequentially, and off $3.4 million,or 17% year-over-year.

On this adjusted basis, operating margin was 9.2%

In the third quarter of fiscal 2012, only two parts of our operations, executive recruitment in Europe and in South America achieved operating profitability improvement, both sequentially and year-over-year in the third quarter of fiscal 2012.

We continue with strong cash generation as our third quarter ending cash and marketable securities balance was $352 million, up $34 million sequentially, and $48 million year-over-year.

Excluding cash and marketable securities reserved for deferred compensation arrangements and for accrued bonuses, the current investible cash balances was approximately $187 million, which is up $16 million sequentially, and up $55 million compared to the balance of the third quarter of fiscal 2011.

Finally, fiscal 2012 third quarter diluted earnings per share were $0.25, a decrease of $0.07 or 22% sequentially, and $0.05, or 17% year-over-year.

Excluding the negative impact of the $930,000 restructuring charge adjustment, third quarter adjusted earnings per share were $0.26.

Now turning to our operating segments starting with executive recruitment.

Due primarily to seasonally slower demand and continued worldwide weakness in the financial services specialty market, consolidated third quarter executive recruiting fee revenue was $160.1 million, down $11.4 million, or 6% sequentially, and down $3 million or 1.8% year-over-year.

On a constant currency basis, executive recruitment in fiscal 2012 third quarter fee revenue was down $8.5 million, or 5% sequentially, and down $3.3 million, or 2% year-over-year.

Sequentially, third quarter fee revenue was down in every major specialty practice, most significantly in financial services, which was off 18% compared to the second quarter of fiscal 2012.

Compared to the third quarter of fiscal 2011, growth was achieved in all specialty practices, except financial services and technology, where were off 20% and 23% respectively.

In the North American region, fiscal 2012 third quarter fee revenue was $90 million, down $7.5 million, or 7.7% sequentially, and off $5 million, or 5.3% versus the prior year.

Sequentially, all major specialty markets contracted in the third quarter with the financial services practice off 25%.

Newly confirmed assignments in North America were down 14% in the third quarter of fiscal 2012 versus the second quarter of 2012, and down 7% compared to the third quarter of fiscal 2011.

Despite seasonal factors and tough economic headwinds, fee revenue trends in Europe remained relatively stable.

At actual rates, Europe's fee revenue was up $240,000, or 60 basis points sequentially, and up $440,000, or 1.1% year-over-year in the third quarter, reaching $40.5 million.

On a constant currency basis, Europe's fiscal 2012 third quarter fee revenue was up $2.1 million or 5.2% sequentially, and up $530,000, or 1.4% compared to the third quarter of fiscal 2011.

Six of 17 countries grew sequentially in the third quarter, led by the UK, which was up 14%.

On a specialty market basis, all major practices grew slightly on a sequentially, basis with the exception of the life sciences and healthcare practice which was down 21%, financial services in Europe was up 4% sequentially, but off 16% year-over-year.

Market conditions in Asia Pacific were also seasonally weak and adversely impacted by the timing of Chinese New Year which fell in January.

At actual rates, Asia Pacific's third quarter fee revenue fell to $20.9 million, down $4.3 million, or 17% sequentially, but up $490,000, or 2.4% year-over-year.

On a constant currency basis, fiscal 2012 third quarter fee revenue was $21.3 million, down $3.9 million, or 15.7% sequentially, and essentially flat year-over-year.

Sequential fee revenue growth was achieved in four of 11 countries in the third quarter, with strength in Japan, up 9%, and Korea up 8%.

On a specialty market basis, all specialty practices were down sequentially, with the exception of life sciences and healthcare which grew 14%.

In the Asia Pacific region, financial services was off 35% sequentially, and 7% year-over-year.

At actual rates, South America's fiscal 2012 third quarter fee revenue was $8.7 million, up $160,000, or 2% sequentially, and $1 million, or 13% year-over-year.

Measured on a constant currency basis, South America's third quarter fee revenue was up approximately $700,000, or 8% sequentially, and up $1 million, or 13% year-over-year.

Fee revenue in Brazil was up 2% sequentially, and 11% year-over-year.

The total number of executive recruiting consultants at the end of the third quarter was 441, down 21 compared to the second quarter, and down 33 year-over-year.

Annualized fee revenue production per consultant in the third quarter was down 3% sequentially, but up 3% year-over-year to approximately $1.34 million.

Consolidated executive recruitment operating earnings fell $8.8 million, or 24% sequentially, and $990,000, or 3% year-over-year to $28.1 million.

The consolidated executive recruitment operating margin was 17.5% in the third quarter compared to 21.5% of the second quarter of fiscal 2012, and 17.8% in the third quarter of fiscal 2011.

Excluding a net adjustment in the quarter to a restructuring charge estimate recorded in a prior period, consolidated executive recruitment operating earnings were $28.8 million with an 18% operating margin.

Now turning to Futurestep, which also experienced seasonally slower demand in the third quarter.

At actual rates, consolidated Futurestep third quarter fee revenue was $25.8 million, down $2.7 million, or 10% sequentially, but up $2.5 million, or 11% year-over-year.

Measured on a constant currency basis, third quarter fee revenue was down $2.1 million.

or 7% sequentially, but up $2.3 million or 10% year-over-year.

Geographically, sequentially growth was seasonally weakest in North America and Asia Pacific where constant currency growth was off 14% and 8% respectfully.

Futurestep's operating earnings contracted to $890,000 in the third quarter.

Sequentially Futurestep's operating earnings fell $1.4 million, or 450 basis points, contraction in margin to 3.4%.

Compared to the third quarter of fiscal 2011, Futurestep's fiscal 2012 third quarter operating earnings were down $377,000 or 30%.

Operating margin was down 200 basis points, excluding a negative adjustment in the quarter to a restructuring charge estimate recorded in the prior period, Futurestep's operating earnings were $1 million, with a 4% operating margin.

Now turning to our outlook for the fourth quarter of fiscal 2012.

So far early in the fourth quarter of fiscal 2012, consolidated new business awards have been in line with our expectations.

Compared to January, February executive search confirmations were flat in North America, and up in Europe and Asia Pacific.

Futurestep's revenue also improved in February compared to January.

However, the sluggish and uncertain recovery of the global economy continues to cloud visibility, making accurate forecasting difficult.

Assuming that economic conditions, financial markets, and foreign exchange rates remain relatively stable, fiscal 2012 fourth quarter fee revenue will likely range from $182 million to $196 million.

Finally diluted earnings per share for the fourth quarter will likely range from $0.24 to $0.30, excluding $0.03 to $0.04 of estimated non-recurringcompensation related charges, or $0.21 to $0.27 measured by GAAP.

That concludes our prepared remarks.

We will be glad to take your questions.

Thank you.

(Operator Instructions).

Our first question comes from Tim McHugh from William Blair and Company.

Please go ahead.

First I wanted to ask about the head count.

For the second quarter in a rowhead count was down by a decent amount.

It is now down 7% year-over-year.

I know you usually don't like to commit too much to what you are do going to do.

Is that one touch on how much of that was voluntary versus involuntary, and then are you at a point where you are going to start trying to grow that at all going forward?

I think, Tim, involuntary.

Substantially all, last August we became very concerned with the volatility in the equity markets.

Beginning late last August and into the end of calendar 2011, we took some actions relative to the Company to make sure that we were as efficient as possible, and that is what we did.

He don't comment more than a quarter out on headcount.

I would just say that I would not expect that kind of a trend to continue in the near term, and we are looking to invest in the business.

Okay.

Then contrasting that, if headcount is down 7% year-over-year, the comp and benefits was flat and SG&A was up, why was headcount down and comp and benefits down along with that?

Then I guess, can you touch on more so the factors that drove the SG&A increase?

Yes, Tim, I am not sure I understand the first part of your question.

If headcount is down 7%, why isn't compensation and benefits down that much along with it?

It is primarily due to the hiring we have done in Futurestep year-to-date.

As we said on the last few calls, most of the heads we have added certainly this fiscal year have been in Futurestep.

If you look in the fourth quarter Tim, our expectation would be that the G&A levels would come down.

There may be a slight increase in the comp ratio, but we look at that at that outsourcing business, and see again a multi hundred million dollar opportunity for us, so we have continued to invest in that business.

And the legal and professional fees, usually that is M&A related type activity, I guess.

Is that fair to assume, or are there other issues or items that you were spending on?

Yes, Tim, as a matter of practice, we never get into that kind of detail.

Okay.

What I would say, is that when you look at the G&A expense for the fourth quarter, our anticipation would be that it would go down.

Okay, thank you.

Thank you.

Now to the line of Tobey Sommer from SunTrust Robinson.

Please go ahead.

Thank you very much.

I just wanted to ask about the sequential change from new confirmations, new assignments in the quarter.

It was down, I think a high single digit percentage.

What would a normal seasonal decline be?

Certainly the January would be weak compared to the October?

Yes, it would be.

When you look at the business, I will start with North America, I will just go back several months for you.

October was running at a substantially higher pace than the trailing six months.

November was off substantially and impacted the pipeline.

December was up over November, and back to levels that we saw earlier in calendar 2011.

January was about the level of December, and February was pretty close.

In Europe, Europe has continued to surprise us.

December was obviously very low in terms of new business awards, which we thought it would be.

And January was very healthy in terms of new business in Europe.

I think when you were going through the segments I heard Gregg mention that the health and life sciences managed a good sequential rebound what at the time on your prior quarterly conference call you mentioned it was probably a temporary slowdown there.

What your feeling and thoughts are on that specific segment?

Well, I think first of all, when you look at the big picture and if you want to talk sequentially, first of all, we got hit by constant currency, by currency fluctuations.

Right off the bat compared to the second quarter, you have got to add $3 million to $4 million, something like that, and when you compare it sequentially, where we really saw the softness was in one, financial services, then secondly in Futurestep sequentially.

In terms of the life sciences, you are absolutely right.

In December we talked about a blip that we saw in life sciences in November, and that business returned to levels that we had previously, previously seen.

And my last question has do with your ever-growing pile of spendable cash.

Are you seeing more interesting opportunities than you did a couple of quarters ago?

Any changes in seller expectations that may allow to you deploy that in a more interesting fashion than just collecting a point of interest?

We really don't comment.

I would say that our preference continues to be investing in the business.

We really believe that we have got a $15 billion market opportunity.

We want to see 10% of that.

We believe that we have got opportunities in our flagship business to continue to move the brand upstream, to continue to invest in intellectual property.

We look at our leadership businesses and Futurestep businesses and see multi-hundred million dollar opportunities.

Our first preference would be to invest, to use the cash in our businesses, and that has really been our mindset for the past several quarters.

It continues to be.

We are always looking for solutions, for offerings that can broaden the conversation with our clients.

Thank you very much.

Thank you.

Now to the line of Gary Krishnan from Credit Suisse.

Thank you.

I wanted to drill down on Asia.

I think I am sort of surprised that Europe despite all of the headwinds stayed relatively better.

I know that Asia was impacted by the new year, but could you comment about what trends are in Asia and when you look at productivity, is there more room for pick up in Asia relative to the other geographies?

I would first say that I spend a couple of months, we led the business over last summer from Shanghai and very, very close to that business.

We believe that continues to remain a huge opportunity obviously.

with consumerism as that continues to be tapped.

Given the efforts that were put in place several quarters ago around reserve requirements in China, clearly that had an impact and you read it in the paper today, that was there was a cooling off.

Now as they go to loosen the reserve requirements as there is a transition in government, we would expect that business would return to levels that we saw last calendar year, and longer term I am even more bullish.

Okay.

Given I think you spoke at conference, if I caught it right, it was flat in North America in February and up in Asia and Pac and Europe, but does that compared to when you spoke to us last quarter, does it feel maybe given the macro environment is improving, that we may be seeing an improvement?

Do you think we have bottomed, or is it too early to tell if things are, in fact, could be turning?

Well, look, we cannot make those calls.

We can tell you what our next quarter's projection is based on.

Clearly there is a new normal here.

There is a lot of optimism coming into this calendar year.

What we have seen in February certainly substantiates that.

Okay, thank you.

Thank you.

Now to the line of Kevin McVeigh from Macquarie.

Please go ahead.

Thanks.

If you could refresh us on where the verticals stand now out of a 100%, just round numbers, how much in financial services, technology, and so on and so forth?

Okay, we will do that for you.

I would first start, it is a pretty balanced portfolio overall.

Our bellwether and flagship it our industrial business that continues to perform very, very well around the world, that is about 30% of the Company.

Financial services has never been an overly exposed part of the portfolio.

Today that is about 15%.

Consumer is about that, maybe 16%.

Life sciences and healthcare is another 16% or so, and technology is about 14%, something like that, that gets you pretty close to 100%.

Got it.

In terms of carrying any kind of changes within Whitehead Mann, I know that is kind of going back a little bit but has that been performing as expected?

It has been fabulous, knock on wood, because as Gregg said, there is choppiness for sure.

You see it when you look at the internet or read the paper.

The UK ironically in a very difficult financial services market had its second best quarter ever, which I think is very impressive.

Real quick.

On the $0.03 comp charge, I want to make sure I understand what that was.

It is excluded from the guidance, I understand.

Do you typically do that?

I don't think so.

What is the reason you are kind of calling it out right now?

We are calling it out right now because we know we have taken some actions here in the fourth quarter, part of that is around a management transition.

Part of it is around a piece of our business in Futurestep, where we think we can drive greater efficiencies out of the business and that is really all it is.

Then, Bob, switching gears.

I know you haven't been on the ground all that long, but would love to kind of hear what you are thinking in terms of Korn/Ferry, what drove you there, and kind of areas you are going focus on right out of the gate here?

I think there are really three things as I thought about the opportunity that I focused on.

One, what was important to me and important throughout my entire career is to go to a great brand name, and Korn/Ferry is just that.

Second was the culture of an organization, again, something that is very important to me.

As I met Gary and the rest of the management team and the Board members, it was a culture that was very attractive to me, and it was a culture that I thought would fit well with my personality, and the type of person that I am.

I think the last thing that enticed me the most was as I talked to Gary about his strategy, and where he sees the Company going forward, and what he is trying to do with the brand name, to me I think there is enormous opportunity here to do some great things.

So those are the things that really excited me to join Korn/Ferry.

In terms of where my focus is going to be first, I think I am at a point where I am just two weeks in now, so I have got a lot of wood to chop before I have my thoughts and my plans in place, so over the next couple of weeks and months and so on, I will get better settled in and really get myself focused.

Right now I am going to just focus on learning as much as I can about the organization, trying to establish relationships with the folks in the Company, so I can make my role meaningful in the organization, then once I get it all sorted out, I will figure out my highest priorities as we move forward.

Super.

Thanks.

Now to the line of Mark Marcon from Robert W.

Baird.

Please go ahead.

Good afternoon.

I was wondering, Gary, as you look at North America, could you drill down in terms of the elements that you think had the greatest impact?

We don't have that consultant reduction by geography.

How much would you attribute to the decline in terms of the number of consultants?

How much would you say is financial services?

What other factors might be impacting things?

Mark, the efforts we took beginning last August contributed almost nothing to the decline I would say.

It is really when you look at it, Mark, it is financial services, that is the story, both sequentially and year-over-year.

Wasn't almost every practice down sequentially in North America?

You are talking about financial services or are you talking about broadly?

In North America, I thought when Gregg was going through his commentary, he thought he said all practices were down sequentially.

He didn't give the year-over-year number, and obviously there is a lot of seasonality?

Yes, there is a lot of seasonality.

Certainly what Gregg indicated, that is absolutely what we saw.

When you really cut through it an look at the seasonality, and the story is financial services, Mark.

From your prospective in North America outside of financial services, things look good?

Well, again, I can't make a qualitative comment on good or bad.

I would just tell you that the confirmation trends absent last November have been relatively consistent.

Okay.

Are you seeing anything at all in terms of the composition of the types of engagements that you are getting outside of financial services, just in terms of types of roles, things of that nature?

Look, not on however many searches we do a year.

It would be very, very tough to generalize.

We continue to see great traction around succession planning, and all of that, as part of our leadership solutions.

We continue to elevate this brand.

Our average search fee when you take out the LTC solutions has risen substantially over the years, and we are very, very proud of that.

How much has the average search fee increased?

When you look at the segment, we look at the business together with the executive search and LTC, but if you were to take out the LTC business, the average search fee is about $110,000 or so a year, that is what it was in the quarter Mark, when you add everything together, it is obviously less than that.

Can you give an example of how you are thinking about monetizing the intellectual property?

Can you give us some real life examples in terms of how that plays in?

Well, we are working on things right now thatI wouldn't want to say.

There are a couple of things, Mark.

Well, there are three things.

One thing is you are hired for what you know, and you are fired for who you are, and particularly at the level that we deal with.

So what we are really trying to do is take our intellectual property and use it in our business, in our executive recruiting and Futurestep businesses, as a differentiator to really probe further in terms of who somebody is.

We think we have got great traction on that.

We use it on about 65% of our executive search assignments around the world.

We measure that, we monitor that.

So that is one way.

The other thing that we have got an opportunity do with the intellectual property is actually monetize it.

Through distribution channels of our own, as well as other potential partners, we believe that we can take that intellectual property and distribute that out in an open network through other partners, and we are pursuing that.

Great.

Then just recently you had a big win in terms of bringing over somebody who is pretty well-known in tech.

Can you talk about the plans for the tech practice?

Well, we did bring in an executive who we are very proud of, who has a proven track reported in this business, as well as an operator in the technology area.

The gentleman is European, very, very proud to have him, and our plan on the technology side is to invest.

If you look at the portfolio today, Mark, I want to get this.

It is probably about 13% or so, and we believe that should be several percentage points higher as a firm.

That is our objective here, is to create that top of mind brand in the technology area, and hopefully with the team that we have, that is very good, and with Werner coming on board, we will do that.

Great.

Lastly, I was wondering if, I don't know if this is a question for Gregg or Gary.

Can you talk a little bit about the trends that we should, when we take a look at your guidance as it relates to the coming quarter, how that should fall out regionally?

On a regional basis on the top line, Mark, I think you should expect maybe kind of a flattish outlook in the North America region, up in the European region, up a little in the Asia Pacific region, up a little in Latin America, and then also up a little at Futurestep as well.

Again, that is based on what we are seeing to this point.

Gary, we are getting lots of data points that the US labor market is picking up outside of financial services.

Are you seeing things that are different than that?

I think the companies continue to do more with less, Mark.

I would say at some point productivity levels are going to reach the point where you have got to do something for sure.

I have said this as a Nike swoosh, I continue to believe that particularly in an election year, and then in Asia, in China a transition to a new government.

Got it.

Super.

Thank you very much for the color.

Thank you.

And now to the line of Jennifer Wong of UBS.

Please go ahead.

Hi, can you hear me okay?

Hi Jennifer.

Yes, very well, thank you.

Hi, guys.

Maybe can you provide some more color behind Europe, I know you have mentioned UK was very strong despite a challenging financial services market, and sort of said you would expect it to be up in the fourth quarter as well.

What drove the outperformance or the stability in the UK?

And maybe do you see that for the rest of Europe or with other stand out markets?

We are reporting through what we have seen in February.

We have to definitely emphasize that.

If you read the papers in terms of what is happening, you would certainly have some skepticism around that.

Look, we have got a fabulous team.

I am very, very proud of our European team.

We sat out five years ago when I became CEO that I felt like we needed to be a global firm, less American.

Our European team is top notch.

I believe our UK business is a flagship of the organization.

We compete at the top levels and we have got great leadership.

Okay.

In terms of other markets in Europe, was the stability pretty broad-based?

We have seen over a longer term, not just sequentially, but over several many more months we have seen an increasing contribution from Switzerland, that has been a big part of us.

Germany as well.

We have got a fabulous team there.

Then when I talk sequentially, if you just narrowly focus on sequentially, Gregg talked about the UK, and we also saw some improvement in France relative to the quarter two, but again in France that was down a little bit versus what it has historically been.

Again cautiously optimistic, certainly given what you read in the papers.

Okay, great, thank you.

Thank you.

Now to the line of Tobey Sommers from SunTrust Robinson.

Thank you.

Gary, just had a question for you on Futurestep.

Their customers often talk about big group hires that get executed over a period of time.

I was wondering if you could tell us, give us some color on whether they are following through the plans that take a while to execute?

Absolutely.

We haven't seen any kind of material cancellations, or anything like that.

Our Futurestep business, as you know, we continue to move it from single search to RPO consulting business.

We still have a fair amount of single search that we do, but we haven't seen any signs like that.

Is it still your view that for now social media is a tool for your business, particularly in the Futurestep single search level, or is it also a competitor?

I think social media is a way of life.

I mean it is.

We hope to take advantage of it.

We are driving with a strategy to absolutely do that.

We view it as a tool.

We view it as an opportunity.

We view it as a way of life.

Alright, thank you.

And now to the line of Frank Atkins with SunTrust.

Please go ahead.

Thanks.

Three quick numbers questions if you can.

The tax rate implied in guidance, or that was used in guidance, the percentage or the amount of revenue from leadership consulting, and also if you could give the average fee per assignment on a consolidated basis?

Sure.

The implied tax rate in the guidance for the fourth quarter would be approximately 35%.

As a matter of practice, give out the LTC figures in the way of guidance, but Frank you should assume that it is roughly flat with the third quarter.

I am sorry, what was the last question?

I guess the leadership I was actually asking what was revenue from 3Q?

I think Gary commented on that, but it was $28 million.

Okay.

And the last one was consolidated average fee per assignment?

Consolidated is about $83,000.

Okay, great, thank you very much.

Now for the line of Mark Marcon from RW Baird.

On the LTC business, you have actually seen some fairly good growth.

Can you talk about the areas of strength you are seeing there?

How widespread is it?

Are you going to split it out as we look out towards the next fiscal year?

We believe that is an integral part of our executive recruiting business.

We are going to continue to evaluate that.

When you look at the service offerings there from onboarding to succession planning to strategic alignment, we have seen very good growth across the different service lines, and we are very proud that this was a $6 million to $7 million assessment practice 6.5 years ago, and today we are running at almost $120 million a year, and our goal is to create the most globally relevant leadership business in the world.

We believe that, that should be a quarter of a billion dollar business for us, and that is what we are aiming to build.

Great.

Can you talk a little bit about the headcount plans as you look out based on what you are currently seeing?

How much capacity should we think we have in the system at this point, Gary?

Should we anticipate further, now that we have made some actions and it looks like maybe the US is stabilized, that we are going to start picking up the hiring, or how should we think about that?

We do think, just take financial services as a quick example.

As our portfolio, we typically target 20% or so, it is running at 15%.

That is going to generate whatever it is, $40 million to $50 million easily with the fabulous team that we have.

We have just a world-class team there.

You can just look at that automatically without blinking an eye.

Again, we believe that we certainly have room for capacity.

What we have done on the consultant count was very planned, and we did it, that decision was made literally it seems like six or seven months ago.

The other practices, Gary, financial services, you are one of the most astute observers of the industry, you have obviously practiced in the industry yourself, so you know it could take a while before that comes back just from a demand perspective.

I am just thinking the other service lines?

We are running right now at globally a little bit south of 1.4 million.

We would hope that there would be another 10%, if not more on top of that.

Why shouldn't there be?

Okay, great.

Thank you.

It appears that there are no further questions, Mr.

Burnison.

Listen, I greatly appreciate everyone this afternoon for listening.

Thank you for our shareholders, thank you for our shareholders, thank you for our colleagues, and we look forward to speaking to you again.

Thank you.

Thank you.

Ladies and gentlemen, this conference will be available for replay for one week starting today at 7 PM Eastern Standard Time, and running through March 14th at Midnight.

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