Korn Ferry (KFY) 2013 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Korn/Ferry International second quarter fiscal year 2013 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 call is being recorded for replay purposes.

Before I turn the call over to your host, Mr. Gary Burnison, let me first read a cautionary statement to investors.

Certain statements made on the call today, such as those relating to future performance, plans and goals, 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 in the Company's annual report for fiscal 2012 and in the other periodic reports filed by the Company with the SEC.

Also, some of the comments today may reference non-GAAP financial measures, such as constant currency amounts.

Additional information concerning these measures, including reconciliations to the most directly comparable GAAP financial measure, is contained in the release relating to this call, which is posted on the company's website at www.kornferry.com.

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

Please go ahead, sir.

Okay, well, good morning, everyone, and thanks for joining us.

I've got Gregg Kvochak here with Bob Rozek.

First, I'm going to comment on our results for the quarter.

I'm very pleased with our quarterly results.

More importantly, I'm proud of this Company and I'm proud of our strategic progress that we are making.

Revenue for the quarter was about $196 million.

It was up slightly sequentially.

The adjusted operating margin was slightly over 9%.

As we celebrate the holiday season here and wind down 2012, I don't need to tell you that the narrative on the economic climate hasn't changed drastically over the course of this year.

But I actually believe that's opportunity, that great companies make their best moves in times like this.

And we have been a company that has saved during summer so that we could invest in winter.

That's what Korn/Ferry is all about.

Korn/Ferry has an insatiable appetite to grow, to learn, to expand.

As I talk to CEOs across the world in every geography, every industry, there is a real fight today.

There is a real fight for growth; there is a real fight for relevancy.

And quite frankly, I think that's going to continue for the balance of this decade.

So if you consider that as a truth, CEOs are going to need a workforce that is incredibly innovative and it's highly learning agile.

Having the ability to tap borderless consumers on every continent, not to mention a leadership team that can drive smart growth.

Because I think the days, the couple of decades we've had of relatively easier growth are gone forever.

Today the workforce is global, it's mobile, it's virtual, it's dynamic.

A company that not long ago did one thing has now found itself thrust into a very diverse ecosystem with suppliers in every part of the world, new customers, multi-generational teams.

And so as a result, as you look out over this next decade, today's businesses -- CEOs are going to need teams of people that are innovative and that have a high, high level of cultural dexterity.

The other thing that strikes me when I meet with CEOs is that they are asking more from fewer employees for less money.

And the result of that is that there's issues around fatigue, there's issues around morale, there's issues around alignment and engagement.

In this environment, this is the new normal.

This fight for smart growth is ideal for Korn/Ferry.

In this decade, it's going to be those companies that not only possess the innovative teams tapping a borderless economy, but those that can more effectively link their business and their talent strategies.

And that's the company that we are building.

That's Korn/Ferry.

We are the premier talent solutions advisory company in the world.

And that's why I am very excited about the definitive agreement that we signed to acquire PDI Ninth House.

PDI Ninth House has been in business for 45 years.

It's a globally recognized leadership development solutions firm with top-notch people, world-class intellectual property and global reach.

So when we lay forth the environment for the next decade, we believe that this pending acquisition with PDI is going to accelerate Korn/Ferry being that linkage, that bridge between a CEO's vision and their people strategy.

The strength of our firm, the strength of our differentiated, our diversified model was further evidenced during this last quarter.

Our leadership offering was up 34% constant currency, 14% without Global Novations, Futurestep up 8% constant currency.

As we look forward now to next year, to next calendar year, we are going to remain absolutely vigilant about accelerating our clients' success.

We are committed to leveraging R&D, intellectual property as differentiators and, increasingly, integrating IP within our company, cascading innovation to clients.

And so in 2013, calendar 2013, we are going to continue to drive an integrated solutions-based go-to-market strategy, delivering client excellence through IP.

We're going to also extend and elevate our brand to the highest levels of clients we serve.

We are going to advance Korn/Ferry as the premier career destination in the industry.

And finally, as evidenced by this pending acquisition of PDI Ninth House, we are pursuing our long-term growth strategy by executing a systematic approach to creating high-quality solutions, high-quality reasons, high-quality intellectual property that differentiates this great firm of Korn/Ferry.

So with that, I will turn it over to our CFO, Bob Rozek.

Bob?

Thanks, Gary.

Good morning, everybody.

Over the past two quarters, we have thoughtfully and strategically deployed capital to improve our existing operations and strengthen our market position with the acquisition of Global Novations and now the pending acquisition of PDI Ninth House.

We are very excited about both of these transactions and we look forward to welcoming PDI Ninth House to Korn/Ferry.

These investments represent major steps towards fulfilling our objective of building the industry's leading talent management solutions company and will really be important catalysts for driving future growth and profitability.

Currently, in a difficult economic environment, one of the things we continue to focus on is building market share around the world.

In our fiscal 2013 second quarter, despite the seasonality impacts from summer vacations and so on, our consolidated fee revenue grew $4.3 million or 2.3% sequentially on an organic basis.

If you include the two months of Global Novations revenue of $5.2 million, our consolidated fee revenue grew $9.5 million or 5% compared to the first quarter, reaching approximately $196 million.

And 35% of that revenue came from LTC and Futurestep.

On a constant currency basis, fee revenue in the second order was down organically $4.4 million or 2.2% year-over-year, and including Global Novations it was up $700,000 or 30 basis points with the growth in both L&TC and Futurestep being substantially offset by the decline in executive search.

On our first quarter earnings call, you may remember, we indicated that we would be taking steps to better align our cost structure and improve our near-term profitability.

We talked about getting our margins up into the double digits.

The actions that were contemplated as part of that were completed in the second quarter and we estimate them to result in approximately $20 million to $23 million of annual cost savings.

And the savings are going to be realized primarily through reduced salaries and benefits related to reduction in worldwide headcount and, to a lesser extent, through select office consolidations and a closure.

In addition, we have and continue to put in place a number of programs that are driving efficiencies in our G&A spend.

We will begin to realize these savings in the third quarter and, net of new investments, these savings will help us drive greater future profitability.

The cost of achieving those savings resulted in a net charge to earnings in the second quarter of $15.5 million.

Now, when you exclude those restructuring charges, our operating earnings in the second quarter were $18.3 million with a 9.3% margin.

This compares favorably to the $17 million of operating earnings we had in the fiscal first quarter and a 9.1% margin, and it also compares to $25.4 million and a 12.7% margin in the second quarter of fiscal 2012.

Sequentially, improved earnings and profitability were driven primarily by higher fee revenue in the LTC segment on a stable cost base.

Year-over-year, when you look at the decline in operating earnings and margin, it really was due to a reduction in mix shift from executive search revenue to LTC and Futurestep as well as the impact of unfavorable market movements associated with our deferred compensation programs.

Our second-quarter ending cash and marketable securities balance was $332 million and was essentially flat compared to the first quarter despite the $35 million cash disbursement we made for the acquisition of Global Novations.

So we are very happy with our cash performance.

When you exclude cash and marketable securities reserved for deferred compensation arrangements and accrued bonuses, and when you set aside the $80 million of cash consideration for the pending acquisition of PDI Ninth House, our investable cash balance will approximate $105 million.

Finally, when excluding the restructuring charges, fiscal 2013 second quarter adjusted earnings per share were $0.25 compared to $0.22 in the first quarter of fiscal 2013 and $0.32 in the second quarter of fiscal 2012.

When you include those restructuring charges, our fiscal 2013 second quarter GAAP earnings per share was $0.03.

I'm going to turn the call over to Gregg, who will review our reporting segments in a little more detail.

Thanks, Bob.

We will start with our Executive Recruitment segment.

Despite summer seasonality, worldwide sequential demand for our Executive Recruitment services remained stable in the second quarter.

Consolidated Executive Recruitment fee revenue in the second quarter was $127.7 million, which was up $300,000 or 24 basis points sequentially and down $14.7 million or 10% year-over-year.

Excluding the effect of foreign currency exchange rates, consolidated Executive Recruitment fee revenue was down 30 basis points sequentially and 8% year-over-year.

Regionally at constant currency, North America was off 4% and South America was down 15%, while both Europe and Asia-Pacific grew 10% and 4%, respectively, on a sequential basis.

Year-over-year, also on a constant currency basis, all of our executive search regions were down with North America down 10%, South America down 1%, Europe down only 30 basis points and Asia-Pacific off 14%.

Several of our Executive Recruitment specialty practices grew in the second quarter compared to the first quarter.

At actual rates, both the consumer goods and financial services practices grew 9% sequentially while the industrial practice was up 3%.

This growth was offset by weakness in the life sciences, healthcare and technology practices, which were off 6% and 5%, respectively.

Year-over-year, also at actual rates, all of our specialty practices were down with financial services down 10%, consumer goods down 5% and the industrial life sciences/healthcare practices down 14% each.

The total number of dedicated executive recruiting consultants worldwide at the end of the second quarter was 402, down 15 year-over-year and 11 sequentially.

Annualized fee revenue production per consultant in the second quarter was approximately $1.25 million compared to approximately $1.23 million in the first quarter of fiscal 2013 and $1.30 million in the second quarter of fiscal 2012.

The number of new search assignments open worldwide in the second quarter was 1172, which was down 3% sequentially and down 5% year-over-year.

Excluding restructuring charges, consolidated executive search operating earnings fell $1.26 million or 5.6% sequentially to $21.2 million on flat fee revenue with most of the executive search-related cost-saving actions previously discussed benefiting the third quarter.

When compared to the second quarter of fiscal 2012, consolidated executive search operating earnings in the second quarter of fiscal 2013 were down $10.9 million or 34%, driven primarily by lower fee revenue, partially offset by lower operating expenses.

The worldwide consolidated executive search operating margin was 16.6% in the second quarter of fiscal 2013 compared to 17.6% in the first quarter and 22.5% in the second quarter of fiscal 2012.

Now turning to Leadership & Talent Consulting, in the second quarter of fiscal 2013 worldwide fee revenue for LTC was $38.4 million, up $4.2 million or 14.3% organically year over year, and including $5.2 million of Global Novations fee revenue, up $9.4 million or 32% year-over-year.

A constant currency basis, all LTC operating regions grew year-over-year, led by Europe and North America, which were up 42% and 32%, respectively.

On a sequential basis at constant currency, LTC was up $10 million or 35% with organic growth in all regions.

Regionally, North America accounted for approximately 69% of total LTC worldwide revenue in the second quarter compared to 65% in the first quarter.

At the end of the second quarter, there were 72 dedicated LTC consultants, including an additional 22 from Global Novations.

Driven by higher revenue and greater professional staff utilization, LTC's fiscal second-quarter operating earnings grew $2.7 million or 63% both year-over-year and sequentially to $6.9 million with a 350 basis point improvement in operating margin compared to the second quarter of fiscal 2012 and a 300 basis point improvement relative to the first quarter of fiscal 2013.

Finally, turning to Futurestep, which generated $30 million of worldwide fee revenue in the second quarter -- at actual rates, Futurestep's fee revenue grew 5% year-over-year and was down 3% sequentially.

Based on a constant currency basis, Futurestep's second quarter fee revenue was up $1.7 million or 8% year-over-year and down $1.1 million or 3% sequentially.

Geographically, on a constant currency basis, all operating regions grow year-over-year, led by Europe and Asia-Pacific, which were up 15% and 7%, respectively.

Sequentially, North America and Europe were down 5% and 2%, respectively.

Futurestep's profitability improved both year-over-year and sequentially in the second quarter.

Excluding allocated overhead, Futurestep's operating margin was 11.1% in the second quarter compared to 10% in the second quarter of fiscal 2012 and 10.3% in the first quarter of fiscal 2013.

Now I will turn the call back over to Bob to discuss our outlook for the third quarter of fiscal 2013.

Thanks, Gregg.

As you can see, our second quarter was very busy as we were deploying our capital through actual and pending acquisitions and realigning our cost structure.

In the second quarter, as we expected, our monthly new business awards started seasonally weak in August but improved sequentially September to October.

Similar to the second quarter, the third quarter is historically seasonally slower due primarily to new orders during the year-end holidays.

So far, early in the third quarter of fiscal 2013, consolidated new business awards have trended at a pace that are essentially in line with what we would expect.

Assuming the worldwide the economic conditions, financial markets and foreign exchange rates remain steady, and excluding the impact of the pending acquisition of PDI Ninth House, our fiscal 2013 third-quarter adjusted stand-alone consolidated fee revenue is likely to range from $188 million to $201 million, and adjusted stand-alone diluted earnings per share is likely to range from $0.26 to $0.34.

Now, assuming a December 31 close, we expect to begin the integration of PDI Ninth House into our global Leadership and Talent Consulting segment in January of 2013.

Operationally, for the month of January 2013, which is a seasonally low month, PDI Ninth House is expected to contribute between $6 million in $7 million of fee revenue and, prior to the effects of any purchase accounting amortization, breakeven operating earnings.

The integration of PDI Ninth House will involve workforce alignment, consolidation of office space and the elimination of redundant G&A spending.

In order to achieve these synergies, we estimate that in the third quarter, we will incur charges relating to the integration of PDI of between $2.5 million and $3.5 million.

In the current environment, PDI Ninth House is expected to generate annual fee revenue of approximately $90 million to $100 million with an 8% to 10% EBITDA margin before integration and cost synergies and an EBITDA margin of approximately 16% to 18% thereafter.

Also associated with the merger, we expect to incur incremental legal and professional fees in the third quarter of approximately $2.5 million.

On a consolidated basis, assuming the pending acquisition of PDI Ninth House, our fiscal third-quarter fee revenue is likely to range from $194 million to $208 million, and excluding $0.06 to $0.08 per share of estimated incremental charges relating to the integration as well as the incremental legal and professional fees, adjusted consolidated diluted earnings per share is likely to range from $0.26 to $0.34 With diluted earnings per share as measured by US GAAP likely to be in the range of $0.18 to $0.28.

That concludes my prepared remarks and I would like to wish everyone a wonderful holiday season.

Now I'll turn it back over to Gary.

Well, thank you, Bob.

Okay, operator, you want to take questions?

(Operator instructions).

Tim McHugh, William Blair & Co.

First, I wanted to ask about PDI.

Can you just give us a little more color on -- I guess, looking at the website, there's a variety of services they offer and it looks like some of it is more solutions and some of it is more traditional time and materials.

Can you just give us a flavor for -- is there any particular area that accounts for a larger than normal percentage of the revenue?

And is it more consulting type of time and materials revenue, or more of a solution sale?

Let me try to answer that for you and first step back.

We believe -- we want Korn/Ferry to be synonymous with the premier talent solutions company in the world.

We see a significant opportunity ahead of us, and so we are continuing to build solutions and services that differentiate this great Company and make this brand more elastic.

In that, our goal is to create the most globally relevant leadership business in the world, which we will do.

Today, we have a leadership business that is on a run rate right now of about $160 million in the current economic environment, in the current quarter annualized.

With PDI, you would have a company that is essentially $100 million, again, in this current economic quarter, annualized.

So you would have a $0.25 billion leadership organization that is committed to making better leaders for a better world, that is committed to changing the lives of people and accelerating our clients' destination.

So we see a multi-hundred million dollar opportunity for us.

And then I would remind you that that leadership business was a practice just a few short years ago with $6 million or $7 million.

When we look at PDI, what does that give us?

That gives us fabulous people with tremendous intellectual property that is all research-based.

They share our passion that everything that we do needs to be research-based.

They are approximately in 20 countries around the world.

And when you look at their business, it fits very, very nicely into ours to create the most globally relevant leadership business in the world.

When you look at the business that they are doing and in this current economic environment, current quarter, kind of annualized, if you will -- I'm rounding, kind of $100 million -- you would say that 25% of that would be product-based, so things like performance management doing 360s, licenses around intellectual property, books, all those kinds of things -- just call it, again, approximately 25%.

Then, when you look at the balance of the organization, it would be around assessment, making better leaders for a better world, development and coaching.

And so you look at this great company of PDI that I'm very, very excited about, and what it brings Korn/Ferry is additional developmental capabilities to give to CEOs, to boards, to teams.

It gives much greater depth around assessment capabilities.

It has technology-enabled learning capability that we really believe that we can scale.

It has got great technology.

And so I am extremely optimistic about this one, and I would also say that this is a company that I have personally known for eight years.

Okay, great, that's helpful.

On the assessment part, can you contrast -- I think a lot of investors probably saw -- Corporate Executive Board bought SHL earlier this year, and people have been hearing that term, kind of talent assessment, more from them.

This is much higher end, from what I'm understanding.

But do the best you can, can you contrast that?

Yes, it is very high.

This is absolutely very high end.

We are committed to making better leaders for a better world.

Now, having said that, when you look at the world's population of 7 billion and you think about the outliers of achievement, it's not only in the C suite.

And so we do believe that we have got more insight than anybody else about who somebody is, and not just in the corner office but throughout an organization.

So as we think about this strategy of the Company and scaling this, we think there's enormous potential, for example, around our Futurestep offering and what we can do there with knowledge workers.

Between Korn/Ferry and PDI, assuming the pending acquisition closes, you've got a company that has assessed millions, millions of executives.

So this is oriented more towards the high end, but we see the significant opportunity to scale that.

Okay, and then on the margins, I think, Bob, did you say 6% to 8% before the synergies -- EBITDA margins, that was?

8% to 10% on the EBITDA margins before synergy --

Oh, okay.

And 16% to 18% post synergies.

Okay, so I can back into, then, it's something like $7 million, $8 million of cost synergies of what you guys are identifying?

Yes.

And that, again -- this is -- I would say, Tim, that this is obviously -- this is a revenue story.

Korn/Ferry is absolutely obsessed with making the brand more elastic, differentiating our wonderful search business.

This is a growth story.

So what we are talking about here is just in the current operating environment bringing these organizations together and really focused in on the expense side.

Do you have everything you need -- or I guess you never have everything you need.

But after Global Novations and PDI, how do you think about, with incremental capital and -- now at this point?

Have you built up leadership enough that you would focus at repurchases, or Futurestep or something else, instead?

Or are there more pieces that are immediately identifiable that you would like to continue to look for?

Well, look, we've got some pretty bold and audacious ambitions here.

I think we -- this is all about execution, and execution is all about people and motivating people to get up at 4.30 without the alarm clock and getting people to work together -- that's what a CEO does.

So I think what we've got to focus on here is how do we grow what we have.

We are always -- we have been very systematic in looking for high-quality solutions, intellectual property that differentiate this brand and this wonderful flagship search business that we have.

That's my passion, is to differentiate that business.

So we are going to continue to look.

We have been very, very, I think, consistent that our first priority with capital is to invest it into the business; that would be number one.

But we are also mindful of making sure that we are earning the kinds of returns on that capital that shareholders would be satisfied with.

So we are going to continue on with our playbook here.

I don't think anything is going to really change.

Okay, thank you.

Tobey Sommer, SunTrust.

High, this is [Frank] in for Toby.

Thanks for taking my question.

I wanted to ask a little bit about North America.

What is your view in terms of seasonality expectations there?

And what is going on in the financial sector?

Is there any impact to pricing or recent trends?

The financial sector, you mean financial services?

Yes.

Oh, it's extremely difficult, and it's going to continue to be difficult for a long time.

There's no question about that.

And so I -- we've got an absolute -- look, we've got a fantastic team in financial services.

I would say it's the best, absolutely the best in the industry.

But I think that you have to be quite -- you've got to assess reality.

As a leader, you have to assess reality.

And I think that for some time here, it's going to continue to be challenging and there's going to be head winds.

But that actually presents opportunity for us and for Korn/Ferry.

That's how we have to look at it.

But I think the industry is being re-regulated.

You don't know what the capital requirements are actually going to be.

There's a lot of uncertainty there and I think that's going to continue.

Okay, great.

And could I get a quick update on the SuccessFactors partnership?

I know it's early stages, but how are things going there?

Yes.

Well, we -- and so far, it's still early days.

We believe that we've got tremendous intellectual property that we can deliver to clients to accelerate their destination.

And in terms of channels to distribute that, one of those channels would be through SAP SuccessFactors.

And so we have a big initiative around productizing, digitizing and distributing our intellectual property.

I think it's really still early days, but so far so good in terms of how we are approaching it.

Okay, and finally, in your prepared remarks, you talked about the global nature of PDI.

Could you give us any insight into where the revenue by geography is and where that is expected to go and how that complements your current --

It pretty much -- again, I'm going to speak right up on that.

It kind of mirrors our footprint pretty nicely, when you look at our firm overall.

So when you look, it's -- they may have a little bit more in the US than we do.

Korn/Ferry today is probably, I don't know, 47%, 50% US.

PDI would have a little bit more in the US, but it's pretty close to how we --

And the other thing it will allow us to do is also start to really get the scope and scale that we need in EMEA and in Asia Pac.

Alright, great, thank you very much.

(Operator instructions) Mark Marcon, Robert W. Baird.

Good morning and congratulations on the acquisition.

It looks like it's a really nice strategic fit.

Can you talk a little bit more about how much of the business is somewhat recurring in nature versus how much is discretionary, that's re-upped every year, compare and contrast the two some of your other leadership and talent development businesses?

Again, it's hard to generalize, Mark, but I would say that the nature of the work for PDI is more recurring than some of the work that we have at Korn/Ferry.

And so you will see a very, very high level of consistency in their top clients year after year after year.

So I would characterize it as less episodic than some parts of our leadership business.

What would be those recurring type of solutions that you would provide?

Those would be anchored around assessment, Mark, and so those could be in the C suite.

It could be in terms of pivotal leaders, knowledge workers, professionals, and it could be in the category of the vital many.

But I think you would find it much more recurring around assessment as well as the performance management piece around 360s.

And Mark, this is Bob.

A number of their relationships have contracts that will provide for assessments over a period of time.

There's no individual annual guarantees, but they are provided over a longer period of time so that creates the recurring revenue streams that Gary is referring to.

Great.

And who would you typically end up selling them to in terms of the key contact at the clients?

Can you talk a little bit about the types of clients that they would typically have?

Well, we are not going to mention client names.

Not the specific names, but large global (multiple speakers).

Well, yes, Mark, absolutely.

Again, it's much like our client base.

When you line them up, it's just incredible.

It fits very, very nicely together.

And in terms of the buyer, it's not going to be that much different than for, say, at Korn/Ferry.

And when you look at our constituencies, you would find that the board room is a constituency, the C suite is a constituency and then the broad HR organization is a constituency.

And so it's really those three.

Okay, great.

And then, with regards to the improvement in the margins that you spoke of, can you talk about specifically where or how you would improve the margins?

That seems like a pretty dramatic increase.

Well, Bob has a certainly laid a high benchmark, haven't you?

Yes, you set high expectations.

Well, yes, yes.

And we will deliver on those expectations.

I think right now, as we look at the synergies that we are attempting to drive into the organization, Mark, I would say probably 60% to 65% will come from reduced sales and benefits on a combined basis.

There's probably another 25% or so that's going to come from synergy that we are going to realize out of combining our real estate platforms.

And then the remaining amount will just come more naturally, I would say, from the G&A savings where you don't have two sets of auditors, you don't have two sets of outside counsel any longer and so on, and so we will get some natural synergies out of that (multiple speakers).

I'm joking to Bob.

This has got to be a growth story, right?

So that's how we are going to be oriented.

That's how we are approaching it.

How can we grow, how can we differentiate?

That's what our focus is going to be.

But naturally, when you look at things like -- in real estate, there's going to be some overlap.

We can do some creative things that are cool with real estate.

There's opportunity there.

And what was the growth rate?

What has the growth rate been for the last couple of years?

Growth rate of their business would be single-digit growth rate, Mark, high-single digit, last few years, couple of years.

So in a tough environment, it has been high-single digits?

Yes.

That's right.

And you are anticipating -- in terms of getting to the margin profile that you were referring to, what sort of growth rate would you need to accelerate that to?

Or, would you just assume that that's going to continue?

I'm going to assume that that's -- for now, right, for now.

We only guide out quarterly.

Right?

Sure.

So I'm just going to assume that that's --

I'm just trying to look at the potential return on invested capital in terms of what you paid relative to what you think the profitability is going to be and how quickly you can achieve that.

Yes, yes, yes.

If you look at the organic growth rate of our leadership business, it's pretty impressive.

So I think if one would kind of say that if PDI has been single-digit and Korn/Ferry's leadership business has been significantly beyond, you should probably split the difference, right?

We do see a lot of client pull here in terms of significantly differentiating our research business, our brand, our Futurestep business.

But this is a challenging economic time as well.

Okay, and is there any overlap between your current leadership business and what they offer?

Well, we think that it's quite complementary in terms of the solutions and intellectual property.

And to be quite candid, we just don't have enough depth and scale in our leadership business today.

Quite simply, we need more intellectual property.

We need more research.

We need more science and we need more people and more global coverage.

And this does it pretty significantly.

Great, and then in terms of just going to the core executive search business, can you talk a little bit about any sort of potential changes that you're seeing in terms of competitive set or alternatives or behavioral changes at your clients?

Mark, it's pretty much the same.

We have tried to hold the line on pricing.

One of the strategies of the Company was to make sure we elevate the brand, the level at which we are operating within an organization.

I think objectively we have clearly, clearly done that.

It continues to be for any business a real fight for growth and relevancy.

That's why something like this investment, the things we are doing with SuccessFactors, with Futurestep, with intellectual property -- it makes us more relevant, and I think it's going to result in greater share in that core flagship search business.

Great, and then in terms of -- you mentioned a little bit about the monthly trends, and that seems to be more a function of seasonality.

Can you talk a little bit about the year-over-year trends by month in North America?

Yes.

I think, if you go in, Mark, and you look at the year-over-year trends, it continues to be pretty choppy.

But it's saying within a relatively what I'll call narrow band as we -- you can go back over the past two years -- in one month you have a pretty good month and then you have another month or two where it drops down again and it pops back up again for a couple months.

But it's generally in the $20 million plus range, plus or minus, on either side a couple million on a month by month basis.

And it's been like that for probably the past 12 to 18 months.

So kind of basing out at that level so that that 10% year-over-year decline should start basing out and basically the year-over-year decline should decline?

I would hope so.

But again, I caution everybody, with everything we've talked about, we've got this fiscal cliff here that if something happens here in the next two or three weeks, all bets are off.

Well, something is going to happen.

That could be good.

Asia Pac -- what are you seeing there geographically in terms of -- what are the areas that are doing better on a relative basis?

What are the areas that seem to be getting a little bit worse?

I would like to think that we are going to see a pickup in industrial again here over the next few months.

I think that's going to happen with the monetary policy in China.

I believe that's going to happen in the change of leadership.

Financial services still very, very tough in Asia; that's going to continue.

Hopefully, we'll see some traction, increased traction in industrial.

I think, from talking to our folks there, there's some bullishness in terms of China with the change in the government and political structure over there.

I think there's some budding optimism that I see in China.

And then, just on the balance sheet, with the accrual that you have made for bonuses, what's the usable cash?

The net investable cash -- that was what I commented on, Mark, in my prepared remarks.

After -- if you reserve the money for the pending acquisition, it's about $105 million of investable cash.

In that balance, we would obviously need to maintain levels of working capital and so on, but if you go back to our pure definition of net investable cash, it's about $105 million.

Okay.

And are you thinking about -- obviously, a lot of other companies are returning some to shareholders prior to the end of the calendar year.

Any thoughts there?

Not before the end of the calendar year, Mark.

Okay, thank you.

Josh Vogel, Sidoti & Company.

I'm sorry; I jumped little late, so I'm sorry if you're repeating anything here.

But Bob, you were talking about the EBITDA margins at PDI.

I think you said they were 8% to 10%.

Was that the trailing EBITDA margin?

Yes.

Okay.

Because I'm just trying to get a sense of the multiple you pay on PDI versus prior deals -- was it higher, lower, in line?

We generally don't comment on that level of specificity.

Okay, and what about just the pipeline for additional opportunities on the LTC front?

When you say -- pipeline of what?

Acquisition opportunity, sorry.

You know, again, we are always looking.

We've always been looking.

This is my -- I've been here 10.5 years.

We have been very, very consistent and we are going to continue to run that playbook as a Company.

Okay, and what percent of your executive recruiting clients are using your LTC services as well?

Well, when you look at our -- for example, you take a look at our top 50 clients, 82% of those are using two out of our three service lines.

When you look at our strategic accounts, a significant portion of those are using our LTC service offerings.

So we think, given what CEOs are fighting and what they are going to continue to fight over the next several years, we think there's going to be quite natural pull to how do you align a workforce, how do you take common purpose, how do you take vision and how do you align that to your work for strategy when you are asking more out of people.

There's less people, you need to be innovative, you need to have cultural dexterity.

Korn/Ferry is that bridge between a CEO's common purpose and vision and their workforce.

So we think that there is pull, natural pull.

And we are trying to accelerate that.

Okay.

Just one more -- I was reading some literature about trends within the Fortune 500 firms where they are bringing their executive recruiting spend in house.

I was wondering what you are seeing within your client base.

Sure.

That comes and goes.

I've been a 10.5 years; it goes through 1000 cycles.

The thing I will tell you -- as a CEO, you are always going to want somebody that's going to give you that independent view of who somebody is, and it's not going to be tarnished by an internal lens.

I will tell you that, as a CEO, I believe it.

You're going to want that firm that is your talent advisor.

So you see this come and go.

You see it with internal audit, you see outsourcing, insourcing.

It just kind of goes with the cycles.

So there's obviously right now a big focus on costs and the like.

So you're going to see that.

Okay, thanks a lot.

And with no further questions I will turn it back to you, Mr. Burnison.

Okay, well, listen, I want to thank everyone for your time.

I am proud of this Company.

Our search business is the ultimate differentiator for our Company.

It gives us tremendous brand permission.

It grants us trust.

It serves as the edge.

And even though economic climate continues to be unsettled, I think that history has definitely shown that challenges present an opportunity, but only for the nimble, only for the determined, only those that have saved money during summer.

We are a company that continues to view the world both outside-in and inside-out, and we've got a relentless focus on how we can link a CEO's business and talent strategy.

And so we see this environment, this real fight for growth, doing more with less, as an opportunity for Korn/Ferry.

So I'm proud of our efforts in 2012.

I'm confident about how we are aligned in 2013.

I want to thank our shareholders and, more importantly, as importantly, I want to thank our fabulous colleagues around the world.

Happy holidays to everybody.

Thank you.

Ladies and gentlemen, this conference call will be available for replay for one week, starting today at 11 AM Eastern standard, running through the day, December 13 at midnight.

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