Korn Ferry (KFY) 2013 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Korn/Ferry International, third-quarter fiscal year 2013 conference call.

At this time, all participants are in 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 in 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 of 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 for fiscal 2012, and in 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 to Mr. Burnison.

Please go ahead Mr. Burnison.

Well, thank you, everybody, and good afternoon.

I'm pleased with our results for the quarter and more importantly, our strategic progress as a firm.

Revenue for the quarter was $202 million, that's up 9% over last year, 2% on an organic basis.

Our adjusted operating margin was 8%, and we achieved $0.31 of adjusted EPS.

The balance sheet continues to be very strong, with $305 million of cash and marketable securities and no debt.

The pole of our strategy that we put in place several years ago was evident again this quarter, with the overall growth year over year within our broader talent management offerings.

Futurestep was up 17% year over year, and our leadership business was up about 5% organically, obviously was up a lot more if you include the recent acquisition.

Our flagship search business was up 2% sequentially, and still continues to maintain its industry-leading position.

You know, we talk a lot at Korn/Ferry about common purpose.

Our common purpose is to accelerate the destination of our clients, and change the lives of people, of clients, candidates and colleagues.

Today, when you look around the world, CEOs are faced with a wide variety of issues, most importantly, a fight for relevancy and growth.

And ultimately, regardless of the path that they choose, their organizations, work force, their people, that's what matters most.

So, questions like, how can a work force become better aligned with the strategy?

What skills are required to execute on their vision?

What talent is needed?

How will they overcome fatigue, accelerate engagement, and establish a common purpose in an overly connected world?

That's exactly what this firm is poised to do.

When I think about our organization, and the strategic progress that we've made, I would use the word transformation.

If you did Google Earth on us today, it looks substantially different than it did just a few years ago.

If you consider today that almost 40% of our revenue is being driven across broader talent solutions, that really wasn't in place not that long ago.

So, as an organization, as the premier provider of talent management solutions, our mission is to accelerate our client's success, and doing that by more effectively linking their business and talent strategies.

If you look at any organization today, we essentially do three things.

We can help an organization design a talent strategy, we can help an organization develop its people and finally, we can help an organization with the attraction of new talent into the organization.

Within the talent strategy design bucket there's a whole host of solutions from organizational design to strategy and talent alignment.

When you look at developing a work force, our solutions there would range from forward effectiveness to succession planning, CEO and top team effectiveness, leadership development, diversity and inclusion and online and blended learning products.

Finally, when you look at the bucket around talent attraction, that would include our flagship executive search business, our board recruiting business, our RPO business, onboarding, interviewing techniques and the like.

So, this is definitely when you look at our Company today, it's a different firm.

But I point out that search, for us, is the anchor.

It provides a significant competitive advantage, namely access and permission to talk about a client's broader talent agenda.

So, we are going to go forward following the strategy that we put in place several years ago, to be able to deliver a comprehensive approach to talent.

So, number one, we are going to continue to drive a solutions-based go-to-market strategy, secondly, deliver client excellence through intellectual property and process and technology.

We obviously are extending the brand of Korn/Ferry, and also elevating it.

We have to make our own organization continue to make that a premier clear destination.

Developing, building bottom-up capabilities within our work force.

Finally, as evidenced by our most recent acquisition of PDI Ninth House, pursue a long-term growth strategy through a pragmatic approach to M&A, that really serves to differentiate our organization.

And, give us reasons to talk to clients throughout the whole US.

So, as we sit here today completing the third quarter, I would say that I'm enormously proud of this Company and what we are doing.

And as the issues become more complex for CEOs fighting for growth, fighting for relevancy, that's exactly where this firm is positioned, to be that bridge between a CEO's vision and their work force strategy.

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

Bob?

Thanks, Gary, and good afternoon, everyone.

Two weeks ago I celebrated my one-year anniversary at Korn/Ferry, and in this short period of time, as Gary just walked through, much has really changed at the Company.

We've made tremendous progress continuing with our leadership position in executive search and have taken major steps towards diversifying our business mix, and really positioning the Company and the brand as one of the leading global providers of talent management solutions.

In the third quarter, in addition to driving the business forward, we had a great deal of energy and effort that went into welcoming and integrating our two recent acquisitions, PDI Ninth House and Global Novations.

These investments add scale and depth to our leadership and talent consulting business, and really complement our search and futurestep lines of business, which further demonstrates our commitment to adding diverse and synergistic capabilities to our industry-leading portfolio of talent management services and products.

As Gary said, our fiscal '13 third-quarter fee revenue grew $16.1 million, or nearly 9% year over year, and $5.8 million or 3% sequentially, reaching $202 million.

The overall mix of our fee revenue continues to shift, with year-over-year increases of about $13 million and $4.5 million in LNTC and futurestep respectively, offset by only a slight decrease in executive recruitment of $1.5 million.

On an organic basis, fee revenue was up 2% year over year and was essentially flat on a sequential basis.

In future quarters, given the rapid integration of Global Novations and PDI businesses into our leadership and talent management segment, we will be reporting consolidated LTC results -- that's really the way that we, as you bring the businesses into the fold, that we capture and measure the LTC operating activity.

On our second-quarter earnings call, we indicated that in the third quarter we would incur incremental charges related to our integration, as well as certain transaction costs associated with the acquisition of PDI Ninth House, which we obviously closed on December 31, 2012.

In the third quarter, we incurred $2.5 million of transaction and integration costs and $4.4 million of restructuring charges associated with the acquisition.

There's an additional $600,000 of separation charges in another operating segment.

The $4.4 million of restructuring costs was primarily associated with the alignment of our work force of PDI, and will result in approximately $5.5 million to $6 million of annual savings, which we will really start to realize in Q4.

Now, excluding all these charges, the adjusted operating earnings in the third quarter were $16.2 million and that represents an 8% margin.

This compares to adjusted operating earnings of $17.1 million and a 9.2% margin in the third quarter of fiscal '12, and $18.3 million of adjusted operating earnings and a 9.3% margin in the second quarter of fiscal '13.

Our third-quarter operating earnings were adversely affected by slightly lower than expected LNTC fee revenue, which Gregg will comment on later, as well as additional expense associated with our deferred comp programs, and the incremental purchase accounting amortization resulting from the two current-year acquisitions.

One of the things that you will note in our press release is we've included additional operating metrics, EBITDA and EBITDA margin.

And these are additional metrics that we now use to assess our performance period to period, as they exclude the impact of the incremental acquisition-related amortization, as well as providing for a comprehensive look at the impact of market movements from our deferred compensation program, which really allows us to better focus on operating results.

Our Q3 FY '13 adjusted EBITDA and EBITDA margin was $25.2 million and 12.5%, respectively, as compared to $22.5 million and 12.1% in the third quarter of fiscal '12 and $24.4 million and 12.5% in the second quarter of fiscal '13.

Our third-quarter ending cash and marketable securities balance is $305 million, and that was down about $27 million compared to the second quarter, even after you consider we paid $8 million for the acquisition of PDI Ninth House in the quarter.

Excluding cash and marketable securities reserved for deferred comp and accrued for bonuses, our investible cash balance is about $128 million with about 68% of this being located outside the US.

I would note that given the geographic dispersion of this cash, and our working capital needs, we would look to keep about $100 million of this on hand, which really leaves about $28 million of what we refer to as our net investible cash.

Finally, excluding restructuring, transaction integration charges and so on, fiscal '13 third-quarter adjusted earnings per share were $0.31, compared on the same basis to $0.25 in the second quarter of fiscal '13, and $0.26 in the third quarter of fiscal '12.

Our third-quarter earnings per share were negatively impacted by about $1 million or $0.01 per share of incremental purchase accounting amortization and were positively impacted by about $1.4 million or $0.03 per share of a tax benefit that was discrete to the quarter.

On a GAAP basis, our fiscal '13 third-quarter earnings per share were $0.20.

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

Thanks, Bob.

I'm going to start with our executive recruitment segment.

Despite year-end holiday seasonality, worldwide demand for our executive recruitment services improved in the third quarter.

Consolidated executive recruitment fee revenue in the third quarter was $130.5 million, up $2.7 million or 2.1% sequentially, and down $1.5 million or 1.2% year over year.

Excluding the effect of foreign currency exchange rates, consolidated executive recruitment fee revenue was up 1.7% sequentially, and down 1.1% year-over-year.

Regionally, at constant currency, North America was up 2.7%, South America was up 7.9%, both Europe and Asia-Pacific were down marginally by 80 basis points, and 10 basis points respectively, on a sequential basis.

Year-over-year, also on a constant currency basis, North America was down 1.2%, Europe was down 3%, Asia-Pacific was off 40 basis points, and South America was up 7.1%.

All of our executive recruitment specialty practices, except financial services, grew in the third quarter, compared to the second quarter.

At actual rates, consumer goods was up 1%, life sciences and healthcare was up 7%, technology was up 10%, and industrial was up 50 basis points.

Financial services was off 7% sequentially, and accounted for only 16% of all executive recruitment fee revenue in the third quarter.

Year-over-year, also at actual rates, all of our specialty practices, except industrial, were up with consumer goods up 10%, life sciences and healthcare up 3%, technology up 12% and financial services up 2%.

Worldwide the industrial practice was down 9% year-over-year in the third quarter.

The total number of dedicated executive recruiting consultants worldwide at the end of the third quarter was 390, which was down 8 year over year and 12 sequentially, primarily reflecting the results of our Q2 restructuring actions.

Annualized fee revenue production for consultants in the third quarter was approximately $1.31 million, compared to approximately $1.25 million in the second quarter of fiscal '13, and $1.28 million in the third quarter fiscal '12.

The number of new search assignments open worldwide in the second quarter was 1,138, which was down 3% sequentially and down 3.6% year over year.

Excluding separation charges in the third quarter, and restructuring charges in the second quarter, consolidated executive search adjusted operating earnings were $22.2 million, up $980,000 or 4.6% sequentially, primarily due to cost-saving actions initiated in the second quarter.

On the same basis, when compared to the third quarter of fiscal '12, consolidated executive search operating earnings in the third quarter of fiscal '13 were down $940,000 or 4%, driven primarily by lower fee revenue, partially offset by lower operating expenses.

The worldwide consolidated executive search operating margin was 17% in the third quarter of fiscal '13, compared to 16.6% in the second quarter, and 17.5% in the third quarter of fiscal '12.

Executive search adjusted EBITDA margin was 19.1% in the third quarter of fiscal '13, as compared to 18.2% in the second quarter of fiscal '13, and 19% in the third quarter of fiscal '12.

Now, turning to leadership and talent consulting.

In the third quarter of fiscal '13, worldwide fee revenue for LNTC was $41.2 million, up $1.5 million or 5% organically year over year and including acquisitions, was up $13.1 million or 47% year over year.

Excluding fee revenue from Global Novations and PDI Ninth House in both the second and third quarters, LNTC third-quarter fee revenue was down approximately $3.6 million, or 10% sequentially.

On a sequential basis, fee revenue growth trends in the third quarter were adversely affected by lower billable hours, due primarily to holiday seasonality and the ongoing integration activities, as well as seasonally lower new business volume.

Regionally, North America accounted for approximately 67% of total LNTC worldwide revenue in the third quarter, compared to 69% in the second quarter, prior to the PDI Ninth House acquisition.

At the end of the third quarter, there were 149 dedicated LNTC consultants.

Driven by the previously mentioned factors that collectively contributed to decelerating fee revenue, as well as increases in certain operating expenses such as acquisition-related amortization, bad debts and non-billable engagement expenses, LNTC's third-quarter adjusted operating earnings were down $3.5 million year over year, and $5.3 million sequentially, to $1.6 million with a lower operating margin of 4%.

Adjusted EBITDA margin in the third quarter was 8.4%, compared to 21.4% in the third quarter of fiscal '12, and 20.7% in the second quarter of fiscal '13.

Finally, turning to futurestep, which generated $30.4 million of worldwide fee revenue in the third quarter, at actual rates, futurestep's fee revenue in the third quarter grew 17.5% year-over-year, and 1.1% sequentially.

Measured on a constant currency basis, futurestep's third-quarter fee revenue was up $4.4 million or 17% year over year, and up $70,000 or 30 basis points sequentially.

Geographically, on a constant currency basis, all operating regions grew year over year led by North America, and Asia-Pacific, which were up 25% or 4% respectively.

Sequentially, North America was up 7%, Asia-Pacific was flat, and Europe was down 9%.

Futurestep's profitability continued to improve in the third quarter, and was up both year over year and sequentially.

Excluding allocated overhead, futurestep's operating margin was 12.3% in the third quarter, compared to 6.1% in the third quarter fiscal '12 and 11.1% in the second quarter of fiscal '13.

Adjusted EBITDA margin in the third quarter was 13.3%, compared to 7.2% in the third quarter of fiscal '12, and 12.1% in the second quarter of fiscal '13.

Now, I'll turn the call back over to Bob to discuss our outlook for the fourth quarter of fiscal '13.

Thanks a lot, Gregg.

As you can see, we had a good quarter and we are pleased with our results, which are in line with our expectations, despite the rapid integration of our newly acquired businesses.

New orders in January improved over December, and in executive search February new orders were on par with January.

Historically, our fiscal fourth quarter has been a seasonally strong quarter for new business and fee revenue.

In looking ahead to the fourth quarter, assuming the world stays fairly consistent with where we are today from an economic perspective, the financial markets and foreign exchange, fiscal '13 fourth-quarter fee revenue is likely to range from $210 million to $230 million.

Additionally in the fourth quarter, as you drive the next phase of our worldwide integration with PDI Ninth House, which involves the consolidation and elimination of redundant office space around the world, lease terminations, fixed asset write-offs and other charges associated with that consolidation are estimated to range between $3.5 million and $5.5 million, and are estimated to result in $2 million to $3 million of annual savings, which will start principally in fiscal '14.

Excluding these estimated charges, adjusted diluted earnings per share in the fourth quarter are likely to range from $0.28 to $0.34, with diluted earnings per share as measured by GAAP likely to be in the range of $0.21 to $0.29.

I'd like to also note that earnings per share on both an adjusted basis and a GAAP basis will include approximately $0.02 of incremental amortization expense associated with the recent acquisitions in the quarter, which is $0.01 incremental to what we incurred in the third quarter.

With that, we will now turn it over to Gary who will open it up for questions.

Okay.

Operator, can you open up the line?

(Operator Instructions)

Tobey Sommer, SunTrust.

This is Frank in for Toby.

In your prepared remarks, you highlighted strength in the technology sector.

Can you give us any color on what's driving that and maybe dig a little deeper maybe by geography?

You know, I would say that the improvement in the technology sector has been gradual.

If you look at, for example, take our search business today, it represents about 13% of the Company or so.

When you look across the geographies, it's been pretty balanced when you look at sequential growth.

So, I wouldn't pin it on one particular geography.

It's been pretty broad-based.

As well as across the sectors.

The other thing I would add to that too, Gary, it's not coincidental that technology started to turn when Byrne came on board as well.

Okay.

Great.

And in the LTC segment, can you talk to us about seasonality moving into the April quarter?

What should we expect their and kind of what's built into the middle of that guidance range?

The middle of the guidance range is going to assume that we've got PDI.

We only had PDI for one month here in this quarter.

We closed the transaction on December 31.

So, we are at the midpoint there.

We are assuming that we are going to have PDI for the full quarter at about the levels of business that we saw in January.

We are assuming that utilization is going to be slightly higher than what we had.

We had about 58% utilization in that business and it should be higher than that.

Offsetting that is going to be the significant integration activities that we still have going on, in terms of co-locating real estate and the like.

Okay.

Finally, can you talk a little bit about recruiting and attrition and what you are seeing in terms of hiring new folks?

Well, when you -- we are continually looking to add consultants into the businesses across all three segments of the organization.

That's something that we've consistently done quarter-over-quarter, year-over-year.

If you look at our search business today, we ended the quarter with about 390 or so consultants.

We don't guide out more than a quarter or so, but we are looking to invest in our people across all three businesses.

Great.

Thanks for taking my questions.

Tim McHugh, William Blair.

This is Stephen Sheldon in for Tim today.

First, in the executive search segment, it seems like I think you said every segment was up sequentially, every vertical was up sequentially except for financial services.

Can you just provide some additional color on what you're seeing in that vertical?

Well, we've seen in the last -- the last couple of months, it was two of our consecutive best months in terms of new business that we've seen in a year.

I mean, I go back to March of '12.

We had a pretty good month in terms of new business.

But, the last couple of months have been very strong, that we have strung together.

So, we are cautiously optimistic.

Financial services continues to be tough, but we've seen growth in the other segments, particularly in life sciences and healthcare.

That's been very, very strong for us.

Okay.

Great.

Then, just on the impact of the PDI revenue from cost cutting, is there going to be any impact from these changes that you have put through in the last few months?

Changes in terms of what?

The cost cutting measures that you put in place for PDI, just the synergies, I guess?

Is it going to have any top line impact for PDI?

I would say that the cost cutting measures that we did in the third quarter were the alignment of the workforce.

Now, we are going through the consolidation and co-location of folks.

So, we are going to be taking close to 600 people and moving them out of where -- what has become home for them to a new place.

Obviously, we are expecting there to be some level of disruption as a result of that activity.

It's just -- I think it's just normal human nature for that to happen.

We'd like to see the utilization of that LTC business, at say 70% or so.

This last quarter, we were at 58%.

It's doubtful we will be at 70% this next quarter, given what Bob just talked about, but as we look forward, we would expect that utilization to be significantly higher than 58%.

Okay.

And then one last one, if I could.

In Futurestep, it was -- performed really well and above what we had expected.

I think you said North America and APAC were particularly strong.

Is there any difference between the verticals, are you seeing anything from specific client sets?

Or, just any more color there would be appreciated.

Well, we've again, the life sciences and healthcare area has been very, very strong for us.

That's true across most of our businesses.

Futurestep is no exception there.

So, when I look sequentially, we did have higher growth in that part of the business on a sequential basis.

But, other than that, it's been pretty broad-based.

Good.

Thanks.

Kelly Flynn with Credit Suisse.

I'm not sure if you said this, but what's the organic growth year-over-year implied by the guidance for the quarter?

The organic -- for Q4 guidance?

Yes.

We don't -- as I indicated in my remarks, as we move forward, Kelly, as we integrate these businesses into each other, the integration creates a lot of synergies within the -- on the top line as well.

So, once we buy a business, for a very short period of time, we are looking at it independently, but going forward, I indicated we're just going to look at it as LTC.

So, we are not going to be able to pull it apart and say, well so much was related to Global Novations and PDI.

Just we're looking at it as an LTC bucket.

So, you just have to look at the growth rate in LTC quarter-to-quarter.

Okay.

I guess what I'm getting at, maybe you can help me with this.

I think you said if we exclude LTC for a second, the fee revenue for the search business, I think you said was down about 1.1% constant currency year-over-year.

Should we expect that to improve?

Be flat to up in the quarter?

I'm trying to understand if when you say the business is picking up, are we moving towards year-over-year growth as we progress through the year?

Well, that's certainly -- that's certainly our hope.

It's certainly good to see that this last quarter sequentially, which was a seasonal quarter, that we saw an increase in search.

And we would like to think that, that would be the case next quarter.

Okay.

Then, can you give any more qualitative color on the regions, particularly Europe?

How would you describe the feel of that environment?

Is it materially better?

Do you feel like it's really starting to pick up and re-accelerate?

Or is it still kind of dragging along but not worsening?

I would say that, that's it, it's kind of the new normal and there really hasn't been a marked change from what I've seen in terms of attitude.

Our business in Europe has performed remarkably well.

To see, even in this last quarter, to see a slight -- I say slight, sequential improvement, is good news for us.

Okay.

Great.

Last thing on financial services.

We could probably guess, but could you just give a little more detail on what particular areas of the industry are the weakest and whether or not that's looking like it's stabilizing or worsening?

Investment banking is clearly the softest.

And I would say that it has stabilized over many months.

Then, when you get into operations, technology, risk, compliance, that has been a stronger part of the market by function.

Okay.

Great.

Thank you so much.

Ty Govatos, TG Research.

Can you give me the bonus accrual for the quarter and the nine months?

Yes.

The bonus expense in the quarter was $28 million.

The nine months is roughly $81 million, $81.5 million.

And the RPO business, could you talk about that and what percentage now it is of the Futurestep operation?

The RPO business today is about 50% of the Futurestep operation, Futurestep is at $30 million, it's roughly $15 million.

Any reason to expect that to change anytime over the next year or two, that ratio?

Yes.

I think the focus of Byrne driving that business forward is to move into that into a direction of more heavily weighted towards RPO activity.

So, we would expect to see that, that percentage grow over the next year, two-year, three-year timeframe.

Okay.

Thanks.

Mark Marcon, RW Baird.

With regards to PDI and Global Novations, the contribution this quarter was somewhere around $11 million to $12 million.

The contribution from PDI, how much was that, specifically, for that one month?

That was at the low -- towards the low end of the guidance that we gave in the second quarter, Mark, right around the $6 million mark.

The $6 million mark and that was in for the full month, right?

It was just for one month, that's correct.

For one month.

So, with the expectation be that, given you have significant integration activities still to go through, would you expect that, that monthly run rate is a good proxy for what you would expect during the third -- during the coming quarter, before things normalize?

Yes, I think it is, realistically, Mark.

Given the significant activity we have around co-location and the like, I think as we sit here today, that's a reasonable expectation.

Do you think that -- all that co-location activity, will that impact the sales cycle as well as the ability to get existing work done?

So, I guess what I'm wondering, is at what point would you expect them to get to kind of the targeted utilization rate?

Well, overall, for our LTC business, the utilization rate was 58%.

We would like to see that more like 70%.

Right.

That would be our target.

So, as we look out, into this calendar year, our expectation would be that we come pretty close to that.

Okay.

So, and I guess I was just wondering, it sounded like for the coming fourth quarter, you don't expect that.

But, I was just trying to pin it down in terms of whether the first quarter of the next fiscal year we could get there or whether there would still be some lag and maybe we have to wait out a few more quarters beyond that?

I would say it's not going to be a few more quarters beyond that.

But whether it's fully -- if we fully get it done in this quarter, that's a question mark.

But, our intent here is to bring these colleagues in.

The response from clients has been fabulous.

The response from our existing colleagues -- I honestly couldn't be happier.

So, we will just have to work over time on the utilization of the entire, of the entire business, not just that particular aspect.

Great.

And then, with regards to, once you get to that utilization rate, how would you think about the margins in that particular business?

Do think it could get to the mid-teens to low-teens?

We do.

We do.

And in fact, if you look back, we've delivered on that in the past.

One of the things, too, this is our, I think our third best quarter ever in our LTC business.

We keep setting the bar higher for ourselves.

But, if you look back on what we've achieved, we've hit those kinds of margins in the business.

Great.

Futurestep is making really nice progress, even on incremental margins.

How should we think about that continuing to progress?

Well, we've always said that when you look at the organization, that the Futurestep margins will obviously be higher than staffing margins.

And will be less than, clearly, less than the executive search margin.

So it really depends on the mix of business.

And as Bob said to Ty, Byrne is really trying to orient that business towards bigger projects, RPO business, which tends to be more profitable business for us.

So, we would like to continue to see margin expansion in that business.

Then, there's some mention in the press release about use of contractors.

Can you just give us a sense for where that was -- where the utilization was from that perspective, and is that kind of a one, two quarter type of deal?

I think, Mark, depending on the mix of work we were doing and the skill sets that are needed to deliver it, we will either look in-house or outside for contractors to help us deliver it.

So, it's not something that we can sit today and say we are going to see this go away or increase, it all depends on the nature of the work that we are delivering in the particular quarter.

This quarter with a heavier utilization of individuals with skill sets that were outside of the organization.

These are people that have a long-standing relationship with the organization and some that we use over time.

Just not somebody that we have enough to do full-time with.

So, we work with them on a contracting basis.

But for what purpose?

Could be delivering leadership development engagements, it could be coaching engagements.

Our orientation, philosophically, is that we want our own full-time employees to do that.

But, there's parts of the business that are much harder to predict where the most efficient thing and effective with our clients, as well as for us, is to use certified contractors that -- independent consultants, that have been certified in all of our intellectual property.

Then, with regards to the utilization rate going up across the platform, how would you say the excess capacity currently, where does it currently rest within the core executive search, particularly in North America and Europe?

When you say the core executive search or the LTC business?

Core executive search.

Well, I think, right now, our revenue per partner is $1.3 million or so.

Which is quite good.

It's quite good.

We'd actually like to have it higher, continue to move the average fee up.

You know I think it's pretty broad-based.

There may be a little bit more in Asia than, say, in North America.

That probably would come to mind.

But, overall, there definitely is capacity within the search business.

Okay.

And how should we think about the tax rate, as it relates to the guidance?

I think, Mark, go back to sort of our normalized rate, roughly 35%.

Okay.

Great.

Thank you.

It appears there are no further questions, Mr. Burnison.

Okay.

Well, I thank everyone for listening in and, again, we are, as an organization, we are very, very proud of what we are achieving.

But we've got an insatiable appetite to continue to grow, and as a firm.

So, I thank you for your time this afternoon and we will talk to you next time.

Ladies and gentlemen, this call will be available for replay for one week starting today at 6.30 PM Eastern Standard Time running through the day March 13 at midnight.

You may access the AT&T executive playback service by dialing 1-800-475-6701 and entering the access code 284535.

International participants may dial 320-365-3844.

Additionally the replay will be available for playback at the Company's website www.kornferry.com in the investor relation section.