Korn Ferry (KFY) 2013 Q4 法說會逐字稿

Ladies and gentlemen, thank you very much for standing by, and welcome to the Korn/Ferry International fourth 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, today's conference is being recorded for replay purposes.

(Operator Instructions)

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 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 reflect non-GAAP financial measures such as constant currency amounts, EBITDA, and adjusted EBITDA.

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.

Thank you, everybody, for joining us.

I think this is my 45th earnings call, something like that, with this Organization, and I'll tell you that I've never been more proud about Korn/Ferry and what we're doing.

Particularly when I consider that today that one out of every five colleagues is new to Korn/Ferry in the last eight months.

I mean, that's -- because of investment.

I think that that's absolutely a testament to our transformation, and our ongoing efforts to promote and attract the industry's top talent, as well as key acquisitions we've made such as Global Novations and PDI Ninth House.

So again, thank you for joining us.

I'm pleased with our quarterly results, but as I said, I'm -- as importantly, more importantly, our strategic progress in this most recent quarter.

For example, accelerating the integration of our recent acquisitions; our broader talent management offerings that now represent 40% of Korn/Ferry's business, which is an all-time high.

Our fee revenue in the quarter was $228 million; that's up 2% constant currency on an organic basis.

It's obviously up higher with the acquisitions that we made.

Our EBITDA margin was a little over 12%, and adjusted EPS was $0.32.

Our balance sheet is absolutely pristine, and the strategic progress that we're making is truly remarkable.

We're differentiating this brand, we're diversifying our Business by continuing to invest in solutions that give us reasons to talk to clients throughout the whole year, to broaden the conversation with clients, to make the brand more elastic.

And really, the opportunity to participate in larger, strategically aligned addressable markets.

That really is our goal -- to really be the bridge between a CEO's vision, their business strategy, and their talent strategy -- that's Korn/Ferry.

Make the brand synonymous with talent management, and be the anchor between business and talent strategy.

So as we closed out this year -- the word transformation, I think, is sometimes overused, but I do believe it here -- that we've gone from a monoline business to a multi-solutions organization.

And I think that, as I reflect on this last year, we've reached several key milestones, a couple of which I've mentioned already, but you think about the Organization and the fact that 40% of the business now comes from outside our flagship heritage business.

I can recall, when I joined this Company, and this quarter, we almost did as much revenue, not quite, but almost, than we did an entire year, about 12 years ago, on a run-rate basis.

Futurestep is continuing to accelerate the brand; it's about 15% of the Company today, and more importantly, well over half of their business is in the RPO area -- major assignments producing more regular multi-year revenue streams.

And we've amassed an array of intellectual property, of unique assets, great people, at the same time while building an infrastructure to really scale this Organization.

So as I look forward now, we're going to continue to focus on a few key pillars of our strategy.

Number one, we're going to drive an integrated, solutions-based go-to-market strategy, leveraging our R&D and intellectual property, continuing to move this Firm to a knowledge-based organization.

We're going to, secondly, not only elevate the brand like we've been doing, but continue to make it more elastic.

And I am certainly very, very proud of our search business and the marquee assignments we've gotten there; the relationships that we have there are incredibly important.

They cascade down throughout an organization, and really create multiple opportunities along the broad talent management spectrum.

We're going to continue to make this, Korn/Ferry, the premiere career destination, developing our own people, using our own intellectual property.

Today, we have about 700 business developers in the Organization.

We are relentless right now around developing those folks, as well as the broader Organization, giving them hands-on development programs, designed with our own IP, taught by our own colleagues, really anchored around how one broadens the conversation with our clients.

And finally, as evidenced by our recent actions, we're going to pursue a long-term growth strategy by taking a very pragmatic approach to M&A that accelerates our reach, and further extends our footprint and offerings, and most importantly, differentiates this great Organization that we have.

When I look around the world today, it's CEOs, it doesn't really make any difference what industry, are really in a fight for relevancy and growth.

And regardless of the path they choose, what's clear to me, in my conversations with clients, is that it's really the organization's workforce -- that that's what matters most, particularly in this knowledge-based economy.

The growth drivers are not as transparent.

You don't have conspicuous consumption in the last -- like we did for a couple decades -- but when you really look at pulling those growth levers, a workforce's learning agility, their cultural dexterity, the ability to drive growth across borders, I really believe that plays right into the Organization that we're building here.

And today, when you look at global organizations, they are really buying talent-oriented services piecemeal, by the fact that there's no global category leader.

And I strongly believe that Korn/Ferry is absolutely on its way to being that leader, in a market that we're now defining.

So with that, I'll turn it over to -- I've got Bob Rozek here and Gregg Kvochak, and I'll turn it over to you, Bob.

Very good.

Thanks, Gary, and good afternoon, everyone.

As I sit here today, I've completed my first full year at Korn/Ferry, and I'm very pleased with everything we were able to accomplish over the course of the past year, and I would say as pleased as I am, I'm even more proud to be part of the Organization.

And as I look around this Company, the energy and drive that folks bring to work every day, and how they translate that into accomplishments, is just simply amazing.

In fiscal 2013, Korn/Ferry achieved, as Gary indicated, many major milestones, and has positioned itself as a clear leader in the evolving talent management industry.

Despite the challenging labor market that we find ourselves in, our consolidated fee revenue reached record highs for both the fourth quarter and the full year.

And we accomplished that by strategically investing in complementary acquisitions throughout fiscal 2013, and then also by immediately beginning the integration of these investments into our L&TC line of business, and then further into our executive search and Futurestep lines of business.

With today's deep lineup of industry-leading products and services, my view is -- I believe we have never been better positioned to address the broader talent management needs of organizations across the world.

As Gary said, we finished fiscal 2013 with a strong fourth quarter, posting record revenues of $228 million.

In the fourth quarter, on a constant-currency basis, our fee revenue grew $27.5 million or 13.6% sequentially, and was up $32.7 million or 16.5% compared to Q4 of fiscal 2012.

Our recent acquisitions of Global Novations and PDI Ninth House contributed $28.8 million of fee revenue in the fourth quarter on a combined basis.

We also reported record annual consolidated fee revenue of $812.8 million, and as Gary mentioned, nearly 40% of this was being generated from services that fall outside of executive recruitment.

On a constant-currency basis, our consolidated fiscal-2013 fee revenue grew over $37 million, or nearly 5%.

Our recent acquisitions contributed about $45.5 million for all of fiscal 2013, in terms of additional revenues, and our growth in fiscal 2013 continued to outpace many of our major industry competitors.

New business awards were seasonally strong in the fourth quarter.

We saw a little bit of weakening in late March, and that extended into April.

In general, however, measured over a full quarter, our new business trends improved modestly in all of our business segments, but are still uneven month to month.

Our adjusted profitability also improved in the fourth quarter.

Excluding restructuring, transaction and integration, and separation charges in the current and prior periods, our adjusted EBITDA improved both sequentially and year over year, growing $2.7 million or 10.6% sequentially, and $3.5 million or 14% year over year, reaching $27.8 million in the fourth quarter.

Our adjusted EBITDA margin was 12.2% in the fourth quarter, compared to 12.5% in the third quarter, and 12.2% in the fourth quarter of fiscal 2012.

While the margin benefited from cost-saving efforts during the year, as well as our additional fee revenues, the adjusted EBITDA and the adjusted EBITDA margin were negatively impacted by the change in the mix of our business, as well as the incremental infrastructure and support services relating to the newly acquired businesses.

On a GAAP basis, including all transaction, integration and restructuring charges in the prior period, and $3.5 million of additional real estate consolidation and integration costs in the current quarter, our fiscal 2013 fourth-quarter operating earnings were $15.4 million, with a margin of 6.8%, compared to $8.7 million and a 4.3% margin in the third quarter, and $15.4 million and a 7.8% margin in the fourth quarter of fiscal 2012.

One item that I would like to really highlight that we accomplished during the fourth quarter was the PDI Korn/Ferry office co-location program that we carried out.

We co-located offices in 12 different cities, and this really entailed that we combined over 1,200 of our employees, nearly one-third of our workforce, into common work space -- a truly significant accomplishment for us during the fourth quarter.

Also during Q4, our financial position continued to strengthen, as our cash and marketable securities grew $61 million to $366 million in the fourth quarter, driven primarily by strong year-end collections.

Excluding cash and marketable securities reserved for deferred-comp arrangements, and for our accrued bonuses, the current investable cash balance is approximately $157 million; that's up about $29 million versus the third quarter.

After considering our working capital needs, our net investable cash is about $57 million, and about 25% of that amount is sitting here in the US.

Finally, excluding all restructuring, acquisition and integration charges in the current and prior quarters, our fourth-quarter adjusted diluted earnings per share were $0.32, an improvement of $0.01 sequentially, and $0.04 year over year.

On the same basis, adjusted earnings per share for all of fiscal 2013 was $1.10, and that's down about $0.09 year over year.

On a GAAP basis, including the impact to net income of all restructuring, transaction, integration and separation charges, fiscal-2013 diluted earnings per share were $0.70, compared to $1.15 in fiscal 2012.

Now I'm going to turn it over to Gregg, who will review our operating segments in a little bit more detail.

Okay, thanks, Bob.

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

Worldwide demand for our executive recruitment services were seasonally strong in the fourth quarter.

Consolidated executive recruitment fee revenue in the fourth quarter was $136.8 million, up $6.3 million or 4.8% sequentially, and essentially flat year over year.

Excluding the effect of foreign currency exchange rates, fourth-quarter consolidated executive recruitment fee revenue was up 5.6% sequentially, and up 1.2% year over year.

Regionally, also at constant currency, North America was up 9%, Asia Pacific was up 6.2%, South America was up 6%, while Europe was down 1.8% on a sequential basis.

Year over year, also on a constant-currency basis, North America was up 1.9%, Europe was up 1.3%, Asia Pacific was up 50 basis points, and South America was down 3.5%.

Growth in our executive recruitment specialty practices was primarily positive in the fourth quarter.

On a sequential basis, at actual rates, financial services grew 8%, life sciences and healthcare grew 15%, technology was up 7%, consumer goods was flat, while the industrial practice was down 5%.

Financial services accounted for approximately 16.7% of all executive recruitment fee revenue in the fourth quarter, up approximately 50 basis points from the third quarter.

Year over year, also at actual rates, all of our specialty practices, except industrial, were up.

Consumer goods and technology were both up 7%, life sciences and healthcare was up 6%, and financial services was up 1%.

Worldwide, the industrial practice was down 13% year over year in the fourth quarter.

The total number of dedicated executive recruiting consultants worldwide at the end of the fourth quarter was 399, down 1 year over year, and up 9 sequentially.

Annualized fee revenue production per consultant in the fourth quarter was approximately $1.39 million, compared to approximately $1.32 million in the third quarter of fiscal 2013, and $1.38 million in the fourth quarter of fiscal 2012.

The number of new search assignments opened worldwide in the fourth quarter was 1,231, which was up 8% sequentially, and up 4.8% year over year.

Excluding all restructuring and separation charges, consolidated executive search adjusted EBITDA improved in the fourth quarter, measured both sequentially and year over year.

Consolidated executive search adjusted EBITDA was $26.8 million in the fourth quarter, up $1.9 million or 7.6% sequentially.

On the same basis, when compared to the fourth quarter of fiscal 2012, consolidated executive search adjusted EBITDA in the fourth quarter of fiscal 2013 was up $1.9 million, or 7.5%, due primarily to the cost-reduction initiatives executed in the first half of fiscal 2013.

The worldwide consolidated executive search adjusted EBITDA margin was 19.6% in the fourth quarter of fiscal 2013, compared to 19.1% in the third quarter, and 18.2% in the fourth quarter of fiscal 2012.

Now turning to our leadership and talent consulting segment.

In the fourth quarter of fiscal 2013, worldwide fee revenue for L&TC was $60.1 million, up $28.4 million or 90% year over year, and excluding fee revenue from acquisitions, essentially flat.

Sequentially, excluding the effect of the PDI Ninth House acquisition, L&TC's fourth-quarter fee revenue was up $2.3 million or 6.5%.

Regionally, North America accounted for approximately 71% of the total L&TC worldwide revenue in the fourth quarter, compared to 69% in the third quarter.

For all of fiscal 2013, L&TC's fee revenue was $168.1 million, up nearly 48% on a constant-currency basis.

Global Novations and PDI Ninth House combined generated $45.6 million in fee revenue in fiscal 2013.

At the end of the fourth quarter, there were 133 dedicated L&TC consultants, including 81 combined from Global Novations and PDI Ninth House.

Consultant utilization remained flat, both sequentially and year over year, at 67%.

Excluding restructuring charges, L&TC's fiscal 2013 fourth-quarter adjusted EBITDA was $6.3 million, up $2.8 million or 82% sequentially, and up $600,000 or 10.7% year over year.

Quarter sequential earnings growth was driven by both stronger revenue and the realization of cost savings from our ongoing business integration initiatives.

Adjusted EBITDA margin in the fourth quarter was 10.4%, compared to 8.4% in the third quarter of fiscal 2013, and 17.9% in the fourth quarter of fiscal 2012.

Finally, turning to Futurestep, which generated $31 million of fee revenue in the fourth quarter.

Measured on a constant-currency basis, Futurestep's fourth-quarter fee revenue was up $2.1 million or 7.2% year over year, and up $850,000 or 2.7% sequentially.

Geographically, year over year on a constant-currency basis, North America was up 13.6%, Europe was essentially flat, while the Asia Pacific region was down 2%.

Sequentially, North America was up 7.8%, Europe was up 5.1%, and Asia Pacific was down 9.3%.

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

Excluding restructuring and separation charges, Futurestep's adjusted EBITDA margin was 14.7% in the fourth quarter, compared to 8.7% in the fourth quarter of fiscal 2012, and 13.3% in the third quarter of fiscal 2013.

For all of fiscal 2013, Futurestep's fee revenue grew 9.5% on a constant-currency basis, with a $5.1 million or 48% improvement in adjusted EBITDA, and an adjusted EBITDA margin improvement of approximately 360 basis points.

Now I'll turn the call back over to Bob to discuss our outlook for the first quarter of fiscal 2014.

Thanks, Gregg.

Overall, new orders were stronger in the fourth quarter, and really benefited from our usual seasonally strong year-end uptick activity -- we had a particularly good month in April.

Monthly trends, however, remained a little bit choppy, and still somewhat unpredictable.

February, for example, our new awards were the highest of the fiscal year.

It slipped slightly in both March and April, and then rebounded partially in May, and what we're seeing so far is somewhat consistent with May and the month of June.

Looking ahead to first quarter of fiscal 2014, we expect new orders towards the end of the quarter to be negatively impacted by the beginning of the summer vacation season.

Assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, our fiscal 2014 first-quarter fee revenue is likely to range from $215 million to $227 million.

Additionally, in connection with our recent acquisitions, we're continuing to evaluate and rationalize the Firm's consolidated infrastructure costs.

In the first quarter, we expect to eliminate approximately 60 positions across all of our business segments.

And in addition, we're continuing with our office co-location program, with offices in three additional cities being combined in the first quarter.

These actions are expected to result in charges of about $4 million to $5 million, and are also expected to result in annual savings ranging from about $4.7 million to $5.5 million.

In addition, for the rest of fiscal 2014, in accordance with our annual operating plan, we are going to be making investments to drive common technology systems across all of our business segments.

And once these systems are fully implemented and operational, we expect to drive further synergies from the recently acquired businesses.

Excluding the above restructuring charges, our adjusted diluted earnings per share in the first quarter are likely to range from $0.26 to $0.32, with diluted earnings per share, as measured by GAAP, likely to be in the range of $0.19 to $0.27.

That concludes our prepared remarks, and we would be glad to take any questions you have at this point.

(Operator Instructions)

First, we'll hear from the line of Kevin McVeigh with Macquarie.

Please go ahead.

Nice job, in obviously what's still a pretty tough environment.

Wanted to just get a sense, obviously there's a nice sequential uptick in new engagements.

We hadn't seen that in terms of strength.

Seems pretty encouraging.

Just, thoughts on the environment overall, and if you could get specific by region, that would be helpful.

Well, we were encouraged as well.

When we look at the flagship business, we saw very good sequential growth in almost every region, except for Europe.

That continues to be, obviously continues to be a challenge, but we were particularly heartened by what we saw in North America in the quarter, and when we just think about the organization overall, certainly financial services, as you well know, has been deeply challenged over the last several years, but on the other hand, for us life sciences and healthcare, where I believe we've just got a incredible opportunity across all the businesses, showed real strength in the quarter.

Also, we saw strength in financial services in North America in the quarter.

Gary, has this been the first sequential uptick in financial services since the downturn?

I can't say that off the top of my head.

I wouldn't want to call that, but it was certainly encouraging.

One quarter doesn't make the trend, but it was encouraging.

Sure, if I could, real quick.

Real nice job on the margins, and that was obviously with some investment in the leadership talent consulting, and looks like the corporate line was high, too.

As that normalizes, can we expect continued margin expansion?

Well, we hope so.

We've made a number of strategic investments and acquisitions over the past two or three years, and what we really haven't done is fully integrated the support areas.

The front office, we've gone all out, but in terms of the support areas, there's opportunity there, and that's what Bob is driving, and we're going to continue to work at that, putting in process and systems, to be able to really drive scale in the Company, and hopefully efficiency, as well.

One of the things, Kevin, during the quarter, this is Bob, that Gary and I talked about doing, was putting that integration on an accelerated path, and so that's the playing field that we're going after right now.

Got it, and then my last question.

Obviously, there's been some rumors out there, one of your competitors potentially being acquired.

Does that change the competitive landscape in terms of how you think about the positioning of the organization, and just any thoughts around that would be helpful.

Not at all.

We want to go in front of clients and broaden the conversation, and really help accelerate their growth, and that's all we care about, is our clients and our employees.

Great.

Thank you.

Okay, thank you.

Next we'll hear from the line of Tobey Sommer with SunTrust.

Go ahead, please.

This is Frank in for Toby.

Wanted to ask about Global Novations.

Can you give us any color there, in terms of monthly and revenue trends and update how the integration and everything is going there?

Well no, we aren't going to give out any monthly trends but I'll tell you that overall, this last fiscal year, we made two strategic investments, two acquisitions overall and we feel stronger today about what those are going to do for this brand.

In Global Novation, when you really look at that organization, delivers -- half their business is kind of broad-based leadership development.

The other half is in the same area, but geared towards cultural diversity, cultural dexterity.

When you look out over this next decade, that's one of the growth levers that CEOs are going to continue to pull, trying to drive borderless consumption, driving growth across borders, and we believe that we've got an offering that can accelerate a client's ability to have a workforce to match that opportunity.

Okay, great, and as you look out, where the portfolio sits right now, are you pretty happy and pretty focused on integration, or are you looking at additional opportunity, and what do you see out there right now?

Well we continue to look, and I think we've got a very systematic approach for sure, but over the last few months, really since the last call for sure, I think that the leadership team has wholeheartedly, just incredible job at really driving a go-to-market strategy that's anchored, from many to one from these different investments that we've made.

Bob's done an incredible job in terms of driving the integration.

As he said, I mean just think about it.

A third of our workforce was actually relocated over the past 2.5 months, and at the same time, we were still able to drive organic constant currency growth, so we've got to continue to push, continue to push, broadening the conversation and developing our people.

Okay, great, and finally could you talk a little bit about turnover in the quarter, and what the hiring environment is out there right now, and what do you see?

Yes, this is Bob, Frank.

I think, as we look at our turnover, that's one of the metrics is we communicate with our Board at each quarter and year-end, we had very low turnover in what we call our senior client partner level and ranks, and in fact it was probably less than 5%, so we're very pleased with our ability to attract individuals to the organization, but also to retain those folks.

And we really think the strategy and the platform that we're building goes a long way to help us do that.

Great.

Thank you very much.

Thank you.

Next we'll hear from the line of Tim McHugh with William Blair.

Go ahead, please.

Thank you.

First wanted to ask about organic growth in the leadership business.

How are you feeling about that lately, and I guess, what can you do to reaccelerate it?

It's decelerated a fair amount, and I understand you're trying to accomplished a lot.

Is that market driven, is it distractions with the integration?

Can you give us more color around that?

Well we are disappointed by that, and we've certainly -- we look at this as a multi-hundred million dollar opportunity.

We've said that consistently.

This was an assessment practice that was $7 million not that many years ago, and we've really fueled it through investment, through acquisition.

Over the past year, we made two very significant, for us, investments into that business.

Certainly, bringing those businesses in, integrating them, relocating everybody, that's certainly a lot to bite off.

So today, we're sitting on a $240 million leadership business.

We look at that as a multi-hundred million dollar opportunity, so there's a number of initiatives we've put in place, to really try to fuel that growth, ranging from a go-to-market strategy that's integrated into the firm, to compensation, to development, to training.

We just had a big meeting within our LTC business in the Americas for people that have front line responsibilities, so we're doing a lot of those things, and I don't think it's the market.

Okay.

What is a reasonable target for you to get back to with that business, over a medium term, a year or two?

Is there a level you have in mind, that you're willing to share?

Well we really don't guide out that far.

I would say that, when you look at that business, and it has gone from $7 million to $240 million and now a lot of that's been driven through acquisitions and investments, my expectation is that business better have at least a 10% CAGR on it, for sure, and that's what we're shooting for.

Okay and then Bob, just as we think about the cost structure for -- I guess more so the G&A I'm thinking, given all of the things you're doing with the real estate and then the additional changes you're doing in Q1, if we looked at Q4, I guess, how much cost improvement is there relative to that run rate of G&A expenses?

Yes, I would say if you step back and look at coming out of the fourth quarter, we'll get some benefit from the real estate saves going into Q1, and then the actions we're taking in Q1 will obviously translate Q2 and beyond.

I would say, looking at your model, if you will, if you hold relatively consistent, we'll get $0.5 million of real estate saves in the first quarter.

But we think by the time we put the systems into place and drive the integration the way that at least we've got a plan at this point in time, we should be able to get 1 point to 1.5 points of overall margin improvement in Korn/Ferry.

That's by the end of the year?

That's by the end of the year.

So relative to the numbers for this quarter?

That's right.

Okay, just one other one for you, Bob.

Tax rate, it's bounced around a fair amount this year, and it always does, but is the annual number that you ended up with a fair representation of what we could assume going forward?

Yes, it is.

I think, unfortunately, the rate does bounce throughout the course of the year, and a lot of that just has to simply do with the way the accounting rules work, and the way they require us to book the provision on a quarterly interim basis, and generally, if you have organizations within your Company, which virtually every business does, that lose money, the way you book the benefit of that, you don't take it throughout the early portions of the year.

You only take it as the year rolls on, and you're realizing the profits from other pieces of the business.

So our rate tends to spike up Q1 and Q2, and that reverses Q3 and Q4, and if you go back and look at each of the quarters this year, you'll see that exact pattern.

But from an overall annual run rate perspective, in the 36% range is probably about where we should be.

Okay, thanks.

Thank you.

Next we will hear from the line of Ty Govatos with TG Research.

Your line is open.

Two questions.

The bonus accrual for the quarter, and could you take us deeper into what some of the technology investments will be, and over what period of time they will be made?

Sure.

Ty, the bonus accrual was about $32.1 million in the quarter.

Thanks.

And Ty, this is Bob.

I'll take you through the technology investments, and it's a little bit complicated, because what we're doing -- each of the pieces are highly correlated with each other, but essentially, we're going to migrate all of the acquisitions onto our SAP platform.

We're going to put into place a work force management tool that will enable us to schedule our work force, track their hours, and so on, and drive our revenue recognition off a bit.

And then the third interrelated component is putting in a consolidated human capital management system, and all those have to come together virtually simultaneously to make it happen, and that's the work that we're planning on right now, and that will take place over the course of fiscal year 2014.

The good news is, as we look at the pieces of technology that we're selecting, we're an SAP shop, and SAP has pretty good modules in each of these areas, so when it's all said and done, we'll have a completely integrated package, if you will.

In other words, from front to back office, it sounds like it's going to be front to back office everything?

It will.

That's right, it will.

Good luck.

I'm almost sorry I asked.

I hope nothing goes wrong on that one.

Yes, we've got plans in place and we're managing this one very tightly.

Okay, thanks an awful lot.

I appreciate the time.

Thank you.

Our final question today will come from Mark Marcon with RW Baird.

Go ahead, please.

I was wondering, with regards to the LTC business, Gary, you mentioned the hope is to get the organic growth rate up to 10%.

Relative to what you've seen thus far, what would need to occur in order to get there?

Well, I think that it goes along a few different dimensions.

One is, we have to continue to be at the top of the house, be at 38,000 feet, selling high-impact multi-million dollar change management engagement, so I think there's one strategic path that would be -- say bigger engagement sizes, more 38,000-foot cascading down.

I think that's kind of one.

The second area would be through products, to the extent that we can drive real purposeful growth around products that enable an organization to develop their people, to have a higher retention rate among their workforce, driven really around learning and development.

So to the extent that we can continue to move that products business, that's key.

The third component is driving up what we call many to one, broadening the conversation, so inside sales.

What I mean by inside sales is the percentage of the business, either Futurestep or LTC that's driven from the heritage and great search business we have, and by the way, vice versa.

That could play the other way from Futurestep and LTC to search, so inside sales.

We have to continue to work that up, and connected to those is obviously in an investment in intellectual property, and R&D and technology that facilitate new products, that facilitate the delivery and growth of not just the products, but also our services businesses.

So those would be, there's a number of other things, but those would be kind of the three or four top-of-mind initiatives that can drive that kind of growth.

Do you think that the current engagement level is there in terms of being able to do that, but now that you've integrated, that all the pieces are in place?

Do you think there's the opportunity for engagement to still increase?

Yes, we do think that there is that opportunity.

The average Company will spend $3,000 to $5,000 per employee, depending on whether they are [hypo] or whether they are [vital many], but on development.

So there's clearly, there's significant spend there, and we need to drive both the services business and the products business to get that.

The other kind of nuance in the business is that there's a fair amount of that business that's anchored in assessment, either low touch or high touch kinds of assessment, so I do believe that we've got the ingredients to be able to drive the kind of mandates that you're talking about over time.

And this is Bob.

The other thing I'd just throw in as well is, we're running a number of programs, we call it our edge training where we bring the workforce together, the client facing side and are rolling out a training session where we're allowing those individuals to learn more and more about the level of depth of the products that we have to bring to market with our clients.

So that's an enabler, too, from an inside perspective to our workforce.

Great, and if you were able to get the organic growth rate up into that range, where would you hope that the margins on the LTC business could move on a sustainable basis?

Yes, I think Mark if you go back to the call that we had right after we bought LTC, I think we said from an EBITDA or adjusted EBITDA perspective, we would expect the margins to be in the 16% to 18% range, and I think we stayed consistent with that.

Okay, I mean there's nothing that you've seen post the further integration that would lead you to believe that there should be any change to that target?

No.

And the utilization rate, did that move up?

It was at 67% this quarter Mark.

Okay, so it was a nice improvement.

Yes.

Great, and then what are you seeing in terms of Europe, with regards to the core consulting business?

The executive search business, Mark?

Right.

The core executive search business.

When you look sequentially, it was down modestly.

Not a lot of change, still a challenged environment.

We did see some pick up in the quarter in France, but I would still characterize it as a challenged environment.

But again, it's not a situation where we're losing 10%.

It's one where I think we're continuing to make the brand more elastic and elevate the brand.

And Mark the other thing I would add there, I think Bernard, who's our regional CBO, has really done a nice job, when you look at the margin improvement that we've seen over in EMEA.

If you look at this quarter, compared to last quarter, compared to Q2, and even compared to Q4 of last year, I think Bernard has done a really nice job.

He's brought on new folks, turned over his workforce, is doing a good job on cost controls and managing his operating expenses.

So we're seeing actual improvement in the profitability of the Europe operations, in light of the fact that we've got downward pressure on the top line, so I'm very pleased with that, and I know Gary is as well.

I certainly noticed that, and I was wondering if the margins should be stable at these levels?

If the top line, basically, environment doesn't change very much, top line stays around these levels, adjusting for seasonality of course, should we, is there more improvement that can be done on the margins, or are we going to retain some additional capacity in the hopes that things improve further?

Yes, I think there's always opportunity to drive efficiencies in your spending, and that's one of the things that -- as an organization, I think we do a pretty good job as constantly staying on top of that.

My desire would be that we continue to show some improvement in those margins, but I think we're also cognizant of the fact that at some point top line does come back, so you don't want to throw the baby out with the bathwater either, so I think we'll just continue to take a balanced approach, maybe some modest improvement in the margins in the near term.

Right and then last question for Gregg, how did the upticks compare this fourth quarter to last year?

They are about the same, Mark.

Okay.

We basically do get the large number of upticks towards the end of the fiscal year, but about the same overall on average for the quarter.

Great.

Thank you very much.

Okay, thank you.

I'll turn the call back over to you, Mr. Burnison.

Okay, well number one, I want to thank our shareholders, and for sure, for their commitment to our organization.

Secondly, I'd like to recognize and thank our Board for their guidance and support.

Of course, our clients, and ultimately, our colleagues that we have around the world.

I don't think we could ask for a better set of committed, purposeful individuals, that are making this organization great, and I thank them for their dedication and stewardship of the brand and their efforts.

So with that, I thank you all for your time, and we'll speak to you soon, thank you.

Thank you.

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