Korn Ferry (KFY) 2014 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the Korn/Ferry International first quarter fiscal year 2014 conference call.

At this time, all participants are in a listen-only mode.

Following the prepared remarks, we will conduct a question-and-answer session.

As a reminder, this conference call is being recorded for replay purposes.

We've also made available on the investor relation section of our website at www.kornferry.com a copy of the financial presentation that we will be reviewing with you today.

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 2013 and in other areas 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, EBITDA, and adjusted EBITDA.

Additional information concerning these measures, including reconciliations to the most direct comparable GAAP financial measure, is contained in the financial presentation and release relating to this call, both of which are posted on the Company's website at www.KornFerry.com.

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

These go ahead, Mr. Burnison.

Okay.

Well, hello, everybody, and thank you for joining us and happy new year.

First, I'll start with some overall comments.

I'm very, very pleased with our momentum and our operating results for the quarter as well as the strategic progress we've made on integrating our acquisitions.

Fee revenue in the quarter grew.

It was about $228 million which is up 23% year-over-year, that's up 8% on an organic basis measured as a constant currency and that is with growth in all of our major operating segments.

So today it's a company that is an annualized first quarter run rate of about $920 million with about $128 million of EBITDA.

As we talked about last quarter, we anticipated continued integration activities and so in the quarter we did complete those activities.

Our adjusted EBITDA margin was 14% and that's up substantially from the prior year.

We'd like to see that the 15% to 18% as an organization, that's what we're shooting for.

Our adjusted EPS was $0.33 and that is up $0.11 from the prior year.

And our balance sheet continues to be very strong.

I think we've effectively balanced growth and investment and particularly as efficiencies and growth come from recent acquisitions and with our leadership team around the world effectively driving our strategy, we've improved profitability but we've also increased revenue not only within our flagship heritage search business but also our broader talent management offerings year over year with strong margin expansion and earnings per share growth in the quarter on an adjusted basis.

And so, as a result, we're making this Company more relevant, we're making our brand more elastic within the quarter now 40% of the revenue mix was generated from broader talent management offerings and the interesting thing I think too is that it also represents 40% of our EBITDA today.

The assimilation of last fiscal year's acquisitions has proceeded as planned, the outcome of which is an expanded and richer set of offerings to bring to market in an integrated fashion and in the context of that integrated plan we're also on pace with a major initiative kind of bottoms up to develop and train our consultants on our broader base of solutions and that's going to continue during the course of this fiscal year.

While we've experienced top-line growth year over year and over the last few months we've seen a steady increase in new business in almost all regions across all of our lines of business, we all know just looking at the computer that market volatility overall is still very present in the world and our assumption is that this volatility is going to continue to impact global organizations for quite some time, but with that also comes opportunity for Korn/Ferry.

And as a result of today's uneven environment, clients are increasingly borderless, their knowledge base, they're asking their workforce to do much more with much less and yet irrespective of industry or geography when you talk to a CEO, talent is the ultimate driver of business success.

So, we're transforming Korn/Ferry, not away from a model line company but to a unified talent solutions organization, the world's most relevant talent in leadership organization.

At Korn/Ferry that helps boards and CEOs navigate this complex environment by more effectively linking their business and talent strategies.

So, in the quarter ahead we're going to focus on five key elements of our strategy.

First of foremost, driving an integrated solutions-based go-to market strategy leveraging our IP.

Secondly, continuing to extend and elevate our brand.

I'm enormously proud of how we have elevated and differentiated our search offering as evidenced by the marquee engagements we've secured and our average fee per assignment.

Number three, we're going to build, develop, and harvest the intellectual property from the Korn/Ferry Institute to feed both our products business as well as our services businesses.

Number four, we're going to advance Korn/Ferry as the premiere career destination developing and training our consultants on our broader base of solutions and furthering our meritocracy creating the Korn/Ferry that has a lifetime of career opportunities.

And, finally, continuing to execute pragmatic approach to M&A that accelerates our reach and further extends our footprint in offerings.

So, with that, I'm going to turn it over to our Chief Financial Officer, Bob Rozek.

Thanks, Gary, good afternoon, everyone.

You can feel the pride in Gary's comments in terms of our quarter.

We're all very proud of what we've done these past three months and are pleased to announce another quarter of strong results.

The [privacy] made in the first quarter fiscal '14 is in line with our previously discussed expectations and is another important step in the process of accomplishing our strategic vision of creating a leading most innovative, profitable firm in the evolving talent management industry.

As the worldwide labor market gradually recovers, market demand for our firm's industry-leading talent management solutions continues to improve.

As Gary indicated, in the first quarter of fiscal '14 our consolidated fee revenue grew to $228.4 million with year-over-year growth in all of our major operating segments.

Measured on a constant currency basis, fee revenue grew $2.9 million or 1.3% sequentially and was up $43.5 million or 23.3% compared to the first quarter of fiscal '13.

Additionally, on an organic basis, excluding the impact of our recent acquisitions, both global innovations and PDI, consolidated fee revenue in the first quarter grew $14.9 million or 8% on a constant currency basis year over year.

In the first quarter of fiscal '14, 40% of our consolidated fee revenue was generated in services outside of our core executive search offering and our overall growth continued to outpace many of our major industry competitors.

Executive search new business awards in the first quarter continued on an upward trend and we did start to see some narrowing in the volatility on a month-to-month basis.

Confirmations were sequentially up in both May and June and slightly seasonally weaker in July with new business in the first quarter up 16% compared to the first quarter of fiscal '13 and 5.6% compared to the fourth quarter.

In LTC, our new business awards really gained momentum through the quarter with June confirmations 13% higher than May and July confirmations 15% better than June.

And in Futurestep, our backlog remains steady in the quarter while our pipeline for potential new RPO and project assignments improved considerably, reflecting some of the advancements we made in the salesforce there.

We're very pleased with the firm's profitability which improved in the first quarters and begin to realize the benefits of our ongoing integration initiatives.

Excluding all restructuring, integration, and separation charges in the current prior periods, adjusted EBITDA improved both sequentially and year over year growing $4.1 million or 14.7% sequentially and $11.5 million or 57% year over year, reaching $31.9 million in the quarter.

Adjusted EBITDA margin was 14% in the first quarter compared to 12.2% in the fourth quarter of fiscal '13 and 10.9% in the first quarter.

Sequentially, profitability improved in all of our major operating segments in the first quarter with the exception of Futurestep, where investments in the additional global sales reps, I referred to earlier, and ramp up associated with new business activity in Germany and India, tempered first-quarter margins.

On a GAAP basis, including all restructuring, integration, and separation charges, fiscal '14 first quarter operating earnings were $16.7 million with a 7.3% margin compared to $15.4 million and a 6.8% margin in the fourth quarter fiscal '13 and $17 million in a 9.1% margin in the first quarter of fiscal '13.

As discussed in our last earnings call, in the first quarter we continue to take actions to integrate our recent acquisitions and rationalize the firm's consolidated infrastructure.

In the first quarter we eliminated approximately 60 positions and really concluded our office co-location with Atlanta, Dallas, and Paris offices.

The total cost of these actions in the first quarter was approximately $3.7 million and these actions are expected to result in annual savings of approximately $5 million, a portion of which is recognized in the first quarter.

Additionally, as we discussed in our last call for the rest of fiscal '14, we're making investments to drive common and enabling technology systems and once these systems are fully implemented and operational, we expect remaining cost synergies to be realized from our FY'13 acquisitions.

Our financial position remains strong in the quarter.

Our total cash and marketable securities were $280 million, down $86 million compared to the fourth quarter of fiscal '13 and down $53 million compared to the first quarter of fiscal '13.

Excluding cash and marketable securities reserved for deferred comp arrangements and for accrued bonuses, the current investable cash balance is approximately $132 million, down about $25 million versus the fourth quarter and that's primarily due to the funding of first quarter long-term incentive awards and the payment of the contingent purchase price for the PDI acquisition.

After considering our working capital needs, our net investable cash is about $32 million.

And, finally, excluding all restructuring, integration, and separation changes -- charges in the current prior quarters, our first quarter adjusted diluted earnings per share was $0.33, an improvement of $0.01 sequentially and $0.11 year over year.

On a GAAP basis, including the impact of net income of those items, fiscal '14 first quarter diluted earnings per share were $0.24 compared to $0.25 in the fourth quarter of fiscal '13 and $0.22 in the first quarter of fiscal '13.

And, with that, I'll turn it over to Gregg to provide a little more detail on our operating segments.

Okay.

We'll start with our executive recruitment segment.

In a slowly improving global labor market, new business confirmations in our executive recruitment services showed signs of growth in the first quarter.

Consolidated executive recruitment fee revenue in the first quarter was $136.7 million flat sequentially and up $9.2 million or 7.2% year over year.

Measured at constant currency, first quarter consolidated executive recruitment fee revenue was up 1% sequentially and up 8.2% year over year.

Regionally, also at constant currency, Europe was up 7.2%, Asia Pacific was up 13.7% while North America and South America were down 4.1% and 5.2% respectively on a sequential basis.

Year over year, also on a constant currency basis, North America grew 3.1%, Europe grew 15%, Asia Pacific was up 25.3% while South America was down 8%.

Growth in our executive recruitment specialty practice was primarily positive in the first quarter.

On a sequential basis at actual rates, the financial services practice grew 5%, the industrial practice grew 8%, life sciences and healthcare and consumer goods were flat while the technology practice was down 12%.

Financial services accounted for approximately 17.5% of all executive recruitment fee revenue in the first quarter, up approximately 80 basis points from the fourth quarter of fiscal '13.

Year-over-year also at actual rates all of our specialty practices grew in the first quarter with the exception of the technology practice.

Life sciences and healthcare was up 16%, financial services was up 13%, consumer goods was up 11%, and industrial was up 6%.

Worldwide, the technology practice was down 2% year over year in the first quarter.

The total number of dedicated executive recruiting consultants worldwide at the end of the first quarter was 416, up one year-over-year and up 17 sequentially.

The 17 consultant additions in the first quarter includes 27 promotions and 10 net terminations.

Annualized fee revenue production per consultant in the fourth quarter -- in the first quarter was approximately $1.34 million compared to approximately $1.37 million in the fourth quarter of fiscal '13 and $1.25 million in the first quarter of fiscal '13.

The number of new search assignments opened worldwide in the first quarter was 1,216 which was down 1% sequentially and essentially flat year over year.

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

Consolidated executive search adjusted EBITDA was $31.8 million in the first quarter, up $5.1 million or 19.1% sequentially.

On the same basis, when compared to the first quarter of fiscal '13, consolidated executive search adjusted EBITDA in the first quarter of fiscal '14 was up $6.9 million or 27.8% driven primarily by higher fee revenue across a stable more efficient cost base.

The worldwide consolidated executive search adjusted EBITDA margin was 23.3% in the first quarter fiscal '14 compared to 19.6% in both the first and fourth quarter of fiscal '13.

Now, turning to our leadership and talent consulting segment.

In the first quarter of fiscal '14, worldwide fee revenue for L&TC was $60.1 million and flat sequentially.

Year over year on an organic basis, excluding the fee revenue in the first quarter of fiscal '14 from the recent acquisitions of both Global Novations and PDI Ninth House, L&TC fee revenue grew $3.1 million or 11%.

Regionally, North America accounted for approximately 67% of the total L&TC worldwide fee revenue in the first quarter compared to 71% in the fourth quarter of fiscal '13.

Sequentially, on a constant currency basis, fee revenue growth was strongest in Europe and Asia Pacific which were up 10% and 29% respectively.

At the end of the first quarter, there were 134 dedicated L&TC consultants compared to 133 in the fourth quarter of fiscal '13 and 48 in the first quarter of fiscal '13.

Professional staff utilization was 65% in the first quarter, down 200 basis points sequentially but up 100 basis points compared to the first quarter of fiscal '13.

Excluding restructuring charges, L&TC's fiscal '14 first quarter adjusted EBITDA was $8.4 million, up $2.1 million or 34% sequentially and up $3.5 million or 71% year over year.

Core sequential earnings growth was driven by a realization of cost savings for our ongoing business integration initiatives across the stable fee revenue base.

Adjusted EBITDA margin in the first quarter was 14% compared to 10.4% in the fourth quarter of fiscal '13 and 17.2% in the first quarter of fiscal '13.

Finally, turning to Futurestep which generated a record $31.7 million of fee revenue in the first quarter, measured on a constant currency basis, Futurestep's first quarter fee revenue was up $1 million or 3.4% year over year and up $1.3 million or 4.1% sequentially.

Measured sequentially on a constant currency basis, Europe was up 3.1%, Asia Pacific was up 20.5%, while North America was down 3.9%.

Approximately 58% of Futurestep's fee revenue in the first quarter was generated from RPO and project engagements compared to 59% in the fourth quarter fiscal '13 and 55% in the first quarter of fiscal '13.

Excluding restructuring charges, Futurestep's adjusted EBITDA margin was 14.7% in the first quarter compared to a 14.7% in the fourth quarter of fiscal '13 and 11.3% in the first quarter of fiscal '13.

I will now turn the call back over to Bob to discuss our outlook for the second quarter fiscal '14.

Thanks, Gregg.

As I said earlier, new orders remain seasonally strong in the first quarter with a little bit -- a little more consistency in the month-to-month trends.

As is usually the case, July new orders were lower than May and June, and August new business also decelerated but primarily due to seasonality but, for example, in our executive search it was still 6% to 7% greater than what we saw last year in the month of August.

In looking ahead to the second quarter of fiscal '14, we expect new orders towards the end of the quarter to rebound back to a pace and trajectory similar to that of the beginning of the first quarter.

Assuming worldwide economic conditions, financial markets, foreign exchange rates remain steady, fiscal '14 second quarter fee revenue is likely to range from $225 million to $237 million and diluted earnings per share are likely to range from $0.32-$0.38.

With that, I'll conclude our prepared remarks and we would be glad to take any questions you may have.

(Operator Instructions)

Kevin McVeigh with Macquarie.

I wonder, Gary, it sounds like the L&TC business really contributing a nice percentage of the revenue now.

As we think about that sustainable kind of adjusted EBITDA target of 16% to 18%, how are we thinking about kind of the different components and how would they contribute to that in terms of the search versus L&TC?

Well, we're very pleased that the non-search business has been [very pursuant].

The Futurestep business is going to have lower margins for sure, but that is going to be a component of how much RPO activity we have.

So, as an organization we are targeting 15 to 18 and we would expect our L&TC business to contribute those kinds of margins.

The search would be maybe a little bit more and Futurestep would be a little bit less.

Got it.

And as you think about L&TC at 40%, does that continue to climb here?

And just on the back of that it sounds like, if I heard it right, pushing out kind of that initiative across all your consultants.

Are you going to have to kind of tweak the compensation structure as a result of that at all?

Well, we've continued over time to evolve our compensation structure and we will continue to do that, but today it's all about being relevant and differentiating yourself and fighting for growth.

So, although compensation is important, it is not number one and we have to be more relevant to our clients and we think going to market is one, bringing a richer, deeper set of offerings we will indeed drive the top line and our employees and colleagues will be further differentiated.

And just as a point of clarification, the 40% it not only includes the L&TC business but includes the Futurestep business as well.

L&TC is about 26% of the top line, Futurestep is 14%.

Got it.

And then last question if I may.

Margins overall, real nice expansion particularly in Europe and Asia Pacific.

Any thoughts on is that just kind of better revenue trends or cost actions or really what drove that out performance?

It's both.

We've seen a nice broad base uptick in activity and, secondly, I think that we really have taken the right balance on the seesaw between investment and growth and I think we've actively managed the business over the past few quarters and I think it's showing.

Tobey Sommer with SunTrust.

Gary, over the last year or so you deployed some capital, expanded and diversified the business, and the cash balance is getting closer back to the prior level.

How do you feel in terms of deploying more capital to kind of further provide separation between yourself and the rest of the market versus other alternatives at your disposal?

That is a great observation.

Our first priority would always be to invest and grow and we really think that there is a multi $100 million opportunity for us here incrementally from where we are today.

And we see ourselves as a couple billion dollar Company, and we also believe we need to continue to arm our organization with deeper, richer offerings.

We think we have a good opportunity on the product side to grow that business through intellectual property and technology.

Having said that, we are not necessarily proud with our return on capital this quarter which is kind of 7.5%.

We're very, very mindful of that as a leadership team.

And so I'm not going to comment other than I certainly recognize the question, our Board recognizes the question, and our priority would be to first deploy it in the business, but we're very, very mindful of the alternatives with that capital.

Thanks.

And your headcount was up sequentially in the quarter but I guess primarily as a result of promotions.

What do you think you do with it throughout the fiscal year and I ask that because the tone of the way demand was characterized in the prepared remarks and various people seem to demonstrate some improvement, I was wondering if you're confident enough in that trend to plan on adding to meet that demand?

Look, Tobey, we continually are looking to promote from within first and foremost within the organization and also to add talent from the outside like our clients do.

So, we're not going to change our modus operandi and we're going to continue to be aggressive and try to bring people that not only can drive the top-line but they can drive change that can be forward leaning and that can help us continue to move our culture.

Thanks.

Just one quick numerical question and one after that as well.

If you gave the spendable cash balance, I didn't catch it so if I could get that, and then, Gary, could you talk a little bit more and expand upon what your plans are in the opportunity to capitalize on the IP resident within the firm and monetize that through perhaps kind of more lucrative channels?

Thanks.

I'll comment on that and then, Bob, you can -- As a CEO in just about any company or any industry, any business, there is an incredible fight for growth right now and at the same time you're asking more from less people.

So, with that as a backdrop and this fight for growth, organizations spend anywhere from $400 to $1,000 per employee on development and on motivation and stimulation.

And so we think that there is an opportunity to license our intellectual property to help that CEO, to help him or her drive that growth, create that excitement, create that motivation.

And so today we've got what we would to characterize as a $50 million, essentially $50 million, products business either paper-based or software-based where companies use our intellectual property to engage a workforce, develop a workforce, stimulate a workforce.

And so we are thinking in ways in which we can take that intellectual property and capture some of that spend of say $500 or $1,000 per seat around development.

So, one of the things as an example is around this concept of learning agility, which we think in the environment today is critical, this kind of borderless growth, and so we are developing product that can be licensed for companies to use with kind of knowledge transfer that does not require an army of consultants to really stimulate and motivate a workforce.

Tobey, this is Bob.

On the cash, I will just run through the numbers quickly with you.

So, our total cash and marketable security position at the end of the quarter is $280 million and when you back out amounts for deferred comp and bonus, that goes down to about $132 million, and when you adjust that down further for global working capital needs, we are left with about $32 million.

Tim McHugh with William Blair & Company.

I guess just at a high level in the executive search business, can you characterize to us how it feels different than a year ago when there was kind of downward pressure on you and others in the industry?

It clearly seems to have improved, but if there is one or two factors that you would point to, what would they be?

Well, I think number one, we're one year further from the great train wreck, so we're now four years into a cycle versus three years.

I think that people are becoming very, very accustomed to the new normal, so I think there is a sense of more normalcy for our clients.

The second thing is that financial services, as you very well know, Tim, was very, very challenged going back several years.

It historically represented 22% of this company, today on a consolidated basis it is 15%.

So, it's still off where it was and so you're seeing again more normalcy there, more people accustomed to the re-regulation, a shift from investment banking to commercial banking, asset management, wealth management, we're adjusting to that trend.

And the third area is life sciences and healthcare, and that continues even from a year ago to be a very, very buoyant market across whether it's pharma or biotech.

So, those are -- the headlines -- our average search fee over a year is probably up just slightly I guess, it has held its own and it's up a little bit.

That's probably what I would characterize as a big-ticket item.

And I would just interject, Tim, a little bit.

If you go back, we looked at our new business activity over the past 12 months and again one hit and there was a step change in the level of new business activity.

We saw almost on average a 10% consistent growth from the second half of that 12-month period versus the first half.

The numbers in Europe and Asia seem a lot better just at least on a year over year basis.

Does that environment feel sustainably different and is that macro related or more individual or company specific?

Well, it would probably be unfair to say just company specific.

It's both but when you -- if you were to talk to two of our great leaders in both of those businesses and you ask them the difference, there would be three words and that would be our integrated offer.

So, our differentiated platform I think is making a huge difference in Europe and Asia.

It's clearly both.

It's a more stable environment but it's also the offerings that we're putting together here.

And on the leadership and talent side, the organic growth looked good but the revenue run rate coming out of PDI and Global remained a little lower I guess than the historical.

How do you, you talked about organic, I guess new business trends improving.

How do you feel about the underlying organic growth potential in a couple of quarters they'll get dropped into that calculation at least?

There was organic growth year over year in that business.

I think that 248 days into this we have done an awful lot in terms of the bringing together essentially two equal sides organizations.

We co-located or relocated a large percentage of our workforce.

We've done some things around technology, intellectual property and culture, and we had a very planned approach that we would focus on those areas as well as profitability.

So, for example, for the PDI investment when we made the acquisition we said that we would pick up somewhere between $86 million and $96 million of revenue.

It was running at an 8% margin, we want to add 10 percentage points to that and I think we have essentially delivered on that, but our expectation, and it may not be in this next quarter or the quarter after, but our expectation is that the growth rate on this business better be well north of 10%.

That's our own expectation.

So, I think we're very pleased with where we are but we're certainly not where we want to be.

Tim, I would just add a couple of thoughts on that.

One is you look at those businesses, it's really, it's almost impossible today to continue to pick them apart and focus solely on PDI or Global Novations as we continue with the integration of our products and offerings and so on coming out with a more common uniform set of assessments and competencies and so on.

I think, second, if you look at the new business in both PDI and Global Novations you really start to see us exiting the quarter with some real momentum and just give you one point of fact.

In Global Novations for example, if you go back and look at where they were in the fourth quarter of last year, there was a backlog relative to where they are today, it's up 2X.

So, we're starting to see some of the top-line momentum as we exit the quarter.

And is there still a deferred revenue impact weighing in terms of write off of deferred revenue?

Yes, there is.

It is more relative to PDI than to Global Novations.

Global Novations had a small amount of deferred license fees when we bought them, but PDI was up somewhere between $4 million and $5 million of deferred fees that we're not getting the benefit of as we go into this year.

That was the aggregate right or was that the impact just in Q1?

That was the aggregate.

We will lap that January 1 of next year.

Okay.

And then just one quick numbers question.

The tax rate, it was a little higher than I expected I guess kind of, at least what are you assuming for Q2 kind of going forward?

We've got this phenomena with the way that GAAP makes you do your interim tax rates that you will end up, our rate is not going to change on the full-year basis but what ends up happening because of the mechanics of the interim provision calculation, you end up with a little bit higher Q1, Q2 and then that reverses Q3, Q4.

So, I would say Q2 I'd hold pretty consistent with where we are now and then we will see that come down Q3 and Q4.

If you go back and look at FY '14, I'm sorry FY'13, you'll see probably a very similar pattern.

So is that 35 for the full year still?

Yes, I think 35 for a full year is probably a good number.

Mark Marcon with Robert W. Baird.

Can you talk a little bit more about L&TC with regards to what is -- what you've learned over these 200 days that those organizations have been put in place?

What are the areas where you're finding the highest level of success and as we think about that growth rate on an organic basis being north of 10%, how should we think about the incremental margins?

In other words, what's the pace of getting to the targeted operating margin for that particular business?

Well, I think that in terms of what we've learned, you do not know which you do not know.

I think that in so many of these positions, what you find is you focus on strategy and numbers but the ultimate trump card is people and culture.

So, I think that what we have learned is that one of our reads relative to the culture of for example Global Novations or PDI was that they were meritocracies and it turned out that we were right, but the amount of -- when you do an acquisition, the amount of uncertainty and questions are certainly pretty high.

But we've also learned that when we really combined the firm as one and not search or Futurestep or L&TC, but rather when we go as one and for example what Bernard is leading in Europe, we're having enormous success.

So, I think that is the big learning is that the brand has incredible permission.

There is a real pull factor there and that as an organization we must go to market as one.

So, that's one learning that we have to continue to push forward.

And then as we think about hitting the targeted level in terms of the margins, how should we think about that in terms of that?

I would think, Mark, over the next couple of quarters should be relatively consistent with where we are now.

As we've said, we've got some investing to do in our technology platform before we can fully realize all of the benefits.

As we look at the cutover time frame on that technology given our Sarbanes-Oxley requirements and so on, that will probably be a May 1 cutover, so we would expect to hit our full stride probably starting next year.

As I said before, we're pretty proud of the progress we've made so far this year.

Yes, it's been nicely consistent since the first quarter where it was fully integrated.

And you mentioned the utilization rate, where would you expect that to go to?

It better be higher.

I sense that.

I think our target for them is about 70%, so --

In the near term.

Yes, very near term.

It's summer time now.

We have vacations and so we saw a little bit of a dip there from we were running at about 67%, but we'd like to see that closer to 70%.

Very near term.

Can you talk a little bit about both EMEA and Asia-Pac just in terms of the increase in the margins.

You did mention that there was some reduction in costs and obviously the revenue ended up increasing, but was there anything else that contributed to the significant jumps in the margins on both sides?

Mark, again if you would ask our leaders of those businesses, they both independently consistently would tell you that it's the integrated offering and the value proposition.

So, I think that that is certainly part of it.

We've seen, we think -- in Europe I'm incredibly proud of the organization there.

We saw despite all the questions about Europe just sequentially we saw improvement in France, Germany, Switzerland our business is incredible, and the UK.

And in Asia, Australia was very solid, China was solid and Singapore was very good in the quarter.

Some of that has been helped by a more normal financial services environment for sure.

So, it sounds like the margins in terms of where they currently are within your international search operations should be sustainable?

At these revenue levels we would think so.

Can you talk, last question and then I'll jump off.

Can you talk a little bit about -- we always talked about the value add that comes from the core executive search and obviously the finding part has changed as you've described.

Do you think clients have, and I'm talking about in North America, have kind of normalized in terms of here is where we feel like we need somebody from the outside and here is where we think we can do as good a job inside?

I think so.

I think that there is also coming out early into this recovery a heavy focus on outsourcing, outsourcing all sorts of functions.

I think that, that has normalized.

And right now there is just an incredible, incredible fight for growth with our clients.

We do have a followup question in queue that will come from Tobey Sommer.

My question has been answered.

Thank you.

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

Okay.

Well, I want to thank our shareholders and we are very, very proud of where we are today but we're not where we want to be and just like our clients, we've got to be limber and agile and driven to act always all the time.

Thank you for your time this afternoon and we look forward to speaking to you again.

Thank you.

Thank you.

And, ladies and gentlemen, this conference will be available for replay for one week starting today at 7.00 PM Eastern daylight time running through the day September 12 at midnight.

You may access the AT&T executive playback service by dialing 800-475-6701 and entering the access code of 302040.

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 relations section.

That does conclude your conference call for today.

We do thank you for your participation and for using AT&T executive teleconference.

You may now disconnect.