Korn Ferry (KFY) 2014 Q2 法說會逐字稿

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

(Operator instructions)

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

We have also made available on the investor relations section of our website at kornferry.com, a copy of the financial presentation that we'll 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 risks and uncertainties can be found in the release relating to this presentation and the Company's annual report for fiscal 2013 and in the other periodic reports filed by the Company with the SEC.

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

Additional information concerning these measures, including reconciliations to the most directly 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.

Please go ahead, Mr. Burnison.

Well, hello, everybody.

Good afternoon and thank you for joining us.

I got to tell you that I am very proud of our Company and our 3,600 employees around the world.

We just completed the strongest top-line results in the Company's history.

We had revenue of about $238 million and that was up about 23% over last year on a constant currency basis, and a 4% increase sequentially.

So our business on an annualized basis, based just off the second quarter, is doing about $952 million of revenue and throwing off EBITDA on an adjusted basis of almost $150 million.

Our adjusted EBITDA margin was approximately 15.5%.

That compares to about 12.5% a year ago.

And 14% in the prior quarter.

Adjusted EPS was $0.41 and that's up 24% sequentially, and 64% year over year.

As calendar 2013 comes to a close, the narrative on the economic climate really hasn't changed dramatically.

We are in the throes of a new era, one that I have frequently referenced as an unprecedented fight for growth.

And speaking with corporate leaders, it is a consensus that the problem of growth, or lack of it, is rapidly becoming the world's number one problem.

Governments and corporations alike are grappling with the growth question, albeit from different perspectives.

And that is exactly the environment that is going to create opportunity for Korn Ferry, as we help clients drive growth by more effectively linking their business and talent strategies.

And it all begins with our flagship search business, which was up 11% year over year on a constant currency basis and it was up sequentially as well.

This business, it's just a fabulous business.

We change people's lives.

It is a door opener for broader talent management offerings.

It gives us license and access within C-suites all over the world.

Our overarching goal is to differentiate and drive revenue across our broader talent solutions capabilities.

Executive Search is the tip of that spear.

It gives us that trust, it gives us that permission, allowing us to engage in discussions with clients about other solutions that maybe they are buying piecemeal from other providers.

What we bring is fabulous professionals, industry-leading professionals, high-caliber client service of global reach, unique IP, all to help clients design, build, and attract talent for the purpose of driving superior performance.

In other words, to ignite talent.

During this last year, I think the strength and the steadiness of our strategy has really taken hold, not only by the performance of our Search business and where that is, but Korn Ferry overall, including our non-Search business which now represents about 41% of the top line.

So you have got a Company based on the second quarter that is doing $952 million of revenue and $264 million of that comes from our Leadership business and $128 million comes from Futurestep.

That 41% of the revenue mix is an all-time high.

Of course that was aided by acquisitions.

On an EBITDA basis, Futurestep and L&TC represented about 36%, 37% of the EBITDA.

Our Futurestep business grew 8% on a constant currency basis.

That was driven by the strength of the RPO business.

And our Leadership offering was $66 million in the quarter.

Again, if you were to annualize that mathematically, that's $264 million.

That's up 10% sequentially with a 15.5% adjusted EBITDA margin.

Much of that success, I got to tell you, can be attributed to the acquisitions that we have done.

Global Novations, a little over a year ago has been a game changer for us as well as PDI, which took place almost exactly a year ago.

Since that time, we have integrated those firms, we have established new go-to-market protocols.

We have successfully on-boarded 600 new colleagues, 20% of the Company.

We have accelerated our delivery process.

We have integrated world-class IP, and we have reconciled the offerings that we have.

In the year ahead, we are going to remain committed to anchoring our Company in knowledge and data using IP as a differentiator throughout all of our business, cascading innovation to our clients.

We believe offerings that are going to enhance our competitive edge in the marketplace.

I am certainly very proud and pleased.

I'm proud of our employees and our colleagues around the world.

I can't say that enough.

And the accomplishments we have made throughout this calendar year, I'm even more excited about what the future holds for Korn Ferry.

So with that, I have got Gregg Kvochak is here, and Bob Rozek, our Chief Financial Officer.

Bob, I'll turn it over to you.

Great, thanks Gary, and good afternoon, everyone.

As the global labor market gradually recovers and we continue to make progress bringing our comprehensive suite of talent management solutions to a broader number of clients, Korn Ferry continues to be positioned as a leader in defining the talent management solution space.

As Gary mentioned, we are extremely proud of our second-quarter fiscal 2014.

Despite our normal late summer seasonality, we achieved record high fee revenues and earnings.

Constant currency, our consolidated fee revenue in the quarter grew $44 million or 23% year over year to the all-time high of $238 million, with growth across all of our major operating segments.

Also measured on a constant currency basis, fee revenue improved $9 million or 4% sequentially, again with up growth in all service lines.

Additionally on an organic basis, excluding the revenue from the acquisitions that Gary just mentioned, our consolidated fee revenue was up 8% year over year at constant currency.

Also Gary mentioned, very pleased that 41% of those revenues come from services outside of Search.

And then our overall growth continues to outpace many of our major industry competitors.

Executive Search new business awards were pretty choppy in the second quarter.

Confirmations were sequentially down in the month of August and September, but they really surged back to a 15-month high in October.

Our new business confirmations in the second quarter were essentially flat compared to the first quarter of fiscal 2014.

And our overall new business was up nearly 12% when compared to the second quarter of fiscal 2013.

In L&TC, new business awards continue to gain momentum through the quarter, with total second quarter new business up approximately 13% compared to the first quarter.

And in Futurestep our backlog grew sharply in the second quarter as they secured a record number of large multi-year multi-million dollar RPO assignments in North America, Europe, and Asia-Pac.

When you combine these assignments on an annual basis, the recruiting level will be over 9,000 professionals across the globe for the next 3-plus years.

Our profitability also continued to improve in the second quarter.

Excluding restructuring, integration and separation charges in the current and prior periods, our adjusted EBITDA improved both sequentially and year over year, growing $4.8 million or 15% sequentially and $12.2 million or 50% year over year, reaching a record $36.7 million in the second quarter.

Our adjusted EBITDA margin was 15.4% in the second quarter compared to 14% in the first quarter and 12.5% in the second quarter of last year.

By segment, our sequential profitability improvement was mixed.

In Executive Search, our adjusted EBITDA margin fell 140 basis points to primarily to an increase in the second quarter in our variable incentive compensation costs, as well as market-driven investment gains associated with our deferred comp plan that results in increased compensation expense.

In L&TC our adjusted EBITDA margin improved 150 basis points sequentially, driven by higher fee revenue across a more efficient stable post acquisition cost base.

In Futurestep, our adjusted EBITDA margin fell 540 basis points sequentially and 280 basis points year over year, due primarily to the recognition in the quarter of start-up costs associated with the large RPO wins that I previously described.

And on those RPO engagements, the revenue will be recognized in future periods as the contact milestones are completed.

But we obviously are incurring some start-up costs in the current quarters as we ramp those up.

Over time when we get to a full ramp-up on those contracts, we expect Futurestep's EBITDA margins to return to the more normalized levels in the 12% to 14% range.

On a GAAP basis, including all restructuring, integration and separation charges, fiscal 2014's second-quarter operating earnings were $23.2 million with a 9.7% margin, compared to $16.6 million and a 7.3% margin in the first quarter of fiscal 2014, and $2.8 million and a 1.4% margin in the second quarter of fiscal 2013.

In the second quarter we also incurred $2 million of additional management separation charges.

Our financial position also continued to improve in the second quarter with ending total cash and marketable securities of $315 million, up $35 million compared to the first quarter of fiscal 2014 and down $17 million compared to the second quarter of fiscal 2013.

Excluding cash and marketable securities reserved for deferred comp arrangement and for accrued bonuses, our current investable cash balance is approximately $127 million, down $6 million versus the first quarter with about 22% of that cash residing in the US.

Finally, excluding all restructuring, integration and separation charges in the current and prior quarters, second-quarter adjusted diluted earnings per share were a record $0.41, an improvement of $0.08 or 24% sequentially and $0.16 or 64% year over year.

On a GAAP basis, including the affect of all those charges, our fiscal 2014 second-quarter diluted earnings per share were $0.38 compared to $0.23 in the first quarter of fiscal 2014 and $0.03 in the second quarter of fiscal 2013.

Now I will turn the call over to Gregg to review our operating segments in a little more detail.

Thanks, Bob.

Let's start with our Executive Recruitment segment.

Despite the seasonality of the summer months, global demand for our Executive Recruitment services improved in the second quarter.

Consolidated Executive Recruitment fee revenue in the second quarter was $140 million, up $3.3 million or 2.4% sequentially, and up $12.2 million or 9.6% year over year.

Measured at constant currency, second quarter consolidated Executive Recruitment fee revenue was up 2.3% sequentially and up 10.9% year over year.

Regionally, also at constant currency, North America was up 1.5%, Asia-Pacific was up 4%, South America was up 31.7%, while Europe was seasonally weaker by 3% on a sequential basis.

Year over year, also on a constant currency basis, North America grew 8.7%, Europe grew 1.2%, Asia-Pacific was up 25.1% and South America was up 42.1%.

Sequential growth on our Executive Recruitment specialty practices was mixed in the second quarter.

Worldwide growth was strongest in our Life Sciences and Healthcare practice, up 10% and our Technology practice, up 11%, while our Consumer Goods, Financial Service, and Industrial practices were down 8%, 3%, and 2%, respectively.

Financial Services accounted for approximately 16.5% of all Executive Recruitment fee revenue in the second quarter, down approximately 100 basis points from the first quarter of fiscal 2014.

Year over year also at actual rates, all of our Specialty practices grew in the second quarter with the exception of the Consumer Goods practice.

Life Sciences and Healthcare was up 35%, Technology was up 16%, while Financial Service and Industrial were up 1% each.

Worldwide the Consumer Goods practice was down 7% year over year in the second quarter, driven primarily by softer market conditions in North America and Europe.

The total number of dedicated Executive Recruiting consultants worldwide at the end of the second quarter was 412, up 10 year over year and down 4 sequentially.

Annualized fee revenue production per consultant in the second quarter was approximately $1.35 million, compared to approximately $1.25 million in the second quarter of fiscal 2013 and $1.34 million in the first quarter of fiscal 2014.

The number of new search assignments opened worldwide in the second quarter was 1,300, which was up 11% year over year and up 7% sequentially.

Excluding all restructuring charges, consolidated Executive Search adjusted EBITDA end margin in the second quarter improved $7.4 million or 31.7% year over year, with a 370 point basis point improvement in margin.

This improvement was driven primarily by higher consultant productivity and lower fixed and variable G&A expense.

On a sequential basis, consolidated Executive Search adjusted EBITDA was down $1.2 million or 3.7%, due primarily, as Bob mentioned earlier, to slightly higher variable compensation expense and market-driven investment gains associated with the Firm's deferred compensation plan that adversely impacted compensation benefit expense.

Executive Search consolidated adjusted EBITDA margin was 21.9% in the second quarter of fiscal 2014 compared to 23.3% in the first quarter of fiscal 2014 and 18.2% in the second quarter of fiscal 2013.

Now turning to our Leadership and Talent Consulting segment.

In the second quarter of fiscal 2014, worldwide fee revenue for L&TC improved to a new high of $66 million.

Measured on a constant currency basis, L&TC fee revenue grew sequentially $5.8 million or 9.7% with strong growth in North America and Asia-Pacific offsetting seasonal weakness in Europe.

Year over year on an organic basis, excluding the fee revenue from the recent acquisitions of both Global Novations and PDI Ninth House, L&TC's fee revenue was down $500,000 or 1.5%.

Regionally, North America accounted for approximately 71% of the total L&TC worldwide fee revenue in the second quarter, compared to 67% in the first quarter of fiscal 2014.

At the end of the second quarter there were 129 dedicated L&TC consultants, compared to 134 in the first quarter of fiscal 2014 and 72 in the second quarter of fiscal 2013.

Professional staff utilization improved to 70% in the second quarter, up 500 basis points sequentially.

Compared to the first quarter of fiscal 2014, L&TC's adjusted EBITDA improved $1.8 million or 21.7% to $10.2 million, driven by both higher fee revenue and a stable more efficient post-integration cost phase.

Adjusted EBITDA margin in the second quarter was 15.5%, compared to 14% in the first quarter of fiscal 2014 and 20.7% in the second quarter of fiscal 2013.

Finally, turning to Futurestep which generated $31.9 million of fee revenue in the second quarter.

Measured on a constant currency basis, Futurestep's second quarter fee revenue was up $2.4 million or 7.9% year over year and up $200,000 or 60 basis points sequentially.

On a regional basis, measured sequentially at constant currency, North America was down 3.1%, Europe was essentially flat, while Asia-Pacific was up 4.9%.

As previously mentioned, Futurestep's confirmed backlog surged in the second quarter as they were awarded multiple large RPO contracts that will generate fee revenue over the next several years.

Futurestep's adjusted EBITDA margin was 9.3% in the second quarter and slipped both sequentially and year over year, primarily due to start-up costs incurred in the second quarter associated with the new RPO wins.

With the timing of revenue recognition, will be deferred to future periods as contract milestones are completed, as Bob previously discussed.

I will now turn the call back over to Bob to discuss our outlook for the third quarter of fiscal 2014.

Thanks a lot, Gregg.

As we mentioned, our new orders during the quarter were somewhat choppy.

Given the strength of October however, we enter the third quarter with a solid backlog.

Some of the choppiness that we saw in the second quarter we expect to continue through the year end holiday months, where new orders are not only expected to be seasonally weaker, but consultants also had fewer business days in front of clients to work off confirmed assignments.

With the time taken off around the holidays, we expect that there will be somewhere in the range of 6 to 8 less working days in the third quarter versus what we saw in Q2.

To start the third quarter, our November new orders were down relative to October but in line with our expectations.

Assuming worldwide economic conditions, financial markets, and foreign exchange rates remain steady, fiscal 2014 third-quarter fee revenue is likely to range from $221 million to $237 million.

And diluted earnings per share are likely to range from $0.30 to $0.38 per share.

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

(Operator instructions)

Kevin McVeigh, Macquarie.

Great, thanks.

And congratulations on a real nice job.

Gary, as the LTC business represents an obviously lower percentage of revenue, how are we thinking about that within the organization culturally versus the traditional business?

Has it become more intertwined, number one, internally?

And then from a client-facing perspective, has that changed the go-to-market strategies, as this has obviously become a more meaningful part of the business overall?

Well, we are going to continue to evolve our organization, but only at a pace that our culture will allow it to absorb itself.

So we are going to blur the lines over the next few months, the next several quarters, to be one Korn Ferry.

Our go-to-market strategy first starts with the presidents of our industries, our markets, and it cascades from there as one Korn Ferry.

So to put it simply, we are going to blur the lines and represent one face to our clients, and that is what we are doing today.

And as you think about variable compensation relative to that, is there any change in the comp plans as a result to cross-selling or anything like that?

All of our colleagues are rewarded not only on what they produce, but how they produce it.

That commercial contribution piece includes all of our solutions.

So it really doesn't make any difference if somebody delivers a succession planning engagement, or delivers and onboarding, or a leadership development or a search.

It's all a commercial contribution to the Firm.

Got it.

And then in terms of the guidance, the guidance looks pretty good relative to the lost days around the holidays, things like that.

Any sense of baseline assumptions from a macro perspective?

Were you feeling that we have turned the corner here in Europe in particular?

Or are there any regions that you'd really highlight from an expectations perspective that it's driving some of this new found momentum?

Or continued momentum rather, for that matter?

Well, no, I have said for a long time this is a Nike swoosh.

That is what it is.

And I think it is slow and steady.

This cycle is now almost 5 years, believe it or not, where there's positive growth.

Many Americans don't feel like it.

Many people in Western economies don't feel like there's been a recovery.

We are mindful of that.

We are mindful of the talks around tapering and the like.

But I think this is -- it's slow and steady.

And this is a great environment.

The difference between 3% growth and 5% growth is night and day.

That's what our clients are looking for in leaders, people that can deliver that difference in growth.

Got it.

And then just particularly, if I could, and then I'll jump back in.

We are on the Financial Services practice.

We are probably getting to the end of the year where you are having discussions with your clients about engagements into January.

Any sense of the type of engagements?

Or are they more pro-revenue, as opposed to compliance?

Or any thoughts on the type of engagements, particularly in Financial Services?

No.

I think it's, again, the trends have continued to focus on risk, on compliance hasn't been as great, broad-based.

There's obviously a couple institutions where it has been huge, but broad-based.

Going back a couple years, that was an increasing part of that business.

But I think even within Financial Services it's slow and steady.

Got it.

Again, nice job.

Thanks.

Thank you.

Ken McHugh, William Blair and Company.

Thanks.

First I wanted to ask about the Leadership Consultant -- I'm sorry.

I'll start with Futurestep.

Can you help quantify it all for us, the size of those -- you talked about a number of large RPO wins.

We can make an assumption about, call it $15,000 or $20,000 per professional that you are searching for.

But is that a fair way to think about it?

Or what's the scope of those wins?

And then how long is the upfront initial investment before we could see those margins return to the levels?

Our leader, Byrne Mulrooney, and others in that business, I think would tell you that the margins will return this quarter.

And we certainly hope so.

We are counting on that.

We've invested quite heavily in intellectual property and technology.

We've got a great team.

And these wins are multi-million dollar wins that stretch over several years.

A negating factor is not only the upfront set up but it's also our clients in terms of how quickly they want to move, in terms of filling some of these positions that, as you rightly said, some of these contracts are in the hundreds if not thousands of positions.

And so there's really two parts to that margin erosion in the quarter.

One is the start-up set up.

The other is the cadence from our clients.

So they both impacted us.

Okay.

And then is there a way we can think about the size of that instead of -- I know it depends a little bit on how quickly people want to --

So that I do not do something off-the-cuff, why don't I -- the next call, I do think it would be appropriate for us to start to quantify for you the dollar backlog in that business.

Because that is how we are starting to really look at it.

Now that this business has real scale, we are actually looking at it internally based on contract value backlog.

I do not want to throw out any numbers without making sure we've gone through them carefully.

So we will start to do that for you.

I think that is a fair question.

Okay, thanks.

And then on Leadership, what the next steps at this point in terms of the margins and in terms of getting to that next level?

Is there additional overhead or IP-related investments?

Or is it more about driving productivity and leverage in the model at this point?

Well, there's still solutions that we are looking for.

There's still some depth and scale that we would like to add to that business, number one.

The business now is over $250 million.

That's a big leap from where it was seven years ago.

We obviously see that as a multi-hundred million dollar opportunity, depending on economic conditions.

I think that the real leverage point is quite simply that this Firm going to market is one.

The Search business that we have is incredible and it affords enormous access.

We have to continue to blend those along with Futurestep and be one Korn Ferry.

And I think that is a huge, huge leverage point for us.

And the other, that Bob can speak to that he's leading, is on the technology and process and systems side.

Yes.

As we talked on prior calls, Ken, we're in the process of putting some HR systems into place, as well as consolidating general ledger.

So there will be some additional cost savings.

I think the majority of the productivity that we'll see in terms of margin enhancement is really going to be more along the lines of what just Gary spoke about.

Bringing Korn Ferry to market is one, and leveraging what we call the tip of the spear, or our Search practice to drive that business, and get more dollars across a pretty stable cost base.

Okay.

And then one last one.

Bob, the interest income this quarter.

I known having covered this for a while, every now and then that pops up because of the deferred comp plans and some other items, but what was it this quarter?

And was there any offset to that in terms of the above the operating margin line?

Just trying to get a sense of how much of that was unusual versus --

Yes.

If you look at our deferred comp program and the e-cap program, and you go down to our other income line items, it's about $4.4 million of positive effect down below.

Up top in compensation they had about a $3.3 million negative effect.

So the net impact of that e-cap program is about $1.1 million.

Okay.

Thank you.

Tobey Sommer, SunTrust.

Thank you.

I'm curious about what trends were like in Executive Search in November.

You said new search confirmations up low double-digits in the quarter itself.

Did November see consistent trends compared to that?

Yes.

We had a really strong month of October.

November was back down to levels that we had been experiencing relatively consistently over the past four, five, six months prior to October.

September was a little bit light, but November was in line with exactly what we expected.

Okay.

Gary, I wanted to ask you a question about the multiple thousands of jobs that you have in the backlog for Futurestep.

I know you mentioned that you'll next quarter or the quarter after, you will give us a little bit, maybe a dollar figure associated with that backlog.

Can you ballpark it and bracket it in terms of growth in a range of percentages of about how much it's up compared to a year ago?

I don't want to do that, Tobey.

I've got to make sure that we go through that.

I do not want to say something that is irresponsible.

The backlog in that business is up significantly.

The contract value is up significantly.

And we owe it to you to describe our best estimate of how that backlog should roll out.

I just can't, I should not do that without us really going through it.

Fair enough.

And I don't think it's been asked yet, if it has, I apologize.

What was spendable cash at the end of the quarter?

If you look at what we call our investable cash, Tobey, it was $127 million.

If you back that out of very conservative estimate for working capital, we've been using $100 million so I will use that because we're going to be down to about $27 million.

Got you.

Okay.

And I'd be remiss if I didn't ask you about your expectations for capital and cash flow deployment.

We're a year and a half or more into spending some money on acquisitions, building new parts of the business that appear to be now selling well and with some visibility for margin improvement.

What do you think now?

Do you go back and shop some more?

Or are you content with what you own for now?

Well, we are always -- we are thinking about this organization as the source for leadership around the world.

And I think we have to continue to invest in the business.

So we are always looking, nothing has changed about that.

We are very measured about it.

That's our number one priority is to invest in this business for the long-term.

Are there opportunities to spend -- are you seeing opportunities that are significant and could maybe behoove you to maintain such high capital levels?

Or do you have some opportunity to be a little bit more flexible and maybe use that capital for multiple purposes?

Well, I think that we are blessed with a very good balance sheet that we've worked hard to build over the years.

I think we have to be -- we obviously have to be balanced in that.

This quarter, I think our return on capital was 10%.

That's not good enough, quite frankly.

And it's either a question of the numerator or the denominator.

And boy, we're trying to do everything we can on the numerator.

So we do dialogue with our Board around that capital allocation.

In fact, we'll do it again at the end of January.

Thank you very much.

Mark Marcon, Robert W. Baird.

Good afternoon.

And let me add my congratulations.

With regards to the number of consultants on the core Executive Search side, how should we think about that going forward?

Well, we are looking to develop our colleagues very aggressively and to promote from within.

And it's the same with investing.

We are also looking to augment the talent we have from the outside.

We are going to continue to do that.

So we really don't guide out in terms of that headcount number.

But I would be surprised if it goes down.

I know you are not providing guidance, Gary, but can you just talk about -- do we think we are on the order of 5% to 6% type growth going forward?

Or do we think that there's an opportunity to further increase the productivity levels and the billings per consultant?

I would hope that we can differentiate our Firm in the marketplace.

And that all of our client-facing professionals will be able, as we continue to train people, will be able to deliver or broaden the conversation with clients around multiple solutions.

We really do believe that now with the intellectual property we have and the solutions we have, there's opportunity on the productivity side for sure.

In terms of the headcount additions, we really don't look at it that way.

We are in the market to add great people to this Company.

And we are very aggressive about that, and we've been aggressive.

We have to also make sure that we continue to develop and train our colleagues here so there is a lifetime career destination.

Okay.

And how should we think about the November comps on a year-over-year basis?

Let me see, Bob or Gregg, do you guys have that?

They are really in the flattish range, Mark.

I'm about to say flat to slightly up in, let's say, November comp firms on the Executive Search relative to the same point last year.

Okay.

And then as it relates to L&TC, you did have a lot of success in terms of ramping up the growth there.

Can you talk about the types of projects that you are seeing the strongest success in?

It's really across a variety.

It's leadership development.

Developing teams, developing employees, is certainly a big part of that, assessing talent.

Leaders that can make the difference between 3%, 5% growth, that's a big part of that.

We have also a great succession planning offering that's obviously linked to talent management that is gaining a lot of traction in the marketplace.

And it's things like that.

It's tools like learning agility, trying to really develop a workforce to meet the challenges of this next decade.

We've got a products business that's been very good as well.

So it's probably those four or five categories are the big headlines.

Okay and it's evenly spread between those?

Again, yes, there's not one single thing that sticks out.

But I'll tell you the one single thing we are seeing, is the cohesiveness and the integration, going to market is one.

That's where all the leverage lies for this organization.

We have a lot of clients, and for a lot of those clients we do one thing for.

And that's just not -- that doesn't make any sense.

That's where the opportunity is for us as a Company.

It sounds like you are seeing greater levels of, I don't want to say cross-selling, but appreciation by your clients, of the various options that you can provide.

And that you are seeing more instances where your clients are using you for more than one service.

We are.

We absolutely are.

And can you talk a little bit about, on the L&TC side, you had such a big step function.

Clearly all of the business did not start on the first day of the last quarter.

How should we think about the growth in L&TC going forward?

Well, I think, Mark, the -- this is Bob.

When you go into the third quarter as I mentioned, the business that's probably most affected by the holidays is going to be the L&TC business.

We just don't have the number of working days in the third quarter that we had in the second quarter.

The second quarter we had about 65 days.

In the third quarter, from a scheduling perspective, we've got about 60 days.

Although a lot of that also depends on our clients and how they take time off around the holidays.

That's why we are estimating, when we talked before, about being down some 6 to 8 days.

We think that it's going to impact that business the most significantly.

Okay.

How would you describe this on a pro forma basis, the year-over-year growth that you are seeing there?

Do expected if to continue?

What we said on the last call and what we are holding the leadership team to, is if we don't see 10% CAGR in that business, we're going to be disappointed.

Got it.

And how should we think about the tax rate going forward?

35%.

35, great.

Thanks.

I'll follow up off-line.

Thanks Mark.

Ty Govatos, TG Research.

Ty, your line is open, please go ahead.

Ty Govatos.

Hello, Ty.

We're here.

You're lucky I have good phones.

Thanks for calling me back.

Technical question, what was the bonus accrual for the quarter and six months?

Ty, it was about $37 million in the second quarter and about $67.5 million year to date.

Okay, thanks.

And Gary, I guess everybody has asked this question so far from different points.

The revenues per consultant or search consultant are substantially higher than they were 10 years ago.

You've made a concerted effort to upgrade the consultants over that period of time.

I know it's a gradual process, but how much of that increase let's say, if we look at that over a 10-year period average to average, is now the leadership business versus a different type of consultant?

If I just go back to when Paul started and when I started, over a 12-year perspective, I would say it's 80% people, 20% solutions.

Over the last three or four years, I think that's changed dramatically.

Now that we've added really depth and breath and we're training people and all that, that algebra, it's not gone 180, it's not flipped entirely.

But boy, it's a lot different than 80/20, I'll tell you that.

So you feel comfortable more with the 50/50 mix now?

I do, I do.

I think that that over the long term for us, delivering more value to clients, more stickier relationships, a differentiated platform, we're in the talent business.

Every client's in the talent business.

I do think that there's opportunity there.

Are there are some changes, organizational changes, you can make further down the road once you are well past these integrations and everything, that would accelerate or make that process more cohesive in terms of penetrating clients?

Well, I think that clearly the organizational structure is going to continue to evolve over time at a pace that our culture will absorb.

That's absolutely going to change.

And everything from us it starts with outside in, what clients are looking for.

And they're really looking for sector expertise around talent and knowledge and intellectual property.

That's where we begin and that's what drives our go-to-market strategy.

I will say that under -- in Europe we have brought the leadership under one individual, one team.

That's definitely an interesting move, and we are going to continue to evolve this.

But regardless of the structure, you have to start outside in with what clients are really asking for.

Right now we have to continue to develop our people and broaden the conversation with our clients.

Okay, thanks.

I appreciate it.

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

Okay, thank you.

I certainly am very, very proud of this Company.

We are in an interesting environment where global growth is slow, but the change is fast.

Our clients, leaders, have to think and act very differently.

The differences between above average and new normal are not trivial.

I think Korn Ferry is absolutely positioned for this era.

We're excited about the future.

We thank our shareholders and certainly I would be remiss if not saying that have a wonderful holiday, if we don't speak to you and seasons greetings.

Thank you very much.

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