Korn Ferry (KFY) 2015 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Korn/Ferry first-quarter FY15 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 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 on the call today, such as those related to the 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 and future periods may differ materially from those currently expected or desired, because of a number of risks or uncertainties, which are beyond the Company's control.

Additional information concerning such risks and uncertainties can be found, and the risks related to this presentation, in the Company's Annual Report for FY14, and in any 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 financial presentation and release related 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.

Okay, thanks Paul, and good afternoon, everybody.

Thank you for joining us.

I'm joined here by Bob Rozek and Gregg Kvochak.

I'd first say that I'm incredibly pleased with the results of our first quarter, but I think, even more than that, if I just step back for a second and hit Google Earth, this is my 50th quarterly earnings call.

That's somewhat hard to believe, but I'll tell you I've never been more excited in terms of our execution of our go-to-market philosophy, of our long-term strategy, and I just have to thank our 3,600 world-class professionals.

I think they are the best in the business today.

The quarter showed about 10% growth in fee revenue, and the story is really search, particularly North America search, as well as Europe, and then Futurestep, really, really solid quarters.

We had an adjusted EBITDA margin of 15%, EPS on an adjusted basis was 43%, and all three lines of business grew.

And again, Futurestep came in with a resounding 24% growth rate.

I think that our results reflect consistency, consistency of purpose, consistency of strategy, and most importantly, redefining the business of talent for clients, and I think that we are increasingly recognized as the source of expertise on talent and leadership.

Finding and recruiting talent, the right talent, that's any leader's, any CEO's, any Board's critical priority, and that's evidenced by the growth in our flagship search business, which was about 9%.

And again, as I highlighted, a notable lift in North America and Europe, up 11% and 17% respectively.

And the same holds true for clients that are desperately seeking and attracting knowledge workers, and that's demonstrated by Futurestep's continued growth.

Within our Futurestep business, RPO accounts for a little bit more than half of that business; however, we've also embedded in there consultative solutions within Futurestep, such as employer branding and talent acquisition redesign, and Futurestep now represents about 16% of our firm's revenue mix.

But as any leader knows, there's much more than just assembling a great team, great talent.

They also have to work together, and they have to be aligned to a common purpose, and that's what our leadership business is all about.

That business was up 6% year-over-year and in that business, we're crafting development solutions and organizations that leaders, that teams, that individuals can grow, and that they can drive sustainable change.

Our leadership business now represents about a quarter of the firm's revenue mix.

As I also tapped Google Earth here, over the last couple quarters, I think we've made real strides with developing and mobilizing our own workforce, our own consultants, giving them the IP, the analytics, and the innovation that helps our clients redefine their business through talent.

And as a result, when you look at our colleagues across the globe, they are more actively engaging in conversations with clients about their broader talent needs than ever before, and in fact, when you look at our business, almost 90% of our Top 50 clients utilize at least two of our three service lines.

When I look at this last fiscal year, and I'm sure Bob will correct me, but two-thirds of our colleagues that have responsibility for business origination referred somebody from a different line of business.

It's remarkable, the penetration, the drive, the energy, the consistency that I think we're demonstrating here.

Every month, 49,000 professionals benefit from our development programs.

Every seven minutes, we place a professional in a new job.

94% of the Fortune 100 used Korn/Ferry as their partner over the past three years, as well as 84% of the FTSE100.

So in the quarters ahead, we're going to continue with this consistency of purpose in namely three big areas: Continue to drive relentlessly a proactive go-to-market strategy.

We deal with 5,000 clients every year, year-in and year-out.

We have an enormous opportunity to broaden the conversation, to deepen the relationships with those clients.

Secondly, we have to make our brand more elastic, and we're going to do that through IP, through the investments that we're making in the Korn/Ferry Institute, and research around things like learning agility or enterprise agility.

Solutions that can really help to drive growth in this kind of economic environment that all of our clients are looking for.

And lastly, we're going to continue with the pragmatic approach to M&A, looking to add depth, scale, capability to our business overall.

So again I'm very, very pleased with the quarter, but I think more importantly, as I sit here today from 12 years ago, wow, it's -- just have to thank our employees and colleagues that we have.

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

Bob?

Thanks, Gary.

Good afternoon, everyone.

Thanks for joining.

As Gary took you through, we had pretty strong financial performance in the first quarter of FY15, which really is a reflection of the steadily improving demand for our industry-leading recruitment and talent management services, as well as our disciplined reinvestment back into the business, the internal momentum that we generated from the execution of our strategic transformation, and the cost efficiencies resulting from our continuous focus on expense management.

As Gary said our fee revenue in the first quarter was $251.2 million, with solid growth in all three of our major lines of business.

Consolidated fee revenue was up $22.8 million or 10% year-over-year, that's about 9% at constant currency, and was flat sequentially.

Our cross-selling and account development efforts continue to advance.

Our revenue mix came in about 41% of our fee revenue being generated from services other than executive recruitment.

In executive search, new business remains strong in the first quarter.

Starting from the beginning of calendar 2014, the choppiness in the global monthly new orders has significantly lessened, and we're now settling into a fairly tight range.

In the first quarter, executive search new business was up 3.1% compared to the first quarter of FY14, and down only marginally sequentially from seasonal highs in the fourth quarter.

In L&TC, new business awards in the first quarter grew 8% compared to the fourth quarter of FY14, and were up double digit year-over-year.

And finally, Futurestep's new business award trend continues in a positive light in the first quarter, with new orders remaining consistent with what we saw last year in the first quarter, as well as the fourth quarter on the sequential basis.

Our firm is also focused on accelerating profitable growth.

Several specific measures targeted at improving our ongoing profitability continued in the first quarter.

As we discussed in our prior earnings calls and detailed in our guidance, we leveraged the prior year's technology investment, and the Company took certain actions in the first quarter to improve its cost structure, and really take the final steps to integrate its legacy business with recent acquisitions.

As a result, the Company recorded a net restructuring charge of $9.9 million, primarily comprised of separation benefits related to a reduction in our global workforce.

Excluding all restructuring and integration charges in the first quarter of FY15, adjusted EBITDA improved $6 million or 18.8% year-over-year, to $37.9 million.

On incremental consolidated fee revenue of $22.8 million, this represents EBITDA flow through of a very healthy 26%.

When compared to the fourth quarter of FY14, adjusted EBITDA in the first quarter improved $3.4 million or 9.9%.

EBITDA margin was 15.1% in the first quarter, compared to 13.7% in the fourth quarter of FY14, and 14% in the first quarter of FY14.

On a GAAP basis, operating earnings in the first quarter were $18.6 million with a 7.4% margin, as compared to $16.6 million and a 7.3% margin in the first quarter of FY14.

Excluding restructuring, integration, and management separation charges in the first quarter of last year, and restructuring charges in the first quarter of this year, adjusted operating earnings were 28.5%, or up $5.2 million or 23% year-over-year, with 110 basis point improvement in margin, and up $4 million or 16% with a 160 basis point improvement in margin.

Our financial position remains solid in the first quarter, with total cash and marketable securities of $372 million, up $92 million compared to the first quarter of FY14, and down $96 million compared to Q4 of last year.

That results primarily from the payment of incentive compensation that was made in July.

Excluding cash, marketable securities reserve for deferred comp arrangements, and accrued bonuses, our current investable cash balance is approximately $211 million, which is kind of flat with where we were at the end of the year last year.

Of that $211 million, about 26% of it resides in the US.

After you pull out working capital needs, our net investable cash in total approximates $136 million.

Finally, after adjusting for restructuring charges of approximately $0.14 per share, fully-diluted earnings per share in the quarter were $0.43.

This represents a $0.10 or 30% improvement year-over-year on an adjusted basis.

Sequentially, adjusted diluted earnings per share were flat Q4 to Q1, however in Q4, if you'll recall, we benefited from a lower tax rate of about 22% compared to the 30% rate that we saw in the first quarter.

With that, I will turn it over to Gregg, who will review our operating segments in more detail.

Thanks, Bob.

I'll start with our executive recruitment segment.

Globally, revenue in our executive recruitment segment remained strong in the first quarter.

On a consolidated basis, fee revenue in executive recruitment for the first quarter was $148.4 million, up $11.8 million or 8.6% year-over-year, and essentially flat sequentially.

On a regional basis, at constant currency, North America was up 11.5%, Europe was up 10.3%, while Asia Pacific and South America were down 6.8% and 3.9% respectively, when compared to the first quarter of FY14.

On a sequential basis, also at constant currency, North America grew 2.3%, Europe was flat, Asia Pacific was down 11%, and South America was up 2.1% in the first quarter.

Compared to the first quarter of FY14, all of our major specialty practices grew, with the exception of the global technology practice, which was slightly down.

Year-over-year, worldwide growth was strongest in our industrial and financial services practices, which were up 12% each while our consumer goods and life science and healthcare practices were up 7% and 6% respectively.

Our global technology practice in executive search was down 3% year-over-year, driven primarily by softer market conditions in both Europe and South America.

Financial services accounted for approximately 18% of all executive recruitment fee revenue in the first quarter, which was up 60 basis points year-over-year, and down marginally on a sequential basis.

On a core sequential basis, growth in our global specialty practices was mixed.

The industrial and consumer goods practices were up 6% each, while the life sciences and healthcare, financial services, and technology practices were down 3%, 4% and 12% respectively.

The total number of dedicated executive recruiting consultants worldwide at the end of the first quarter was 442, up 26 year-over-year, and up 10 sequentially.

Annualized fee revenue production per consultant in the first quarter was $1.36 million, compared to $1.34 million in the first quarter of FY14, and $1.38 million in the fourth quarter of FY14.

The number of new search assignments open worldwide in the first quarter was 1,310 which was up 7.7% year-over-year, and was flat sequentially.

Excluding restructuring charges, consolidated executive search adjusted EBITDA in the first quarter was $31.9 million with a 21.5% margin, compared to $31.9 million with a 23.3% margin in the first quarter of FY14.

The flat year-over-year adjusted EBITDA and lower EBITDA margin for the first quarter of FY15 was primarily influenced by the decline in fee revenue in Asia Pacific and South America, higher variable incentive compensation expense linked to the continued execution of our strategy, including cross-service referrals, as well as the timing of recent investment hiring of additional consultants.

When compared to the fourth quarter of FY14, adjusted EBITDA was up approximately $180,000, with a 10 basis point improvement in margin, on essentially flat fee revenue.

Let's now turn to our leadership and talent consulting segment, which generated $63.6 million of global fee revenue in the first quarter.

L&TC fee revenue in the first quarter grew $3.5 million or 5.8% year-over-year, driven primarily by strength in the North American region, which was up over 10.6%.

Compared to the fourth quarter of FY14 on a constant currency basis, L&TC's fee revenue was down $2.9 million, or 4.3%.

Regionally, North America accounted for 70% of total L&TC's worldwide fee revenue in the first quarter, compared to 73% in the fourth quarter of FY14.

At the end of the first quarter, there were 127 dedicated L&TC consultants, which was flat compared to the fourth quarter of FY14, and down 7, compared to the first quarter of FY14.

Professional staff utilization in the first quarter was also flat sequentially at 70%, and up from 65% in the first quarter of FY14.

Driven primarily by cost-based efficiencies gained from several phases of post-acquisition, integration activities, L&TC's profitability continued to improve in the first quarter.

Excluding restructuring and integration charges, adjusted EBITDA in the first quarter grew to $9.7 million, with a 15.2% margin, which was up $1.3 million or 15.5%, with a 120 basis point increase in margin, when compared to the first quarter of FY14.

Compared to the fourth quarter of FY14, L&TC's adjusted EBITDA margin in the first quarter of FY15 improved 10 basis points, despite lower fee revenue.

Finally, let's turn to Futurestep, which grew for the seventh consecutive quarter, and generated $39.2 million of fee revenue in the first quarter.

Futurestep's first-quarter fee revenue was up $7.5 million or 23.7% year-over-year, and up $1.9 million, or slightly over 5% sequentially.

On a regional basis, measured year-over-year at constant currency, North America was up 28%, Europe was up 32%, and Asia Pacific was up 1%.

Sequentially on the same basis, North America was up 3.5%, Europe was flat, and Asia Pacific was up 13.8%.

Driven primarily by improving operating leverage, Futurestep's profitability continued to improve in the first quarter, with EBITDA adjusted for restructuring charges reaching $5.3 million, with a 13.6% margin.

Now, I'll turn the call back over to Bob to discuss our outlook for the second quarter of FY15.

Thanks, Greg.

As mentioned earlier, the variability in our monthly new orders across all lines of service has narrowed.

Globally, August and even September new awards are typically negatively affected by summer vacation seasonality.

July was a solid month of new business for us, and as expected, new business did slow in August, and it's difficult to decipher if this deceleration is simply late summer seasonality, or if certain heightened economic or geopolitical factors are negatively affecting our new business at this point.

Additionally, as we move into the next quarter and the second half of fiscal year, we will realize cost savings associated with the last phase of integration and restructuring that we executed in the first quarter.

At a summary level, we anticipate recovering through our go forward cost structure and future quarterly earnings, all of the $9.9 million spent in the first quarter on restructuring by the end of FY15, so that's about three quarters of a year payback.

However, some of the resulting savings we potentially will be reinvesting back into the business for growth opportunities, in the event that those opportunities arise.

Assuming worldwide economic conditions, financial Markets and foreign exchange rates remain steady, fee revenue in the second quarter of FY15 is likely to range from $244 million to $254 million, and after taking into consideration the partial realization of cost saving actions, adjusted diluted earnings per share are likely to range from $0.42 per share to $0.48 per share.

With that, I'll conclude our prepared remarks, and we would be glad to answer any questions that anybody has.

Thank you.

(Operator Instructions)

Our first question comes from Kevin McVeigh of Macquarie.

Great, thanks.

Congrats.

I wonder, relative to the revenue guide, real nice EPS out-performance.

Is that purely just better margins or lower tax rate, or just what's driving that real nice outperformance on the EPS line?

It's a little bit of help from taxes but not much.

It might have been $0.01 or so on the tax rate but it's really the overperformance on the margins and cost side.

And then as we think, Bob, about margins over the course of the cycle, where are we thinking in terms of targets, peak margins, and if you could give us a little more color by segment?

I think as we've talked in the past on the search side, we're looking at a range, a long term range of 20% to 25% so as we 25% EBITDA margin, so as where we are today, we're lower to mid point of that range so we think we have got some opportunities.

Some of the restructuring actions we took in the first quarter will help to improve that as we go forward over the course of the rest of the year.

And then the other factor, I would say, Kevin, is as the new hires and we have aggressively hired into search as the new hires ramp up and become more productive, we'll get additional yield.

So I would expect us to see us towards the high end of that range, absent any economic, real economic changes.

On the L&TC side, we're looking at a range of about 15% to 18%, so we've -- last year we ended up at kind of little bit slightly below that range.

Right now we've crossed over to the low end of that range.

Some of the cost actions we took again in the first quarter will impact L&TC, the technology investment we made last year will really help that business, so we should see margin improvement there towards the middle of the range.

And then on the Futurestep side, our longer term range there is 13% to 15%.

I think Vernon and his leadership team have done a commendable job growing the top line.

That business has a significant component related to leverage, so I would expect to see us mid point of that range over the course of the rest of the year.

Got it and as you think about the services pile overall, are you comfortable with where you are from a mix perspective, or do we maybe continue to have target acquisitions, or how are we thinking about use of capital?

Just rank order priorities?

The use of capital is first into intellectual property, then into people and then into capability.

That's really what we're looking at.

The other thing I'd say Kevin, one of the things I've concerned in the 2.5 years I've been here working for Gary, you're never comfortable, so we're always pushing to move things forward.

Understood, nice job.

Our next question is from Tim McHugh, William Blair & Company.

Yes, just to start with some numbers questions.

What type of tax rate are you embedding in your guidance for next quarter, and if you have a sense then, for the full year?

Yes, we talked last time, Tim on the phone.

We thought we would be about 34%, but we had a couple of items that will flow through in the first quarter, related to some state tax planning activities, as well as when you look at the projected change in the mix of our revenues, I think you probably should put in somewhere in the 32% to 33% range for tax rate for the year.

For the year?

And is that the same for Q2?

Yes, I would use that as sort of an effective rate.

And then as I think about Futurestep, can you help us understand the number of engagements is flat year-over-year, but the revenue per engagement is up a lot.

Is there really, is that just -- there's that much of a difference in the fees on RPO than the core business?

Can you help me understand the numbers, I guess?

Well if you look and think about an RPO engagement, it's viewed as one engagement, but you're doing a number of searches.

So the fees, they would be higher versus a single search, if you will.

So you don't recognize each hire you do under an RPO as an engagement?

No, no, no.

It would be, the engagement would be with the customer.

So there is engagements that literally have embedded in them hundreds of could-be placements.

All right, so that's going to skew it.

All right.

And then, I guess, more broadly, you can talk about Asia with the executive search business, and I guess opposite side is, it seemed North America picked up a fair amount versus even what you were talking about, or seeing a quarter ago but Asia really slowed a lot.

Any context for those two?

It was certainly not what we were looking for.

It's really anchored around Australasia and Japan, and there is nothing there that would suggest that there's a problem, any kind of economic malaise.

Our teams will rebound for sure there.

And Australia, I would assume is the bigger piece of that?

Yes, Australia is the bigger piece of that.

Okay.

And then, I guess lastly, just capital deployment.

I guess you've -- it seemed a couple months ago that for a while you were thinking dividends and other ideas, and you sounded more excited about M&A opportunities on last call.

I guess I didn't pick up a clear sense of direction here, in terms of what the environment is like, as you look out there right now.

Has it gotten better, worse, any sense for -- I think there's some larger opportunities that you had at least in your site, as potential three months ago?

We continue to, I think, execute pretty consistently.

We're looking for the right opportunities, and we continue to think that we can create a $2 billion organization, and not $1 billion, and to do that we're going to have to invest in intellectual property and talent analytics, and we're going to have to also add depth and scale.

So I -- we're going to execute this consistently, and we're in the market looking for the right types of investments.

And at the same time, we're quite cognizant that we can't have cash laying around earning 10 BPs, that's pretty clear too.

Okay, thank you.

Next question is from Mark Marcon with Robert W. Baird.

Let me add my congratulations.

Really nice rebound, in terms of North American executive search.

Can you talk about the contributions from the new people, or in terms of driving that, versus say just certain practices picking back up, can you just give us a little more color there?

Mark, it was -- I can't get granular in terms of the new people.

We always are adding people and counseling people out.

The pick-up was very broad-based.

We saw it across-the-board really, and it would be probably unfair to pick out any one particular segment versus another.

We're continuing to broaden the conversation with clients, and when you look at our penetration and the opportunity we have there, I think that speaks pretty loudly about what we can do.

But in terms of search, it was broad-based, Mark.

And it sounds like by virtue of the fact that you're broadening out the conversation and that you are not a mono-line provider of talent solutions, that tell me if I'm putting words into your mouth, but it seems like you're probably gaining some share as a result of that message resonating?

That's the essence of the strategy.

I hope that continues to play out over time Mark.

And the thing that I'm very encouraged by is when you look on a new business basis into the LTC Futurestep, business 40% it come from search partners.

If you add the tail about further extension of that work, that percentage becomes much larger, so that is very interesting in a relatively short amount of time.

The second data point is that when you look at folks that have business origination responsibility, and they're compensated for any kind of business that we bring in here, and execute it in a quality fashion, two-thirds this last year, there's at least two-thirds of those individuals did something across service lines.

And again, pretty remarkable, in a short amount of time.

Great.

And then can you talk a little bit about the nice step up that you had again in Futurestep sequentially?

I sense that you're probably still putting in place certain contracts that aren't fully generating revenue.

How should we think about Futurestep in terms of the trajectory for the full year, because it certainly seems like it's been accelerating?

Well we hope it does.

I think this growth rate in this particular quarter is an out of the park shot.

I wouldn't expect that; however, when you look year-over-year, you would see some real gains made in the technology area, the technology market, the life sciences market, as well as industrial.

And that's where you see the growth, particularly technology.

That's been a big contributor to Futurestep's growth.

Would you expect Futurestep to be up sequentially in this coming quarter?

I'll put our leader on the spot, and yes, I would.

Okay, that's great.

And then how should we think about L&TC?

Obviously that's a lumpy business.

We saw 6% growth this last quarter.

How should we think about the growth there?

You obviously have a lot of different solutions that you're offering.

Which ones are the ones that are showing the strongest growth and what are the areas for improvement?

The areas for improvement are number one, around development.

I think that we can both increase the distribution of current solutions around developing people.

We've got deep capability in assessment, but I think that there's a huge opportunity for development.

So that's probably the one that I would point out right away.

Obviously, succession and talent management continue to be a driver, but we also have some really cool diagnostics.

If you look at any CEO today, they are grappling with growth, and what you really need is a nimble, agile workforce.

You just don't hire scale anymore.

Scale is out, and you need agility so we've got actually diagnostic tools that go into an organization and look at enterprise agility, learning agility, cultural agility and I think we've got a big opportunity there.

It is a very lumpy business.

I have said that I expect 10% growth off that business, and there's nothing that would suggest that we should settle for anything less than that.

Although you wouldn't expect 10% growth in the coming quarter, would you?

On a year-over-year basis?

No, no, I would not, Mark.

Because that's a really tough comp you're going up against.

I was just going to mention that, Mark.

You remember last year in Q2, we did 66, and that is a tough comp.

And quite honestly if you look back across the whole business, you get into Q3 and Q4 of last year, the comps do get tougher for us.

So folks are going to have to work that much harder to keep rates of growth up that are acceptable.

Some growth would be expected, but certainly not -- 10% would probably be more of a target?

10% is more the aspirational goal.

Okay, great.

Thank you.

Next question is from Tobey Summer with SunTrust.

Thanks.

Gary, what inning is it, do you think in terms of the market grasping the intellectual property, upon which Korn/Ferry is now increasingly basing its services?

We just have done warm ups.

Okay, in terms of -- I guess we'll extend the baseball symbolism if you will.

Where do you feel like the Company is in terms of cross-selling, so judge it from an internal progress standpoint?

I think we're clearly in for sure the fourth inning.

Maybe we're in the bottom of the fourth.

I think when you look at just the data, I don't want to sell anything, if you just look at the data in terms of, as Gregg said, the cross service referrals, the search business is just the precious gem.

It has incredible access.

It's a way to differentiate the brand, and I think that's playing out in the numbers.

Having said that, we still deal with an awful lot of clients where we just do one thing.

It could be Futurestep.

It could be an assessment in L&TC, or it could be search, and obviously the goal, the challenge, the opportunity is to broaden those relationships.

Bob, what kind of incremental margin should we be targeting in the next several quarters?

I would say somewhere right today we were at 15.1% coming out of this quarter.

Somewhere between that point and maybe say 15.5%, 15.6% as we move forward, overall.

And then Gary, from a longer-term perspective, do you have goals to extend the intellectual property, such that you could leave products behind and create and expand upon the recurring portion of revenue that might be higher margin, that property can generate?

Yes, that's -- right now that's only about 6% of the Company.

So that is an opportunity for us, is licensing our intellectual property, and certainly creating stickier real relationships really, but certainly a stickier revenue stream.

So look, it was zero a few years ago.

It's 6%.

That has incredible incremental profitability to it, but that takes time.

That's a separate sales force, the price points are different, and all that.

Just two more questions.

One, I wanted to follow-up on the M&A question.

Gary, is the pipeline less or more plentiful now than last quarter?

And then I was just hoping you could comment on the -- what verticals and geographies show strength in your new engagements in executive search?

Thanks.

I'll let you guys can handle that, the strength of the new business where it's coming from.

In terms of the M&A, I would say that it's -- look, it's about the same.

It's obviously an environment where valuations are on the higher side, but for us, it really comes down to culture fit, and can we bring people in and grow.

That's really what it comes down to.

So I would say it's about the same, than it was, say, last time we spoke.

Thank you.

In terms of the new business, guys.

Yes, Tobey this is Gregg.

As far as new business goes in executive search we're probably seeing best activity of course in the North American region, and a lot of that's being driven by the consumer segment, as well as the industrial segment.

A little bit more consumer than industrial, but those are both strong.

And then as the second area we're seeing lots of good activity is -- again this is trailing, they're going to a seasonal quarter, but Europe, Europe was very strong in industrial and as well as life sciences and healthcare and even in technology in the quarter.

And as Gary indicated, we expect to see some rebound in the Asia Pacific region on a sequential basis, and they were -- almost all of the markets were down on a sequential basis in Asia-Pac, but we expect likewise to be sort of a broad based rebound in quarter two.

Thank you.

Next question is from Josh Vogel with Sidoti & Company.

Just wanted to build off one of the earlier questions on L&TC.

Can you just remind us is there any seasonality in the business?

Just want to get a better handle on the sequential downtick in revenue.

Yes, there is seasonality Josh, if you go back.

And we don't have obviously a long history with the combined business.

But if you go back to last year, Q2 and Q4 were the higher watermarks.

If you go for the year and then Q1 and Q3 were at the lower point, but they are not like wild swings if you will.

It's a fairly tight band, but Q2 and Q4 are the stronger quarters.

Okay, and just one more.

Looking at consultant productivity, it assumes you still have some nice capacity left to fill.

I was just curious if you had an idea of your hiring plans throughout the year, and where you think headcount will be at year-end FY15?

We really don't guide out that far.

I'd say in this quarter, we on the search business, we hired or promoted 25 people.

We counseled out 10 or 15, we were up net 10.

That would be, I think, too aggressive, to model that in on a sustained basis.

Okay, and are you seeing changes to the compensation structure, or has it been pretty stable over the last couple quarters?

In terms of how we compensate our colleagues, it first comes down to the profitability of the Company.

We haven't seen anything externally that would be a change, and we haven't really altered dramatically our compensation velocity.

Okay, great.

Thank you very much.

Next question is from Mark Marcon with Robert W. Baird.

A couple of follow-ups.

Gary, you always have a pretty good sense for what leaders across your client base are thinking.

How would you characterize the level of economic optimism, vis-a-vis what we've seen over the last five years, in terms of, is it building, is it staying steady?

How would you characterize it?

I would say that people have -- the 2008 time period is almost erased from people's minds.

We're five years into a positive economic cycle, and the averages have been five years since World War II.

But I would say that has been largely erased, that scramble for liquidity, that disaster.

I think that as I talk to CEOs, the people are optimistic.

Our surveys would suggest that the hiring intentions are positive.

At the same time, though, there's a view that just numbers and scale won't get it done.

Really what counts today is agility, so I see increasing an dialogue around agility.

So I would characterize it as positive, absent anything happening in the Middle East or the Ukraine, that would derail that.

That was my follow-up.

Are you seeing any impact from Ukraine in terms of the intentions in Europe?

Well, we certainly heard a great deal of chatter over the last few weeks.

The difficulty is that with all of us, August is a very seasonal month, so it's very difficult.

We're seven or eight, nine days whatever it is into the start of September.

It's really tough.

We can't just has it had an impact?

We can't say, but certainly the radar went up about three weeks ago, four weeks ago.

And you have been posting just amazingly good numbers out of there, given the economic backdrop, so maybe it will start showing up a little bit now, in terms of just -- as you're going against tough comps?

I don't know.

I'm not sure.

I'm just not sure, Mark.

I can't quite call that.

Okay, and can you give us a sense, in terms of what sort of savings we should start seeing from the restructuring, and when those would kick in?

Mark as we said, we expect to get the whole $9.9 million back this year.

Which would translate to somewhere between $0.04 and $0.05 a quarter for the next three quarters.

The only other item that we touched upon was to the extent that we have reinvestment opportunities that come up, we will use some of those savings to reinvest back into the business, as well.

Great and then last thing, with regards to the new consultants, what's the ratio between those that were hired versus those that were promoted?

It's a little over half were promoted versus hired.

Great, thank you.

Next question is from Tim McHugh, William Blair & Company.

Just a quick follow-up.

Can you talk about how you tackled currency and the guidance, given all the moves lately?

I guess just so we know how to track that, relative to if it continues to move?

And then any other factor, just explaining the year-over-year growth rate implied at the mid point here, seems more like 5% versus the 10% you just put up, can you just help us understand that?

Yes, I think two things.

One, as we just talked about, the comparables are getting more challenging for us on a year-over-year basis.

So Q1 last year we did $228 million of revenue as compared to $250 million-ish that we just did now.

Q2 last year we did $238 million, so some of that is just the tougher comps, as you see year-over-year.

And then on the -- I'm sorry, the first question?

Just currency I guess.

Did you just take currency there?

The currency hasn't been, if you look at the revenue and expense offsets, there's a bit of a natural hedge that occurs there.

So currency for us over time, at least the 2.5 years I've been here, has not been a big factor for us when the currencies move, because you get equal and offset amounts up top and down below, there's a little bit of arbitrage, because obviously revenues are greater than expenses.

The bigger issue for us on the currency side is, we have a structure put in place where there's been inter-company loans made over time, and that's one of the things that we are working very aggressively on, to get that, for lack of a better term, obviously cleaned up or repaying loans to the extent that entities don't have the ability to repay the loans, we're capitalizing it, which would then eliminate what you repay or you capitalize it.

You eliminate the risks associated with currency movements, so that to us is the bigger issue.

And I have got a team working on that right now to get that all cleaned up to mitigate those risks.

Okay maybe just one more numbers.

I guess, I think, Gary someone tried to put Gary on the spot and say if leadership would be up sequentially, or I'm sorry Futurestep, and leadership is normally Q2 is one of their strongest quarters, so I guess the guidance at the midpoint being down sequentially implies executive search would be down a little bit sequentially.

Is that Europe, and the topic Mark was asking about, in terms of uncertainty there, or I know you said Asia, you thought would be up sequentially?

I would phrase those as I think the search business we expected to be more flattish on a sequential basis.

If there's any bit of a downturn, we would expect to see the L&TC side.

Sequentially down?

No, no, not sequentially down.

Could be flattish to up a little bit.

Oh, on a sequential basis, okay.

Yes.

But then that implies year-over-year down.

Was there something unusual you saw last year in Q2 that it's normally not a seasonally strong quarter?

No, well Q2 for L&TC is generally one of their stronger quarters.

They just had an outrageous Q2 last year.

Yes, we came right out of the gate and we sold -- there was a handful of really big ticket succession planning engagements, search and L&TC, and they were quite large last year.

Okay, all right.

Thank you.

It appears there are no further questions Mr. Burnison.

Okay, well listen, I'd first thank you for taking the time.

Thank you to your shareholders, most importantly to our Board and our Global Operating Committee, and our colleagues.

We're again pleased but not satisfied and I think we're really moving the organization to redefine the business of talent for clients.

So with that, I look forward to speaking to you next time.

Thank you very much.

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