Korn Ferry (KFY) 2019 Q1 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Korn/Ferry First Quarter Fiscal Year 2019 Conference Call.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes.

We have also made available in 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 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.

Additionally, information concerning such risks and uncertainties can be found in the release relating to the presentation and in the periodic reports filed by the company with the SEC, including the company's annual report for fiscal year 2018.

Also, some of the comments today may reference non-GAAP financial measures such as adjusted fee revenue, consistent (sic) [constant] currency amounts, EBITDA and adjusted EBITDA.

Additionally, information concerning these measures, including reconciliations to the most directly comparable GAAP financial measure is contained in the financial presentation and earnings release relating to this call, both of which are posted in the Investor Relations section of 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, Amy, and thanks, everybody.

Thanks for joining us.

I'm very pleased with the quarter.

We reported top line growth of about 16%.

It was very balanced across the firm.

EBITDA was strong.

Asia rung the bell, it was up 22%.

EMEA was up 18%, North America 15% so a really, really good quarter and the one that I'm very proud of.

As we talked about in our last earnings call, we made a decision to sunset the legacy logos and go with 1 brand, 1 unifying brand, which is Korn Ferry.

And now we said it would be about a 15-month endeavor and we're 3 months into that.

And I'm convinced more than ever it's the right thing to do for the firm, but it has to be for us, it's much more than a branding exercise.

It's really about creating opportunity, opportunity for our shareholders, for our colleagues, really taking this powerful platform that we've built over many years, that we've acquired and we've developed incredible IP and solutions.

And so now it's about creating -- using that and creating greater impact in the world to have greater impact with clients.

I mean, essentially to have greater and deeper penetration of our client base.

And if you just look at the numbers, you can see the opportunity for shareholders and for the company.

Clients that we serve on an integrated basis with multiple solutions, well, it represents 60% of our firm's revenue.

But guess what?

It's only 10% of our client base.

And we also know that the revenue on these same clients, these multi-solution clients, they are 4 to 5x greater than monoline clients.

And what comes with that is more stickiness, lower cost of sales, and the other thing is that our colleagues have much more meaningful work.

They can develop new skills with greater purpose, and they would have bigger career opportunities, which should create also a stickier workforce.

So I'm convinced, this is the next evolution in what we're trying to achieve here.

Today, our offerings they run the gamut of what companies need to outperform.

We work with organizations to help them design their structure, their roles, responsibilities.

We help them hire the right people to bring their strategy to life.

We advise them on how to reward and develop and motivate their people.

I mean, simply put, we synchronize strategy and talent to drive superior performance for our clients.

So we've, obviously, we come a long way.

The numbers clearly show that.

But at the same time, I think we got big opportunity ahead and really starts with this unifying brand, this really kind of a 1 brand go-to-market strategy, and also, which is equally important, focusing the organization toward more of an industry and solution orientation.

And for example, if you look at 3 of our solutions, global solutions.

So take org strategy, leadership development, rewards and benefits.

So those are large expanding, fragmented markets, I mean, multibillion-dollar markets, and today that's only 30% of our company.

So I think that speaks to opportunity for our shareholders and for our colleagues.

And I've also talked about the need to productize our IP that can create greater impact.

It's certainly more scalable, and it's something that has real -- the roots are shareholder value.

I mean, it's something that is quite sticky too, a bit of a Trojan horse within a client.

And today that productize revenue is only 12% of our top line.

So that's another area for opportunity for Korn Ferry and we're going to continue to invest in an integrated IP-based talent platform.

And then finally, we're going to not only bring people into this company, not only bring top consultants in like we've demonstrated that in the past, but we also have to continue to make investments in our own talent.

Because you know when people are engaged, they're motivated; if they are happy, they're motivated, and guess what, they're going to outperform.

In this last year, we promoted 1,000 colleagues to new roles.

So a balanced really good quarter, broad-based growth.

I'm convinced this unification around 1 brand is the thing to do, but it has to be much, much more than a branding exercise and that's kind of what we're doing now.

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

And so Bob, I'll turn it over to you.

Great.

Thanks a lot, Gary, and good afternoon, everyone.

I'm going to start with a few highlights.

Results in the first quarter continue to demonstrate our ability to drive synergies across our various solutions and really the power of our Korn Ferry brand.

In the first quarter, our global fee revenue grew 16% year-over-year, reaching almost $466 million.

And this was our fourth consecutive quarter of double-digit revenue growth.

Once again, our growth was broad-based with each of our operating segments benefiting from our unified branding and go-to-market approach.

Growth continued to be strongest for our talent acquisition businesses.

So Executive Search and RPO and Professional Search, which grew by approximately 20% and 28%, respectively.

And revenue growth for advisory was also very strong reaching $195 million.

That's a year-over-year growth rate of 9%.

More importantly, in the first quarter, growth in earnings exceeded growth in revenue.

Adjusted EBITDA in the first quarter was $70.8 million, which is an improvement of over $10.4 million and over 17% year-over-year, while our adjusted EBITDA margin improved 20 basis points to 15.2%.

Now turning to new business.

We continue to see real strength in our new business for Executive Search.

We saw continued acceleration in the first quarter.

Globally, Executive Search new business was up approximately $198 million.

That's over 15% year-over-year.

And it was really across the board in all regions, North America, Europe and Asia Pac.

For advisory, new business growth in the first quarter was strong.

It was up 8% year-over-year.

We saw strength in Europe and Asia Pac.

And their new business reached nearly $206 million.

And finally, for RPO and Professional Search, they achieved another strong quarter of new business totaling almost $70 million, and that's about $39 million of long-term RPO awards and $31 million of Professional Search awards.

At the end of the first quarter, our total cash and marketable securities were $500 million.

That's up about $92 million compared to the first quarter of fiscal '18.

And our investable cash balance at the end of the first quarter was approximately $295 million, and that's up about $60 million year-over-year.

Firm had outstanding debt at the end of the first quarter of approximately $230 million.

And finally, our adjusted diluted earnings per share were $0.78 in the first quarter of fiscal '19, and that's up $0.23 or 42% compared to the first quarter of last year.

Adjusted net income and adjusted earnings per share both benefited from a low tax rate of approximately 20%.

In this quarter, which was driven primarily by a larger-than-expected tax benefit associated with previously granted performance-based equity awards divested in that first quarter.

This lower-than-normal tax rate drove about $0.06 to $0.07 of incremental adjusted earnings per share for the quarter.

On a GAAP basis, which includes the ongoing amortization of retention bonuses related to our acquisition as well as the onetime intangible write-off associated with our rebranding initiative.

The fully diluted loss per share for the first quarter was minus $0.70.

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

Okay.

Thanks, Bob.

Growth for our Executive Search segment remained strong in the first quarter as global fee revenue reached $192.9 million, a new all-time high.

Compared year-over-year and measured at actual exchange rates, global Executive Search fee revenue grew $31.7 million or 19.7% in the first quarter and 19.3% measured at constant currency.

Consistent with recent trends, growth for our Executive Search segment remained broad-based with each of our geographic regions posting strong gains.

At constant currency, North America was up 22%, Europe was up 14%, Asia Pacific was up 21%, and Latin America was up 13%.

By industry specialty, growth was also broad-based.

Compared to the first quarter a year ago at actual exchange rates, our consumer goods and financial services practices were each up 23%.

Our technology practice grew 16%.

Our industrial practice was up 15% and our life sciences and health care practice was 14%.

The total number of dedicated Executive Search consultants worldwide at the end of the first quarter was 545, up 13 year-over-year and up 4 sequentially.

Annualized fee revenue production per consultant in the first quarter was $1.42 million, and the number of new search assignments opened worldwide in the first quarter was 1,708, which was up approximately 3% year-over-year.

Adjusted EBITDA for Executive Search in the first quarter was $46.7 million, up $11.5 million or over 33% year-over-year.

The consolidated adjusted EBITDA margin for Executive Search in the first quarter of fiscal '19 was 24.2% compared to 21.9% in the first quarter of fiscal '18.

Now turning to advisory.

In the first quarter, global advisory fee revenue reached $195.4 million, which grew year-over-year by 8.9% and 8.6% measured at constant currency.

Growth was driven primarily by strength in both Europe and Asia Pacific regions, which were up double digits and by North America, which was up approximately 1%.

As previously mentioned, global new business awards for the advisory segment in the first quarter were up approximately 8% measured year-over-year.

Growth in earnings and profitability for advisory in the first quarter exceeded fee revenue growth.

In the first quarter, adjusted EBITDA was $35.4 million, an improvement of $4.1 million or nearly 14% year-over-year with an adjusted EBITDA margin of 17.7%, which was up 80 basis points year-over-year.

Finally, turning to RPO and Professional Search, where in the first quarter double-digit growth continued.

The RPO and Professional Search segment generated $77.3 million of fee revenue in the first quarter, which was up 27.5% year-over-year at actual rates and 27.3% at constant currency.

All geographic regions continued to grow at a double-digit pace in the first quarter.

And as previously mentioned, in the first quarter, the RPO and Professional Search segment was awarded another $70 million of new business globally consisting of $39 million of long-term RPO assignments, and $31 million of shorter-term Professional Search assignments.

Earnings also improved in the first quarter for the RPO and Professional Search segment with EBITDA of $12.5 million and EBITDA margin of 16.2%, which were both up year-over-year.

Now I'll turn the call back over to Bob to discuss our outlook for the second quarter of fiscal '19.

Great.

Thanks, Gregg.

New business activity exiting fiscal '19 first quarter and entering the second quarter has been strong.

Globally, for Executive Search new business awards in the month of June and July were very strong and August new business was up approximately 17% year-over-year.

If monthly new business patterns remained consistent with prior years, we expect Executive Search new business awards to grow sequentially in September, reaching a quarter peak in October.

For advisory, the fiscal second quarter is typically a strong quarter for both new business awards and revenue.

August new business for advisory was up 18% year-over-year and 2% sequentially.

And if monthly patterns are consistent with prior years, we expect new business to improve over each of the next 2 months in the quarter.

With regard to our RPO and Professional Search segment, both business under contract in the pipeline of potential new business opportunities remains strong and we expect it will drive continued growth in the second quarter.

Now considering these factors and assuming worldwide economic conditions, financial markets and foreign exchange rates remains steady and assuming an effective tax rate at the higher-end of the 25% to 27% range for the quarter, we expect our consolidated fee revenue in the second quarter of fiscal '19 to range from $470 million to $490 million and we expect our consolidated adjusted earnings per share to range from $0.76 to $0.84.

And then finally, considering the ongoing quarterly amortization of approximately $2.3 million for retention bonuses related to a prior acquisition, we estimate that fiscal '19 second quarter fully diluted earnings per share measured by U.S. GAAP will likely be in the range of $0.73 to $0.81.

And that concludes our prepared remarks.

We would be glad to answer any questions you may have.

(Operator Instructions) And our first question is from George Tong with Goldman Sachs.

You've recently implemented your account management programs, your next layer of large accounts beneath your marquee accounts.

Can you discuss how quickly revenues in the account management program grew in the quarter relative to your marquee accounts?

Well, that -- we're very early days.

So the clinical analysis is that the pipeline, which we look at as closely as revenue didn't materially change over the past 4 months.

But again, I'm not discouraged.

The reality is, when you look at our client base, there's no question about it that there is significant opportunity to drive deeper relationships, deeper penetration.

And the starting point is around being client-centric and segmenting the portfolio, then you have to put teams against that.

And so our -- the first path with this was our marquee account program.

And with that now, we have over 100 accounts and it represents 20% of the portfolio.

Now we are going for another 400.

And so it's very aggressive, and I really did not expect to see results pay off in 3 or 4 months.

But I guarantee you that over time, a very systematic approach to segmenting the client portfolio, putting teams against that is going to pay off in the long run for shareholders and for our colleagues.

Got it.

That's very helpful.

And I know in prior quarters you'd indicated recently that marquee accounts were up in terms of revenue growth, double digits, can you comment on whether that trend is holding steady or accelerating in growth, just in marquee layer?

Yes.

Our first quarter was double digit.

And so it was very, very good.

There is some pockets of weakness and there is some pockets of strength.

And again, when you look at the portfolio overall, I really believe that in a professional services firm, 30%, 40% of the portfolio really needs to be directed top-down with several hundred clients putting dedicated teams against that and that's the journey that we're on.

It makes sense.

And then lastly, you had indicated that, while 60% of revenues comprise multisolution clients, it's only really 10% of clients.

Could you comment on your traction specifically with cross-selling this quarter relative to earlier quarters and specific data points that highlight incremental success in bundling your solutions?

Yes.

So it's -- there wasn't a material change this quarter.

It was about the same give or take this last quarter.

So the data points would be, when you look at, for example, search into advisory, almost 20% of the new business in advisory coming from, if you look at it in the old days, "search partners." RPO and Professional Search from Executive Search much higher than 20%.

The other way around from advisory to search, it's about 5%.

So we're actually -- that's encouraging, that it's going both ways.

It's not at the level we want to see it.

But I think that actually the way you get it that is not through necessarily training and although that will help.

You actually have to put multidiscipline teams against targeted accounts and they got to work it for several quarters.

And that's how you create that blending.

Your next question is from Tim McHugh with William Blair & Company.

Just asking about advisory side.

Can you talk about headcount there?

I think it's 3 straight quarters it's ticked down a little.

What's underlying that?

And as part of that equation, how should we think about retention now, particularly, a couple of years past the Hay acquisition?

I don't have any concerns around that at all.

I think that we're managing the workforce.

And I do believe that we are undersized in advisory.

There is no doubt about that.

And you could make that comment globally, but particularly, in North America.

And so yes, we're making a concerted effort to bring talent in, no question about it, which we will continue to do.

But the other thing that's much more sustainable for the organization is, we have to have a farm system.

And so to use baseball terminology.

And so this year was the first year we just -- we went out to campuses, we were on 20 campuses, hired a bunch of youth off campuses.

We just finished 2.5 months of training in Dallas, Texas, now we put them out to city.

So I think what you're going to see over time is this is going to be a company that's going to hire thousands of youth off campuses, and we're going to train them, and then develop them.

And that's the way of the future.

Now having said that, we also have to go to the outside.

And so we're try -- we're going to trying to balance those 2.

And when you think about Hay in the U.S. at this point, I guess, what's the thinking?

What's necessary to reaccelerate the growth there to match kind of what you're seeing elsewhere?

I think that it's probably several fold.

When we were in 6th grade and we divided our teams, it was invariably the team with the most talent won the game.

So I think it's pretty -- you look at it and you say, wow, given the market size, we have too few people.

So we've got to invest in that.

So there is no doubt.

But it can't be just the people game.

And so there has to be a bigger strategy behind that.

So part of that is around these, "house accounts," the marquee accounts, the manage accounts, segment the portfolio, put teams to get at it that way.

That's another avenue you got to go down.

The third Avenue is you really have to have solutions that are repeatable and scalable.

And I'm not so sure where we've reached that maturity level.

So we've got to go there.

And I would hope that over time that it's not just billable hours; that we can actually productize this IP.

Now that's not just North America, that's global.

And we still haven't put the points on the board that I would like to.

The next question is from Kevin McVeigh with Crédit Suisse.

You just continue to do an amazing job in RPO; really, really good growth there and margins ticked up.

Can you just help us kind of think about Bob or Gary, like at 16.2%, what type of range we should think about within that business?

Yes, I would -- I'd be thinking somewhere in the -- we range right now in the 15% to 17%.

Obviously, we're at the kind of the midpoint there.

So that would be for the foreseeable future somewhere between 16% and 17.5%.

Got it.

And then, Bob, just so I'm clear.

Was the $0.06 to $0.07 tax benefit factored into the guidance of $0.67 to $0.75% or is the $0.70 really $0.71, if you used a normalized tax rate or was that $0.67 tax factored into when you provided the Q1 guidance?

No, it was not, Kevin because when we only did the guidance, we didn't know what the ending stock price was going to be on a date that the equity awards vested.

And the way that the accounting for that works is you don't deal with it throughout the life of the award, you wait to the date that it vests and then it becomes discrete item.

So the $0.71 or $0.72 of actual compares to what we guided to.

So that's $0.67 to $0.75, right?

I just want to make sure I've got the apples-to-apples.

Super.

And then, just the margins overall, can you just remind us, I know there's some seasonality, but how should we expect about kind of the seasonality of the margins it was like the total adjusted EBIT that came in at 15.2%.

As we work our way through the year, is there any way to think about a range of how they should trend?

Yes.

We think you get a little bit of uplift in Q2 because Q2, if you go back over time, is a stronger revenue quarter for us.

Q3 tends to be -- with all the year-end holidays, revenue tends to be a bit lighter as our folks are off and our their clients are off.

And then Q4 tends to be our strongest.

So -- but you're not going to see hundreds of basis points differences in those margins.

So I have a somewhere between 15%, 16%, at the higher end of the range, Q2, Q4, lower-end of the range, Q1, Q3.

And our next question is from Marc Riddick with Sidoti.

Just wondering, if you could give a bit of an update on sort of where you are on the data side of things as far as penetration with customers?

Thinking back to when the acquisition took place, you had this base of data that you were looking to get more utilization.

I was wondering if you could give a general overview update as to where you are in that regard and how that's coming along?

Yes.

look, there is a lot of work -- a lot of blood, sweat and tears, and quite a substantial investment to try to build the chassis that we can license.

And so and Rob just you talked about the productized part of our business, which today is only 12%.

So I would say that truthfully when you look at the growth numbers, the points that we're putting up, it's okay, but it's not at all what we want it to be.

So for example, this last quarter, products is up 4%, well, that shouldn't be 4%, that should be 14-plus percent, really.

But the truth is that, when you actually look at the platform we're trying to put together with the data, this is -- we are building a talent platform that companies can license.

So you look at the platform today and our revenue, there has been 0 in terms of licensing our IP to make hiring decisions.

Well, that's just crazy.

I mean, that is -- that doesn't make any sense given the richness of our IP.

So I believe that there is a substantial amount of energy in the organization around mining the data, packaging it with IP, and then trying to productize it.

But again, I think we're probably 3, 4 quarters away from lift off.

I just think that's the reality of building a new platform, looking at how we license that, whether we have in terms of a SaaS model, whether we have gold levels or platinum levels and all access, passes, I mean, all those concepts, they take time.

But I think the underlying opportunity, it's hard to dispute.

Then in terms of the other piece of the data, we have a whole institute that is looking at data and improving all the instruments that we use today.

Okay, great.

And I wondered if you could share a little color on the -- there was mentioned in the prepared commentary around the Asia Pacific.

But I was just wondering you give a little update on sort of how you're thinking about the EMEA region, and maybe some of the feedback that you're getting these days?

And as we see the Brexit headlines, if you will, I was wondering if you had any thoughts on sort of what you're seeing today and where we're there?

I'm probably the most proud of what we have in EMEA.

I just spent 3 dedicated months there, met with a lot of clients, lot of different people, very, very strong results.

If you look at the last several quarters for Korn Ferry, this last quarter was up 18%.

So it is a -- I think we have done a very, very good job.

Clearly, that's -- the question of Brexit is huge.

I don't think it's getting the airtime it really deserves.

And it's really -- I live there, it's really hard to tell where that is going to turn out.

I have my own personal view, but it's -- it troubles me that there is not more attention on it because it is -- it's a major issue.

And our next question is from Tobey Sommer with SunTrust.

Sorry, Bob.

Can I ask you a couple of numbers questions?

Why the higher end of the tax rate range in terms of your guidance and is it expected to kind of change throughout the year?

Or is there some other factor causing this?

Yes, Tobey, so where we are right now and I think the rest of corporate America is in the same boat, everybody is trying to digest the new tax law.

And there is the couple of provisions underneath it that basically creates a new realm of alternative minimum tax, and so on.

And there is new rules and regulations coming out and interpretations of that law quite frequently.

So we're being a little bit conservative until we really understand how all those provisions are going to work their way through our effective rate.

And so we think we're going to be in a 25% to 27% range and until I see where the numbers shake out, which obviously has to be by this November, we're going to be conservative and guide towards the higher-end of that range.

Okay.

With respect to, I guess, this is partially just in the last question just to make.

What was product growth in the quarter?

And Gary, was I correct in hearing that you said like 3 to 4 quarters before we should expect kind of a material acceleration in that rate of growth?

Or were you specifically just referring to kind of some sort of license subscription model.

No, no, no.

I think you'd asked me before.

I think you asked me 2 calls ago, what is the thing, when can you -- talked about doubling and tripling those business in terms of opportunity.

I think it was you that asked, well, what does this really look like.

So now we're a couple more quarters and I just -- I think we now -- I can probably say we're 3 to 4 quarters away from real lift off in that productized business.

The growth rate was, I don't know, slightly more than 4%, this quarter.

I think, last quarter, it was probably, I don't know, Bob, 7 -- was it higher?

That was around 4% or 5%.

Okay.

That's it.

So that's not what we aspire to for sure.

So I was talking about the total product business.

Okay.

In the Executive Search segment, how does uptick consider the historic norms in the reported fourth quarter?

And maybe looks like in your guidance, we are hearing that -- those are coming in better than normal, but I'd love to hear what your experience is.

They are not remarkably different this quarter, Tobey, versus what we saw in quarter 4 or quarter 3. I mean, we've seen over -- I would say over the past probably 8 quarters, a slight increase in upticks.

But nothing that's going to really move the needle for us.

It's up maybe a couple of million bucks a quarter, but nothing all that dramatic.

Okay.

Gary, another kind of broader strategic question for you.

There's actually 2, they are interrelated.

One, are there any changes to management and salary compensation in fiscal '19 that we should be aware of as we look at how you emphasize both margin and growth?

And then, what is your target for ROIC or return on equity?

And over what time frame can you achieve them?

Well, so this quarter -- it's good to see it go up so now we're at 12.5%.

I had talked a couple of calls ago that we'd like to see it grow by 200, 400 bps.

And so I think when I said that, I think it was about 11% or 11.5%.

So the good news is, okay, we've seen that rise and so there is room there for sure.

Obviously, it's got to be in the right economic climate, but there is room there.

So that would be my answer on ROIC.

What was the other part of your question?

Any change.

Any changes to your incentive compensation for management that we should be keeping in mind?

The top individuals are compensated consistent metrics of basically how the firm does.

And so no material change in this fiscal year.

Okay.

Last question from me.

Could you describe the M&A pipeline and valuations versus 6 to 12 months ago?

And does this economic backdrop encourage you to become more aggressive?

Or encourage you to kind of pull your arms in and just accumulate cash and way far better to?

Well, clearly, we've been in the latter camp.

That doesn't mean we haven't been looking because we have in a big way.

And so we have been -- it's all about -- look, at the end of the day, it's about culture fit, it's about the IP, the data.

And so we have not decreased the effort around investigating ways to scale our business at all.

Your next question is from Mark Marcon with R.W. Baird.

And allow me to add my congratulations, really strong results.

I was wondering if you could just talk about the range of reactions to the new branding, particularly, within consulting and advisory both in terms of both Hay folks, versus or PDI folks, versus new people that you're recruiting and what you're hearing?

Just and also any client feedback that you've gotten?

Well, look, I mean, you're going to -- you ask a question like that you're going to get a range of responses, but I just spent -- I mean, I met with hundreds of colleagues, literally hundreds, in person.

And so over a series of many meetings, many weeks, many days.

And I would say that there is a crying out in the organization that now is the right time to pivot and to pivot around a unified approach to market.

I've got no doubt, no hesitancy at all about that.

And so although, when you look at the bell curve, you may have people that it's very hard for them to give up a handle and to give up a name, and to give up -- and I have sympathy for that.

So you'll certainly -- you would hear that, no doubt about it.

But first hand talking to people, looking them in the eye, no question, the right decision.

Now we have to operationalize that, and that's really what this branding -- it's not a branding exercise at all, it's much more than that.

And so that work is still to be done.

In terms of clients, I don't think there is any question that Korn Ferry has been the brand, it was Korn Ferry Hay Group, Korn Ferry Futurestep; don't kid yourself people used Korn Ferry.

Now in parts of the world, there are several countries where maybe a legacy brand was more dominant than Korn Ferry, and we will deal with that.

The bigger challenge from a client perspective is making Korn Ferry synonymous with synchronizing talent and strategy to drive performance because that's a bigger challenge.

And we've clearly made a dent in that over the last few years, but I would say that's the bigger hurdle that we still have to overcome.

And how are you going to attack that in terms of, like, what are you going to do differently in order to change that client perception to a greater perspective?

Well, there is nothing like the good old-fashioned way and that is when you do good work, that begets more work, and so you develop a reputation over time.

So we've got -- look, we've got a very aggressive social media strategy and thought leadership strategy that we -- I can go -- bore you with statistics around media and hits and all that, but there is no substitute for having scale and depth, and do that work that creates that halo around the brands.

So now we have -- in the company, today, you've got 1,400 people that have responsibility for business origination and to some extent development.

So you're actually credible in terms of scale to be able to really do those big, big projects.

So today, that's actually a possibility.

Great.

And then Asia Pac was really impressive from a margin perspective.

What's the -- how should we think about the margin profile on a go-forward basis there?

And then, along those lines, what are you hearing more very, very recently, from both your consultants and clients with regards to any concerns around trade war or emerging markets contagion?

Yes.

So Mark, I'll take the first part of your question.

The APAC margin was strong.

I would expect there to be probably a little bit of diminishment there over the next couple of quarters because we have been doing some hiring in Asia.

And so we'll start to see the short-term impact of having folks come on board and then having to ramp up, but you might lose a couple of hundred basis points for a couple of quarters.

But then once that starts to become productive, I think we'd be within plus or minus of where we are now a couple of hundred basis points or so.

And the stable rattling has not impacted as recently -- as yesterday.

I mean, it just has not impacted clients' activity.

Now we will see, that can obviously change, but that has not impacted activity.

Yes.

We do a monthly revenue call, Mark, and I talk to folks out in the field.

And we have -- I've not gotten any sort of chinks in the arm in terms of what the level of business activity that's happening out there.

Great.

And then last question, can you just expand a little bit on the profile of the types of people that you might end up bringing in?

The types of -- Mark, I'm sorry to cut off, what was it?

The types of the profiles or the types of people that you would bring in.

You mentioned on-campus recruiting.

Are we talking about more experienced people who've gotten their MBAs?

Or are we talking about undergrads?

What -- just kind of what profile are you looking at?

Both.

Yes.

So for -- I would say there is a couple -- there is probably really kind of 4 buckets of people we're looking at.

Now the farm system has a couple of buckets.

So what I would call the farm system is a more classic professional services up or out.

And I don't want to say out, but it's kind of an upward mobile model.

And so that would be undergrad as well as grad, and so they could fall into those 2 buckets.

There is, beyond that the kind of graduate, undergrad, there is another bucket that we're looking at that you would classically call, in a professional service firm, managers, senior managers, principals, but people that have kind of equal responsibility between executing work and originating work.

So we're really searching for that level.

And then the fourth bucket would be a more classical view of a senior partner.

Now in terms of the actual skill sets, we're looking for -- and those fall into several buckets.

We're looking for account leaders, account managers.

As you know, we've got a -- we've started that.

We need to expand it in a big way.

So account management skills is 1 bucket.

Second bucket is solution architects.

So people that can hear a client's problem, take our IP and design a solution that's hopefully repeatable by the way in other places.

So that is a second bucket.

The third bucket is specific kind of consulting skill.

So for example, org strategy, leadership development, rewards and benefits.

So those would be very, very specific skill set.

So those would be the kinds of buckets that we're looking at.

Great.

And when you think ideally about the size of the platform, and how -- if you could find all 8 players today, how big would the advisory consultant group be at this point if you...

Probably be twice the size.

I mean, it would be absolutely twice the size.

No question about it.

I mean, now that's not executable, but it is -- if the opportunity is there in this kind of market.

And so when we think about over, say, the next 2 to 3 quarters and just trying to judge the effectiveness from a recruiting perspective of bringing in those types of people, how should -- what would be a reasonable expectation in terms of scaling that up?

Yes.

I think you have to have a -- it's not -- it's easy to say, right, that you could double or triple the consultant account.

That's a very -- and I think that the math would substantiate that.

However, you have to balance that with many different dimensions.

You have to balance it with onboarding.

Can you assimilate these people?

How is that going to work?

You’ve got to take that into account.

You've got to take the economic cycle into account.

The plane is flying at 38,000 feet, we are not going to take it to 18,000 and do over.

I mean, I think we've demonstrated a track record of building and doing what we say.

So I've never guided our headcount more than a quarter, I'm just not going to do that, but I would say that we've -- a year or so ago, we made a big push on around talent, and you saw it was really, really clear, it was loud.

And we're also making sure that we're managing the workforce.

And you've seen that too.

You can tell that we're actually managing the workforce.

So we're trying to strike that balance of being prudent for shareholders.

And we have a follow up from Tobey Sommer with SunTrust.

Just wanted to follow up on the M&A question I had.

You said you fell in the later camp, et cetera.

Is that a function of valuations or backdrops?

Well, they are kind of interrelated, right?

And so it's hard to separate the backdrop, as the backdrop does have some determining -- it's a determining factor and valuation.

So I think that, that is, yes.

Yes, the backdrop is very sunny.

Okay.

I guess, I was -- by back up I was referring to link of cycle or something like that, but you're referring economic growth being strong, et cetera.

Okay.

So in that respect, I understand they are interrelated.

So you're saying valuations are high?

The valuations are high?

Yes.

It's really -- that's really, that's such a broad -- we look at it on a company by company basis, and I would say that -- I would answer it this way.

If there was something that we thought was compelling that really prepared -- propelled shareholder value, we would do it, okay?

So again it's a kind of a multidimensional equation and we would take everything into account, and I would not -- valuation alone would not kill it.

If I could answer it that way.

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

Please go ahead.

Okay.

Well, thank you, everybody, for taking the time.

Amy, thank you for moderating this call.

And we're obviously very, very excited, and we look forward to talking to you soon.

See you later.

Bye-bye.

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