Korn/Ferry International KFY
Q3 2013 Earnings Call Transcript
Transcript Call Date 03/06/2013

Operator: Ladies and gentlemen, thank you for standing by, and welcome to Korn/Ferry International Third Quarter Fiscal Year 2013 Conference Call. At this time, all participants are in listen-only mode. Later, we will conduct a question-and-answer session. As a reminder, this conference call is being recorded for replay purposes.

Before, I turn the call over to your host, Mr. Gary Burnison, let me first read a cautionary statement to investors. Certain statements made in the call today, such as those relating to future performance, plans, and goals constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, investors are cautioned not to place undue reliance on such statements. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties which are beyond the Company's control. Additional information concerning such risks and uncertainties can be found in the release relating to this presentation in the Company's Annual Report for fiscal 2012 and in 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. Additional information concerning these measures including reconciliations to the most directly comparable GAAP financial measure is contained in the release relating to this call, which is posted on the Company's website at www.kornferry.com.

With that, I'll turn the call now to Mr. Burnison. Please go ahead Mr. Burnison.

Gary Burnison - CEO: Well, thank you, everybody, and good afternoon. I'm pleased with our results for the quarter, and more importantly, our strategic progress as a firm. Revenue for the quarter was $202 million, that's up 9% over last year, 2% on an organic basis. Our adjusted operating margin was 8%, and we achieved $0.31 of adjusted EPS. The balance sheet continues to be very strong with $305 million of cash and marketable securities and no debt.

The pull of our strategy that we put in place several years ago was evident again this quarter with the overall growth year-over-year within our broader talent management offerings. Futurestep was up 17% year-over-year and our leadership business was up about 5% organically. Obviously it was up a lot more if you include the recent acquisition. And our flagship search business was up 2% sequentially and still continues to maintain its industry-leading position.

We talk a lot at Korn/Ferry about common purpose and our common purpose is to accelerate the destination of our clients and change the lives of people, of clients, candidates, and colleagues, and today when you look around the world, CEOs are faced with a wide variety of issues, most importantly a fight for relevancy and growth. And ultimately regardless of the path that they choose, their organizations workforce, their people, that's what matters most. So questions like, how can a workforce become better aligned with the strategy? What skills are required to execute on their vision? What talent is needed? How will they overcome fatigue, accelerate engagement and establish a common purpose in an overly connected world? And that's exactly what this firm is poised to do.

When I think about our organization and the strategic progress that we've made, I would use the word transformation. I mean, if you did Google Earth on us today, it looks substantially different than it did just a few years ago. If you consider today that almost 40% of our revenue is being driven across broader talent solutions, that really wasn't in place not that long ago.

So, as an organization, as the premier provider of talent management solutions, our mission is to accelerate our client success and doing that by more effectively linking their business in talent strategies and if you look at the organization today, we essentially do three things; we can help an organization design a talent strategy, we can help an organization develop its people, and finally we can help an organization with the attraction of new talent into the organization. Within the Talent Strategy Design bucket, there's a whole host of solutions from organizational design to strategy and talent alignment. When you look developing a workforce, our solutions there would range from board effectiveness to succession planning, CEO and top team effectiveness, leadership development, diversity and inclusion and then an online and blended learning products. And finally, when you look at the bucket around talent attraction that would include our flagship executive search business, our board recruiting business, our RPO business, onboarding, interviewing techniques and the like.

So this is definitely when we look at our company today, it's a different firm. But I'd point out that search for us is the anchor, and it provides a significant competitive advantage, namely access and permission to talk about a client's broader talent agenda. So we are going to go forward following the strategy that we put in place several years ago to be able to deliver a comprehensive approach to talent. So, number one, we are going to continue to drive a solutions-based go-to-market strategy; secondly, deliver client excellence through intellectual property and process and technology. We obviously are extending the brand of Korn/Ferry and also elevating it. We have to make our own organizations, continue to make that a premier career destination, developing, building bottom-up capabilities within our workforce. And then finally, as evidenced by our most recent acquisition of PDI Ninth House, pursue a long-term growth strategy through a pragmatic approach to M&A that really serves to differentiate our organization, and give us reasons to talk to clients throughout the whole year.

So, as we sit here today completing the third quarter, I would say that I'm enormously proud of this Company and what we're doing, and as the issues become more complex for CEOs fighting for growth, fighting for relevancy, that’s exactly where this firm is positioned to be that bridge between a CEO's vision and their workforce strategy.

So with that, I'll turn it over to our CFO, Bob Rozek. Bob?

Robert Rozek - EVP and CFO: Thanks Gary, and good afternoon, everyone. Two weeks ago I celebrated my one year anniversary at Korn/Ferry and in this short period of time, as Gary just walked through, much has really changed at the Company. We've made tremendous progress continuing with our leadership position in executive search and have taken major steps towards diversifying our business mix and really positioning the Company and the brand as one of the leading global providers of talent management solutions.

In the third quarter, in addition to driving the business forward, we had a great deal of energy and effort that went into welcoming and integrating our two recent acquisitions; PDI Ninth House and Global Novations. These investments add scale and depth to our Leadership & Talent Consulting business and really complement our search and Futurestep lines of business, which further demonstrates our commitment to adding diverse and synergistic capabilities to our industry-leading portfolio of talent management services and products.

As Gary said, our fiscal '13 third quarter fee revenue grew $16.1 million, or nearly 9%, year-over-year and $5.8 million, or 3%, sequentially reaching $202 million. The overall mix of our fee revenue continues the shift with year-over-year increases of $13 million and $4.5 million in L&TC and future step respectively offset by only a slight decrease in executive recruitment of $1.5 million.

On an organic basis fee revenue was up 2% year-over-year and was essentially flat on a sequential basis. In future quarters given the rapid integration of Global Novations and PDI businesses into our Leadership and Talent Management segment.

We'll be reporting consolidated, LTC result. This was a way that we as you bring the businesses into the full that we capture and measure the LTC operating activity. On our second quarter earnings call we indicated that the third quarter, we would incur incremental charges related to our integration as well as certain transaction costs associated with the acquisition of PDI Ninth House which we obviously closed on December 31, 2012.

In the third quarter, we incurred $2.5 million of transaction integration cost and $4.4 million of restructuring charges associated with the acquisition and there is an additional $600,000 of separation charges in another operating segment. The $4.4 million of restructuring cost was primarily associated with the alignment of our workforce of PDI and will result in approximately $5.5 million to $6 million annual savings to really start to realize in Q4.

Now excluding all these charges the adjusted operating earnings in the third quarter were $16.2 million and that represents an 8% margin. This compares to adjusted operating earnings of $17.1 million and a 9.2% margin in the third quarter of fiscal '12 and $18.3 million of adjusted operating earnings in a 9.3% margin in the second quarter of fiscal '13. Our third quarter operating earnings were adversely affected by slightly lower-than expected L&TC fee revenue which Gregg will comment on later as well as additional expense associated with our deferred comp programs and the incremental purchase accounting amortization resulting from the two current year acquisitions.

One of the things that you will note in our press release is we've included additional operating metrics, EBITDA and EBITDA margin and these are additional metrics that we now use to assess our performance period to period as they exclude the impact of the incremental acquisition related amortization as well as providing for a comprehensive look at the impact of market movements from our deferred compensation program which really allows us to better focus on operating results.

Our Q3 FY '13 adjusted EBITDA and EBITDA margin was $25.2 million and 12.5% respectively as compared to $22.5 million and 12.1% in the third quarter of fiscal '12 and 24.4% and 12.5% in the second quarter of fiscal '13. Our third quarter ending cash and marketable securities balance is $305 million and that was down about $27 million compared to the second quarter even after you consider we paid $80 million for the acquisition of PDI Ninth House in the quarter.

Excluding cash and marketable securities reserved for deferred comp and accrued for bonuses, our investable cash balance is about $120 million with about 68% of this being located outside the U.S. I would note that given the geographic dispersion of this cash and our working capital need, we would look to keep about $100 million of this on hand which really leaves about $28 million of what we refer to as our net investable cash.

Finally, excluding restructuring, transaction, integration charges and so on, fiscal '13 third quarter adjusted earnings per share were $0.31 compared on the same basis to $0.25 in the second quarter of fiscal '13 and $0.26 in the third quarter of fiscal '12. Our third quarter earnings per share were negatively impacted by about $1 million or $0.01 per share of incremental purchase accounting amortization and were positively impacted by about $1.4 million or $0.03 per share of a tax benefit that was discrete to the quarter. On a GAAP basis, our fiscal '13 third quarter earnings per share were $0.20.

Now I'm going to turn the call over to Greg to review our reporting segments in a little more detail.

Gregg Kvochak - SVP, Finance: Thanks, Bob. I'm going to start with our Executive Recruitment segment. Despite yearend holiday seasonality, worldwide demand for our Executive Recruitment services improved in the third quarter. Consolidated Executive Recruitment fee revenue in the third quarter was $130.5 million, up $2.7 million or 2.1% sequentially and down $1.5 million or 1.2% year-over-year. Excluding the effect of foreign currency exchange rates, consolidated Executive Recruitment fee revenue was up 1.7% sequentially and down 1.1% year-over-year.

Regionally, at constant currency, North America was up 2.7%, South America was up 7.9%, both Europe and Asia Pacific were down marginally by 80 basis points and 10 basis points respectively on a sequential basis. Year-over-year, also on a constant currency basis, North America was down 1.2%, Europe was down 3%, Asia Pacific was off 40 basis points and South America was up 7.1%. All of our executive recruitment specialty practices, except financial services, grew in the third quarter compared to the second quarter. At actual rates, consumer goods was up 1%, life sciences and healthcare was up 7%, technology was up 10%, and industrial was up 50 basis points. Financial services was off 7% sequentially and accounted for only 16% of all executive recruitment fee revenue in the third quarter.

Year-over-year also at actual rates all of our specialty practices, except industrial, were up with consumer goods up 10%, life sciences and healthcare up 3%, technology up 12%, and financial services up 2%. Worldwide the industrial practice was down 9% year-over-year in the third quarter. The total number of dedicated executive recruiting consultants worldwide at the end of the third quarter was 390, which is down eight year-over-year and 12 sequentially, primarily reflecting the results of our Q2 restructuring actions.

Annualized fee revenue production per consultant in the third quarter was approximately $1.31 million compared to approximately $1.25 million in the second quarter of fiscal '13 and $1.28 million in the third quarter of fiscal '12. The number of new search assignments open worldwide in the second quarter was 1,138, which was down 3% sequentially and down 3.6% year-over-year. Excluding separation charges in the third quarter and restructuring charges in the second quarter, consolidated executive search adjusted operating earnings were $22.2 million, up $980,000 or 4.6% sequentially, primarily due to cost saving actions initiated in the second quarter.

On the same basis, when compared to the third quarter of fiscal '12, consolidated Executive Search operating earnings in the third quarter of fiscal '13 were down $940,000 or 4%, driven primarily by lower fee revenue, partially offset by lower operating expenses.

The worldwide consolidated Executive Search operating margin was 17% in the third quarter of fiscal '13 compared to 16.6% in the second quarter and 17.5% in the third quarter of fiscal '12. Executive Search adjusted EBITDA margin was 19.1% in the third quarter of fiscal '13 as compared to 18.2% in the second quarter of fiscal '13 and 19% in the third quarter of fiscal '12.

Now, turning to Leadership & Talent Consulting. In the third quarter of fiscal '13, worldwide fee revenue for L&TC was $41.2 million, up $1.5 million or 5% organically year-over-year, and including acquisitions, was up $13.1 million or 47% year-over-year.

Excluding fee revenue from Global Novations and PDI Ninth House in both the second and third quarters L&TC third quarter fee revenue was down approximately $3.6 million or 10% sequentially. On a sequential basis, fee revenue growth trends in the third quarter were adversely affected by lower billable hours due primarily to holiday seasonality and the ongoing integration activities, as well as seasonally lower new business volumes.

Regionally, North America accounted for approximately 67% of total L&TC worldwide revenue in the third quarter compared to 69% in the second quarter prior to the PDI Ninth House acquisition.

At the end of the third quarter there were 149 dedicated L&TC consultants. Driven by the previously mentioned factors that collectively contributed to decelerating fee revenue as well as increases in certain operating expenses such as acquisition related amortization, bad debts and non-billable engagement expenses, L&TCs third quarter adjusted operating earnings were down $3.5 million year-over-year and $5.3 million sequentially to $1.6 million with a lower operating margin of 4%. Adjusted EBITDA margin in the third quarter was 8.4% compared to 21.4% in the third quarter of fiscal '12 and 20.7% in the second quarter of fiscal '13.

Finally turning to Futurestep, which generated $30.4 million of worldwide fee revenue in the third quarter, at actual rates Futurestep fee revenue in the third quarter grew 17.5% year-over-year and 1.1%, sequentially. Measured on a constant currency basis, Futurestep's third quarter fee revenue was up $4.4 million, or 17% year-over-year and up $70,000 or 30 basis points sequentially. Geographically, on a constant currency basis all operating regions grew year-over-year led by North America and Asia Pacific, which were up 25% and 4% respectively. Sequentially, North America was up 7%, Asia Pacific was flat and Europe was down 9%.

Futurestep's profitability continue to improve in the third quarter and was up both year-over-year and sequentially. Excluding allocated overhead, Futurestep's operating margin was 12.3% in the third quarter compared to 6.1% in the third quarter of fiscal '12 and 11.1% in the second quarter of fiscal '13. Adjusted EBITDA margin in the third quarter was 13.3% compared to 7.2% in the third quarter of fiscal '12 and 12.1% in the second quarter of fiscal '13.

I'll now turn the call back over to Bob to discuss our outlook for the fourth quarter of fiscal '13.

Robert Rozek - EVP and CFO: Thanks a lot Gregg. As you can see we had a good quarter we're pleased with our results which were in line with our expectations, despite the rapid integration of our newly acquired businesses.

New orders in January, improved over December in an executive search, February new orders were on par with January. Historically, our fiscal fourth quarter has been a seasonally strong quarter for new business and fee revenue.

In looking ahead to the fourth quarter, assuming the world stays fairly consistent with where we are today from an economic perspective, the financial markets and foreign exchange fiscal '13 fourth quarter fee revenue is likely to range from $210 million to $230 million. Additionally in the fourth quarter as you drive the next phase of our worldwide integration with PDI Ninth House which involves the consolidation and elimination of redundant office space around the world. Lease termination, fixed asset write-offs and other charges associated with that consolidation are estimated to range between $3.5 million and $5.5 million and are estimated to resolve in $2 million or $3 million of annual savings which will start principally in fiscal '14.

Excluding these estimated charges adjusted diluted earnings per share in the fourth quarter are likely to range from $0.28 to $0.34 where diluted earnings per share is measured by GAAP likely to be in the range of $0.21 to $0.29. I'd like to also note that earnings per share on both an adjusted basis and the GAAP basis will include approximately $0.02 of incremental amortization expense associated with the recent acquisitions in the quarter, which is $0.01 incremental to what we incurred in the third quarter.

With that we will now turn it over to Gary who will open up it for questions.

Gary Burnison - CEO: Okay. Operator, can you open up the line.

Transcript Call Date 03/06/2013

Operator: Tobey Sommer, SunTrust.

Frank Atkins - SunTrust: This is Frank in for Tobey. In your prepared remarks you highlighted strength in the technology sector. Can you give us any color on what's driving that and maybe dig a little deeper maybe by geography?

Gary Burnison - CEO: I would say that the improvement in the technology sector has been gradual. If you look at, for example, take our search business today, it represents about 13% of the Company or so. When you look across the geographies, it's been pretty balanced when you look at sequential growth. So I wouldn’t pin it on one particular geography. It's been pretty broad based as well as across the sectors.

Robert Rozek - EVP and CFO: I think the only thing I would add to that too, Gary, (indiscernible) technology started to turn when Bernard came onboard as well.

Frank Atkins - SunTrust: Then in the LTC segment, can you talk to us about seasonality moving into the April quarter, what should we expect there and kind of what's built into kind of the middle of that guidance range?

Gary Burnison - CEO: The middle of the guidance range is going to assume that we've got PDI, we only had PDI for one month here in this quarter. We closed the transaction on December 31. So, we are at the midpoint there. We're assuming that we're going to have a PDI for the full quarter at about the levels of business that we saw in January. We're assuming that utilization is going to be slightly higher than what we have. We had about 58% utilization in that business and it should be higher than that. Offsetting that is going to be the significant integration activities that we still have going on in terms of co-locating real estate and the like.

Frank Atkins - SunTrust: Finally, can you talk a little bit about recruiting and attrition and kind of what you are seeing in terms of hiring new folks?

Gary Burnison - CEO: Well, we're continually looking to add consultants into the business across all three segments of the organization. That's something that we've consistently done quarter-over-quarter year-over-year. If you look at our search business today we ended the quarter with about 390 or so consultants. We don't guide out more than a quarter, but we are looking to invest in our people across all three businesses.

Operator: Tim McHugh, William Blair

Steven - William Blair: This is (Steven) chiming in for Tim today. Thanks for taking my question. First, in the Executive Search segment, it seems like, I think you said every segment was up sequentially, every vertical was up sequentially except for financial services. Can you just provide some additional color on what you're seeing in that vertical?

Gary Burnison - CEO: We've seen in the last couple of months, it was two of our consecutive best months in terms of new business that we've seen in a year, I go back to March of '12, we had a pretty good month in terms of new business. But the last couple of months have been very strong, that we've strung together. So we are cautiously optimistic, financial services continue to be tough but we've seen growth in the other segments particularly in life sciences and healthcare, that's been very, very strong for us.

Steven - William Blair: Then just on the impact of the PDI revenue from cost cutting, is there going to be any impact from these changes that you've kind of put through in the last few months?

Robert Rozek - EVP and CFO: Changes in terms of what.

Steven - William Blair: So the cost cutting measures that you put in place for PDI, just the synergies, I guess. Is it going to have any topline impact for PDI?

Robert Rozek - EVP and CFO: I would say that while the cost cutting measures that we did in the third quarter were in line the workforce, now we are going through the consolidation and colocation of folks. So now we are going to be taking close to 600 people and moving them out of where they, what's become home for them to a new place. So obviously we are expecting there to be some level of disruptions as a result of that activity, just, I think it's just normal human nature for that to happen.

Gary Burnison - CEO: We'd like to see the utilization of that LTC business at, say, 70% or so. This last quarter, we were at 58%. It's doubtful we will be at 70% this next quarter given what Bob just talked about, but as we look forward, we would expect that utilization to be significantly higher than 58%.

Steven - William Blair: Then one last one if I could. In Futurestep, it performed really well and above what we had expected. I think you said North America and APAC were particularly strong. Is that – is there any difference between the verticals are you seeing anything from specific client sets or just anymore color there would be appreciated.

Gary Burnison - CEO: Well, we've again – the life sciences and healthcare area has been very, very strong for us and that's true across most of our businesses and Futurestep is no exception there. So when I look sequentially, we did have higher growth in that part of the business on a sequential basis. But other than that, it's been pretty broad-based.

Operator: Kelly Flynn, Credit Suisse.

Kelly Flynn - Credit Suisse: I'm not sure if you've said this. What's the organic growth year-over-year implied by the guidance for the quarter?

Robert Rozek - EVP and CFO: The organic in – for Q4 guidance?

Kelly Flynn - Credit Suisse: Yes.

Robert Rozek - EVP and CFO: Yeah. We don't – as I indicated in my remarks, as we move forward, Kelly, as we integrate these businesses into each other, the integration creates a lot of synergies within the – on the top line as well. So, once we buy a business for a very short period of time, we look at it independently, but going forward I indicated we are just going to look at it as LTC. So, we are not going to be able to pull it apart and say well, so much was related to Global Novations and PDI, just we are looking at as an LTC bucket. You just got to look at the growth rate in LTC quarter-to-quarter.

Kelly Flynn - Credit Suisse: Well, I guess what I'm getting at maybe you could help with this. I think you said if we exclude LTC for a second to fee revenue for the search business, I think you said it was down about 1.1% to constant currency year-over-year. Should we expect that to improve be flat to up in the quarter, I'm trying to understand if the business is ticking up, I mean are we moving towards year-over-year growth as we progress through the year?

Gary Burnison - CEO: That’s certainly our hope, I mean it's certainly good to see that this last quarter sequentially which was a seasonal quarter, that we saw an increase in search and we would like to think that that would be the case next quarter.

Kelly Flynn - Credit Suisse: And then can you give any more qualitative color on the regions particularly Europe, I mean how do you describe the feel of that environment, is it materially better, or you feel like it's really starting to pick up when we accelerate or is it still kind of dragging along but not worsening.

Gary Burnison - CEO: Yes, I'd say that, I mean it's kind of a new normal and there really hasn't been a mark change from what I've seen in terms of attitude. Our business in Europe has performed remarkably well and to see even in this last quarter to see a slight sequential improvement is good news for us.

Kelly Flynn - Credit Suisse: Then lastly on financial services. We could probably guess could you just give a little more detail on what particular areas of the industry are the weakest and what are not switching like its stabilizing or worsening?

Robert Rozek - EVP and CFO: Investment banking is clearly the softest. And I would say that it has stabilized over many months. Then when you get into operations technology, risk, compliance that has been a stronger part of the market, by function.

Operator: Ty Govatos, CL King.

Ty Govatos - CL King: Can you give me the bonus accrual for the quarter and the nine months?

Robert Rozek - EVP and CFO: The bonus expense in quarter was $28 million. And the nine months is roughly $81 million, $81.5 million.

Ty Govatos - CL King: The RPO business could you talk about that and what percentage now it is of the Futurestep operation?

Robert Rozek - EVP and CFO: The RPO business today is about 50% of the Futurestep operations of Futurestep, $30 million its roughly $15 million.

Ty Govatos - CL King: Any reason to expect that to change any time over the next year or two that ratio.

Robert Rozek - EVP and CFO: I think the focus of driving that business forward is to move into that, into a direction of more heavily weighted towards RPO activity, so we would expect to see that, that percentage grow over the next year or two year, three year timeframe.

Operator: Mark Marcon, R.W. Baird.

Mark Marcon - Robert W. Baird: With regards to PDI and Global Novations, the contribution this quarter was somewhere around $11 million to $12 million. That contribution from PDI, how much was that specifically for that one month?

Robert Rozek - EVP and CFO: That was at the low – towards the low end of the guidance that we gave in the second quarter, Mark, right around the $6 million mark.

Mark Marcon - Robert W. Baird: The $6 million mark and that was in for the full month, right?

Robert Rozek - EVP and CFO: It was just for one month, that's correct.

Mark Marcon - Robert W. Baird: For one month and so with the expectation be that given you have significant integration activity still to go through, would you expect that monthly run rate is a good proxy for what you would expect during the third – during the coming quarter before things normalize?

Gary Burnison - CEO: I think it is realistically marked. Given the significant activity we have around collocation and the like I think as we sit here today that’s a reasonable expectation.

Mark Marcon - Robert W. Baird: And do you think that – all of that colocation activity will that impact the sales cycle as well as the inability to get existing work done. And so I guess what I'm wondering is at what point would you expect them to get to kind of the targeted utilization rate?

Robert Rozek - EVP and CFO: Well, overall for our LTC business the utilization rate was 58% and we would like to see that more like 70%. That would be our target and so as we look out into this calendar year, our expectations would be that we come pretty close to that.

Mark Marcon - Robert W. Baird: I guess I was just wondering, it sounded like for the coming fourth quarter don't expect that, but I was just trying to pin it down in terms of weather the first quarter of the next fiscal year we could get there or whether there would be still some lag and maybe we have to wait out a few more quarters beyond that?

Gary Burnison - CEO: Well, I would say it's not going to be a few more quarters beyond that, but whether its fully – if we fully get it done in this quarter that's a question mark. But our intent here is to bring these colleagues in, the response from clients has been fabulous. The response from our existing colleague – and I honestly couldn't be happier. So we'll just have to work overtime on the utilization of the entire business, not just that particular aspect.

Mark Marcon - Robert W. Baird: Then with regards to once you get to that utilization rate, how would you think about the margins in that particular business? Do you think it can get to the mid-teens to low-teens?

Gary Burnison - CEO: We do, and in fact if you look back, we've delivered on that in the past and one of the things, I mean, we got – this is our I think our third best quarter in our LTC business so we keep setting the bar higher for ourselves, but if you look back on what we've achieved we've hit those kinds of margins in the business.

Mark Marcon - Robert W. Baird: Then Futurestep is making really nice progress even on the incremental margins. How should we think about that continuing to progress?

Gary Burnison - CEO: Well, we've always said that when you look at the organization that the Futurestep margins will obviously be higher than staffing margins and will be less than – clearly less than the Executive Search margin. So it really depends on the mix of business, and as Bob said, Bern is really try to orient that business towards bigger projects RPO business, which tends to be more profitable business for us. So we would like to continue to see margin expansion in that business.

Mark Marcon - Robert W. Baird: There was some mention in the press release about use of contractors. Can you just give us a sense for where the utilization was from that perspective and is that just kind of a one, two quarter type of deal?

Robert Rozek - EVP and CFO: I think, Mark, depending on the mix of work we're doing and the skillsets that are needed to deliver it, we will either look in-house or outside for contractors to help us deliver it. So it's not something that we can sit today and say we're going to see this either go away or increase. It all depends on the nature of the work that we're delivering in a particular quarter. And this quarter was a heavier utilization of individuals and skill sets that were outside of the organization. Now these are people that have a longstanding relationship with the organization and someone that we use over time, just not somebody that we have enough to do full time with. So we work with them on a contracting basis.

Mark Marcon - Robert W. Baird: But for what purpose?

Gary Burnison - CEO: It could be delivering leadership development, engagement; it could be coaching engagements. Our orientation philosophically is that we want our own full-time employees to do that, but there's parts of the business that are much harder to predict where the most efficient thing in effect with our client as well as for us is to use certified contractors– independent consultants that have been certified in all of our intellectual property.

Mark Marcon - Robert W. Baird: Then with regards to the utilization rate going up across the platform, how would you say the excess capacity currently – where does it currently rest within the core Executive Search, particularly in North America and Europe?

Gary Burnison - CEO: When you say the core Executive Search or the LTC business.

Mark Marcon - Robert W. Baird: Core Executive Search.

Gary Burnison - CEO: Well, I think, right now our revenue per partner is $1.03 million or so.

Mark Marcon - Robert W. Baird: Which is quite good.

Gary Burnison - CEO: Yeah, it's quite good. We'll actually like to have it higher, continue to move the average fee up. I think it's pretty broad-based. There may be a little bit more in Asia than say in North America that probably would come to mind. But overall, there definitely is capacity within the search business.

Mark Marcon - Robert W. Baird: How should we think about the tax rate as it relates to the guidance?

Robert Rozek - EVP and CFO: I think, Mark, I'll just go back to sort of our normalized rate, roughly 35%.

Operator: It appears there are no further questions. Mr. Burnison?

Gary Burnison - CEO: Okay. Well, I thank everyone for listening in, and again, as an organization, we are very, very proud of what we are achieving, but we've got an insatiable appetite to continue to grow as a firm. So, I thank you for your time this afternoon, and we'll talk to you next time.

Operator: Ladies and gentlemen, this call will be available for replay for one week starting today at 6.30 pm Eastern Standard Time running through the day March 13 at midnight. You may access the AT&T Executive Playback Service, by dialing 1-800-475-601 and entering the access code 284535. International participants may dial 320-365-3844. Additionally, the replay will be available for playback at the Company's website www.kornferry.com in the Investor Relations section.