Ladies and gentlemen, thank you for standing by. Welcome to the Korn/Ferry International First Quarter Fiscal Year 2013 Conference Call. [Operator Instructions] 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 the 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 and the company's annual report for fiscal 2012, and in the other periodic reports filed by the company with the SEC. Also, some of the comments today may reference non-GAAP financial measures, such as constant currency amounts. Additional information concerning these measures, including reconciliations to the most directly comparable GAAP financial measure is related 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 over to Mr. Burnison. Please go ahead, Mr. Burnison.

Okay, thank you, and thanks for joining us this afternoon. I've got Bob Rozek, our CFO; and Gregg Kvochak, with us here. I'm going to -- I’ve got a few prepared remarks. I'd like to first talk about the thing that's probably most obvious, which is the environment around us, but also I want to talk about opportunities. I think I've got kind of a unique perspective because I spent the last, almost 3 months, working in Europe and meeting with clients and CEOs and our colleagues. And clearly, the mood goes from probably cautious optimism, after the Olympics in the North to the pessimism in the South. But I think that there's definitely some key themes, consistent themes that we're seeing. And today, as we sit here, I would say, just like any other organization, Korn/Ferry is feeling the challenges of the global economic environment and it's everywhere that you look. And we're certainly seeing clients that, much like we talked to you about in May, as we anticipated back in May, clients have continued to be very cautious when it comes to investment decisions, not only CapEx but also in terms of human capital. So with that context of kind of, Google Earth if you will, I am very proud of our team, the Korn/Ferry team, and the progress that we're making on the implementation of our strategy. In this last quarter, revenue was slightly better than our expectations. Revenue came in about $187 million and a little bit better than when we talked to you last -- in early June. Profitability was solid and the operating margin was a little bit over 9%. Our balance sheet continues to be very strong. We finished the quarter with over $300 million of cash and marketable securities. And after this…

Thanks a lot, Gary, and good afternoon, everybody, and happy to have you join us on this call. I'll make some remarks and then get into a little bit of the details on how the quarter went for us. And despite the impact of the lingering sluggishness and uncertainty that the worldwide economic environment is having on Korn/Ferry, along with virtually every other global business, as Gary indicated we do remain committed to our strategy of building the industry's leading talent management solutions company. And we're really pleased with the direction that we're headed in, I would say both organically and inorganically. In the first quarter of fiscal '13, we maintained our position as a leader in Executive Recruitment and we also continue to invest and grow our Leadership & Talent Consulting and Futurestep businesses. As Gary mentioned, our consolidated fee revenue in the first quarter was nearly $187 million. And of this revenue amount, L&TC and Futurestep comprise approximately 32% of that total. It's something that we're pretty pleased with. And with the strengthening of the U.S. dollar, as Gary mentioned, currency did have a pretty pronounced impact on the comparability of our numbers in Q1 of fiscal '13 to prior periods, both sequentially and year-over-year. When you look at the impact of currency on the various line items and net it all out, the overall impact was not significant. However, when looking at revenues and expenses, it was more pronounced. Our reported fee revenues of nearly $187 million were down $19.6 million or 9.5% year-over-year and $11.4 million or 5.8%, sequentially. On a constant currency basis, our consolidated fee revenue in the first quarter was down $12 million or 5.8% year-over-year and down 8.2% or 4.1%, sequentially. So you can see the impact that currency did have on…

Thanks, Bob. And we'll start with our Executive Recruitment segment. Consolidated Executive Recruiting fee revenue in the first quarter was $127.4 million, down $9.7 million or 7.1% sequentially and down $22 million or 14.7% year-over-year. Excluding the negative effect of foreign currency exchange rates, consolidated Executive Recruiting fee revenue was down 5.5% sequentially and 11.2% year-over-year. Regionally, at constant currency, North America and Europe fell 5.2% and 5.4% respectively on a sequential basis, while Asia Pacific was off 9.2% and South America was flat. Year-over-year, on the same basis, North America, Europe and Asia Pacific were down 9.2%, 15.3% and 19.8% respectively while South America grew 11.8%. Worldwide, all of our Executive Recruitment specialty practice were down both sequentially and year-over-year on the first quarter. Sequentially, at actual rates, the industrial, financial services and life sciences health care practices were weakest and down 11.9%, 6.5% and 8.4%, respectively. Year-over-year, also at actual rates, the financial services, industrial and life sciences health care practices were off the most and down each approximately 19%. The total number of dedicated Executive Recruiting consultants worldwide at the end of the first quarter was 415, down 18 year-over-year and up 15 sequentially after annual promotions. Considering the change in our previously disclosed productivity metrics resulting from the current change in reporting segments, annualized fee revenue production per consultant in the first quarter was approximately $1.25 million compared to approximately $1.37 million in the first and fourth quarters of fiscal '12. Despite the drop in fee revenue, consolidated worldwide executive search operating earnings in the first quarter fell only $500,000 sequentially to $22.4 million from $22.9 million in the fourth quarter of fiscal '12. When compared to the first quarter of fiscal '12, consolidated executive search operating earnings in the first quarter of fiscal '13 were…

Thanks, Gregg. Given our normal seasonal pattern, the second quarter of our fiscal year is historically our weakest revenue quarter due primarily to weaker new business award during the summer months of July and August when folks are off on vacation. So far, early in the second quarter of fiscal '13, I would say that our consolidated new business awards have been -- remained choppy but have trended at a pace essentially in line with our expected seasonality. In addition, in the current year, we also have some world events that we have to contend with like the Olympics that just ended up, as well as the upcoming U.S. presidential election. And given the uncertainty and sluggishness of the global economy, as Gary mentioned, we're seeing our clients operate with an abundance of caution, which really makes the current environment pretty challenging. In light of this, and focusing on the maintenance of appropriate operating margins, we do plan to take certain actions to better align our cost structure with the current realities of our revenue expectations. As we step back and we look at -- and you try to size up the business and look at a 9% operating margin on a level of revenue that -- we’re currently at a run-rate basis. It's not something that we're satisfied with. So we're now in the process of finalizing the plans and our current estimates would support of -- our actions would support annual cost savings in the range of $15 million to $25 million in the current estimate of the cost to implement these actions are in the range of $10 million to $20 million. And we still have a couple of weeks’ worth of work left done to fine-tune it, but that's the current thinking at this point in time. In summary, assuming that the economic conditions, financial markets and foreign exchange rates remain steady, our fiscal '13 second quarter fee revenue, which will include 2 months of Global Novations’ results, will likely range from $180 million to $195 million. And our diluted earnings per share will likely be in the range of $0.16 to $0.22, and that's on an adjusted basis and that excludes $0.14 to $0.28 of estimated what I’ll call cost realignment and non-recurring charges. Or on a U.S. GAAP basis, a loss per share of $0.12 to diluted earnings per share of $0.08. And that concludes our prepared remarks. We are very glad to answer any questions that you may have at this point in time.

[Operator Instructions] And our first question is from Tobey Sommer with SunTrust.

Just had a couple of questions about the acquisition you announced yesterday. Are there any financial details that you could give us? Like how much -- what the revenue contribution might be or anything like that?

I would say that on kind of -- in this environment, Tobey, we would expect that, that company would contribute $28 million to $34 million in this kind of environment where we are right now. And our plans going forward are obviously much bigger than that, but that's kind of where it is today.

And since you have an articulated goal of expanding the LTC business and Futurestep, do you have any long-term goals either as a percentage of revenue or maybe a revenue goal in dollar terms that you have laid out for yourself over the coming years for those 2 businesses?

Well, we think that there is, in both of those businesses -- and I'm certainly not going to put a time horizon to this because we do only guide out quarterly and the environment is, to say it's challenging, is an understatement. But we look at those opportunities with our firm, overall, to be a talent solutions company, and we see those as multi-$100 million opportunities for this organization. So I think that the thing that is maybe more relevant than the percent of revenue is the percent of the cash flow of the organization. And we haven't publicly stated those goals nor have -- we certainly got them, but I think that, that would be the more meaningful question. So clearly, we need to invest, we need to grow, we need to balance all of that with the environment that we're in, but we certainly have an eye towards profitability and cash flow contribution from those businesses.

And my last question, I'll get back in the queue. Consultant headcount was up, I guess, nicely sequentially. And I was just wondering if the composition of new hires are able to impact results and contribute immediately? Or are there a decent number of people who were kind of on guarding leave and need to have some period of time pass before they start contributing financially?

I think -- Tobey, this is Bob. If you go back and look at our headcount at the end of the year was up, as Gregg had mentioned, though, the increase was primarily driven by promotions. So we would have -- those are our folks who had been with us for a while who are engaged. So we wouldn't expect that there would be much lag in terms of their ability to deliver. We had -- we started the quarter with 400 -- there was about 24 promotions and then we had net 9 leavers, which is actually a very small attrition rate, if you will, around 2%.

Next question is from Tim McHugh with William Blair.

Yes, just want to first ask the cost reduction program that you talked about, is this focused mainly on the executive search business? And is it primarily personnel-related or is it infrastructure and kind of real estate related as well?

Yes. Well, it's probably it’s -- to some extent, it's all of those. As we look at the organization and our goals for building this company, one of the things under Bob's leadership we need to look at is shared services and infrastructure. And so that is at the top of his list to look at that. We think we've got some opportunities around shared services. Secondly, when it comes to real estate, we, under Bob's leadership, we're also going to look at that. And now, some of that, you have to be practical you can't change that in the span of quarters. But clearly, we could take a very strategic view to saying this is what it should look like in 5 years and what levers can we pull today. So when you look at it, Bob articulated the reason and it's going to be a combination of shared service infrastructure then there's a people component, too.

The only thing I would add to that, Gary, as well is we're also going to be looking at driving some efficiencies in through our procurement activities as well. And so as you look at our cost savings, we're looking at more efficient spending programs across the organization taking advantage of our scope and scale on a global basis.

Okay. And as we think about the margin here, you're effectively guiding to kind of flattish sequential revenue and you had 3 straight quarters of 9% kind of operating margin then -- but the guidance, my quick math implies kind of 7% operating margin. But yet, your comments on that earlier I think you said something about 9% not being kind of acceptable to what you would like. Is -- how should we -- I guess I'm trying to guide out further but kind of think about what type of margin you're trying to aim for in a tougher environment like this and then in a better environment down the road.

Well, I wanted only to say that we've typically held it as a goal in this organization that we should have in very good times, where there is economic tailwinds, this should be a low- to mid-teen operating margin company, okay? And then on the other side when it is in the dark days of winter, we should strive that we should be at least cash flow neutral but hopefully single-digit operating margins. So those are kind of the 2 boundaries that we have set for ourselves as an organization. The issue today -- and again, as we talked to you in June, it's sure enough the environment has been pretty consistent with what we thought. We've got a tweeney. And so it's neither headwinds, tailwinds. And we just think, if you're kind of doing this level of revenue, our margins should be better now. We're obviously, as Bob said, we're in the middle of trying to look at that so I think that to try to call something out what it's going to be in 2 quarters, 3 quarters, is probably a little bit premature. We’re just not -- we haven't finalized our thinking there.

Okay. And then 1 or 2 more. Just one is on the RPO business, the press release talks about it as there's more of a mix that impacts the average fee per search. But can you just directly address, are you seeing any signs of pricing pressure in the RPO business? And then secondarily, were there any share repurchases during the quarter?

There were no reshare -- no share repurchases in the quarter. But in terms of the Futurestep business, we have not seen any dramatic pricing pressure, and when you look at the sequential growth and success of our business, the good news is that it was in the United States business, which may be a little bit counterintuitive but we continue to see opportunities with big clients desperately trying to find knowledge workers and those are not -- those companies are borderless.

The next question is from Jennifer Huang with UBS.

Can you just provide us with an update on your current thoughts around capital allocation? And you still have $175 million in investable cash after this acquisition, so what are your thoughts on further acquisitions, as well as share repurchases or dividends?

Well, that's just something that we don't really comment on as an organization. Philosophically, we continue to believe that we have an opportunity to invest in the business, number one. But with the same time, we're mindful, very mindful of the fact that it's not necessarily sustainable on the long term to have cash earning 10 basis points, so we're very well aware of that. I think we've got a demonstrated track record of deploying the capital and growing the business. But if you just look at our leadership business today, as an example, we are going to have to invest into that business to grow it. Just that there's no other way. It would be naive to think otherwise. And so our first bias is to invest it in the business, and we're cognizant of the -- what acceptable returns need to be.

Okay. And then secondly, can we just dig into the margins a little bit? U.S. was up -- North America was obviously very strong. Asia and Europe was slightly weaker in the first quarter and I know last quarter you had mentioned incentive comps were up as was, I think, there's trends for pricing internally. Were those still the impacts that we see in Europe and Asia this quarter?

I mean, in Asia's real simple. Asia is -- Japan and Australia, we did not perform at the level that we should. It's that simple. We've got a great team in Asia and we've got great teams in Japan and Australia. And I am assured that this quarter will be much better. So the profitability in Asia this last quarter is directly linked to those 2 areas, subregions of the world. And then the other macro trend that I would put out over Asia that you could put over the entire organization is financial services, and so that does have an impact on our business. In terms of Europe, there was increased profitability

Sequentially.

Sequentially. And we saw some very, very good strength in Germany and Switzerland. The U.K. has been impacted by financial services and the Olympics, but our European business is second to none. I've got total confidence in that and -- of course, profitability is going to be impacted when you read that $100 billion was just taken out of Spain in the month of July, 7% of the economy. So, yes, but I'm pretty comfortable with what we're doing there.

Okay, great. And last question for me if I could. So now you guys disclosed the LTC fee revenue and consultants, can you just talk about on Global Novation how those consultants I guess sort of compared to your current ones? I know from the website, are they -- they show something like 16 principals at that firm. Are they producing around the same level?

Well, we will -- we don't disclose the specific attributes of our businesses in that detail. I would tell you that we obviously think that there is an incredible strategic fit with the organization but more importantly, we think that there is a cultural fit and in doing any kind of investment acquisition, that piece is many times overlooked. And we feel very good about that on a number of different dimensions including the contributions of people. And so, we think that, that will fit very nicely with our current organization and within our current LTC business.

The next question is from Ty Golagos (sic) [Ty Govatos] with CL King.

2 technical questions. Can you let me know what the bonus accrual was in the quarter? And if I'm understanding what you're saying, the second quarter guidance has about $5 million in revenues from the new acquisition?

That's correct.

And the bonus accrual?

Bonus accrual was about $26 million.

And then our next question is from Mark Marcon with R.W. Baird.

I'm sorry if I missed this, I just got on the call a little bit late. In terms of the payback, the expected time period for the payback for the restructuring, what should we expect?

It will be less than -- it should be less than a year, if you look at the savings. Again, we banded it by $15 million or $25 million, the cost is 10 to 20. So we would expect that it would be less than a year.

Okay. And in terms of Novations, what sort of margin should they be able to run at as part of the organization, roughly speaking?

I mean roughly speaking, it should be 10% to 15% margins.

Yes.

Okay. So basically, along the same lines as the rest of the organization. And would you expect them to grow at a faster rate or same rate as the overall organization?

I think after once they get -- when we get fully integrated, Mark, it’s going to be really hard to pull it apart because of the plans we have from an integrated market perspective. So I think it will be synergistic in any way you look at it, but again, it will hard to say that they will grow faster than the rest of the business because I think it will be done on a combined basis.

Okay. And then obviously the global challenges with regards to macro, as well as what's going on in financial services is fairly obvious. But I'm wondering if you could give some commentary with regards to just order trends that you ended up seeing in terms of the confirmed orders that were coming through by month. Was there any sort of improvement as the quarter went along or how would you characterize that?

Much like we thought when we talked to you in June. June was better than May. July was a little bit less than June. August was about the same as July, right. So basically in line with what our expectations, with what we were thinking in early June, kind of broad brush. That's what we've seen.

Okay. And one of your competitors on a recent conference call made some mention with regards to LinkedIn, maybe there was a little bit of an overreaction to that. But any color that you could provide just in terms of either client behavior or behavior among any of the members of your team as it relates to that?

Well, I don't know what you're really getting at, Mark. I don't know what you're referring to.

Just specifically, they mentioned that a few of their consultants ended up leaving and going to some clients, and basically came to the conclusion that they could use the database from LinkedIn to basically substitute for their internal database.

Well, I think that for many, many, many years, people have had those kinds of views. And I think that, look, we have to be more relevant to our clients. And so we're not getting paid on that part of the business, we're not getting paid for just finding people, we’ve got to find out who they are. So we think that it is an incredible opportunity, social media, that company that you mentioned is one. And so I haven't seen anything specifically about what you're talking to there on a granular level but...

It seems like it was isolated and it basically sounds like you're confirming that.

Well, I don't know what they said. But I can only say what we're doing. So we think it’s -- we’re trying to incorporate social media, intellectual property into what we do.

Great. And no impact in terms of pricing?

I don't know how you would -- I don't know how one would make a judgment on that. I mean, you can -- look, CEOs in every business, they're all going from the same playbook. And so one of those is to make sure that they're asking more with less people for less money. They're also looking very, very heavily at stockpiling cash. They're also looking at cutting capital expenditures and then they're also looking at streamlining their operations, cutting costs, so that's the environment that we're in and so, we got to play with it.

We have a follow-up from Tobey Sommer with SunTrust.

I was just wondering if you could describe Global Novations in a little bit more detail, kind of its customers its delivery model in -- and maybe also comment on cross-selling opportunities, if that's an element of the strategy?

Well, I mean, I personally think that we're cross-selling is the 2 most over used words in business. But clearly, we believe that as an organization, that we need to broaden the conversation with our clients and we have to be more relevant, we have to infuse intellectual property, we have to really deliver on what a CEO thinks about. And that's not only assessing great people but its assembling great teams and getting them to work together and in empowering them and inspiring them and in motivating them. And part of that, given that CEOs are borderless, revolves around cultural dexterity. So as we look out over the next 5 years, we think that that’s going to be -- an increased premium is going to be put on that. So this great company, Global Novations with its outstanding people, give us the ability to broaden the conversation with our clients. It also gives us more depth in that leadership business as we go to market as one firm, one integrated firm. So its client base are blue-chip clients. They're very, very consistent with Korn/Ferry's overall client profile. Their people, we believe, are outstanding and fit culturally within our great firm. And their go-to-market strategy is very, very similar to the company's. And they have a delivery model that kind of mirrors our LTC business.

And there are no further questions, Mr. Burnison.

Okay. Well, listen, I thank everybody for their time this afternoon. Clearly, the -- I believe that this word uncertainty is an overused word and it abounds in the Internet, in newspapers, on CEO's minds. But for us, we have to continue to not just adopt but to really adapt and adjust. And we're going to continue to maintain a forward-leaning innovations oriented mindset, and it all begins with our clients and it begins with our people. So I thank our shareholders for listening to this call, and I also thank the wonderful colleagues of Korn/Ferry. So with that, we'll talk to you next time. Bye-bye.

And ladies and gentlemen, this conference call will be available for replay for 1 week starting today at 7 p.m. Eastern time and running through the day September 12, at midnight. You may access the AT&T Executive playback service by dialing 1 (800) 475-6701 and entering the access code 259124. International participants may dial 320-365-3844. Additionally, the replay will be available for playback at the company's website www.kornferry.com, in the Investor Relations section. That concludes your conference for today. Thank you for your participation and for using AT&T Executive TeleConference Service. You may now disconnect.