Heidrick & Struggles International, Inc.

Good morning, everyone, and thank you for participating in our first quarter conference call today. Joining me on the call are Kevin Kelly, our Chief Executive Officer; and Rich Pehlke, our Chief Financial Officer.

As a reminder, we'll be referring to supporting slides that are available on our website at heidrick.com and we encourage you to follow along or print them.

As always, we advise you this call may not be reproduced or retransmitted without our consent. Also, we'll be making forward-looking statements on today's call and ask you to please refer to the Safe Harbor language contained in our news release and on Slide 1 of our presentation.

Our slide numbers refer to the slide numbers on the bottom right-hand corner of each individual slide.

And now, I'll turn the call over to you, Kevin. Please start on Slide 2.

Thank you, Julie. Good morning, everyone and thank you for joining today's call.

I hope that you had the opportunity to review the earnings release we issued this morning. When we spoke to you in February, our business faced tough economic headwinds which were impacting revenue, and that's still the case today.

However, the improvements we made to our cost structure as part of the restructuring initiatives in the fourth quarter and other actions we've taken have yielded significant improvements in our profitability. First quarter 2012 revenue of $106.5 million was down 8% over the same period last year, although within our guidance.

And despite a $9 million year-over-year decline in first quarter revenue, we produced a $7.3 million increase in operating income and our operating margin for the first quarter of 2012 was 3%.

This compares to an operating loss and negative margin in the same period a year ago. Compared to last year's first quarter, salary and employee benefits expense were lower by 13% and our general and administrative expenses declined 16%.

These results underscore our commitment to deliver on the expectations we set forth for our shareholders much the same as we do for clients on a daily basis.

Before I turn the call over to Rich for a more complete analysis of our first quarter performance, I'd like to take a few minutes to offer some color on the quarter.

In every region, our businesses continue to be challenged by economic conditions. On Slide 3, we outline our regional performance.

Net revenue in the Americas declined 7% year-over-year. The decrease mostly reflects declines in the Financial Services and Global Technology and Services practices.

Net revenue in Europe was relatively flat while revenue growth in Germany, Italy, Switzerland and Netherlands and France was offset by a decline in the U.K. and several other small offices.

Leadership Consulting showed solid growth in the region, however this gain was offset by declines in the Financial Services and Consumer Markets practices.

In Asia Pacific, net revenue was off 16% in the first quarter, driven largely by declines in the Financial Services and Industrial practices. Australia, Hong Kong and Singapore were impacted the hardest.

We saw improvement in Japan which indicates the region is recovering well from last year's devastating tsunami. On Slide 4, we provide a breakdown of our 2012 first quarter performance by industry practice, and Slide 5 reflects our industry diversification.

As I've already mentioned, the Financial Services practice continues to be impacted by tough industry conditions with revenue down 27% from a year ago.

The decline was felt globally but on a percentage basis impacted Asia-Pacific the most. The Financial Services sector has undergone fundamental changes and we believe that a return to pre-recession levels will take a while longer.

We're mildly optimistic that the improved first quarter results by banks and investment funds could lead to some deep increased hiring in the second and third quarters. The Industrial practice performed well in Europe and the Americas but declined in Asia-Pacific, most notably in Hong Kong and Australia.

And for the remainder of the year, we continue to expect uneven market conditions. The Consumer Markets practice was essentially flat compared to a year ago.

Good year-over-year growth in the Americas was offset by declines in Europe and Asia-Pacific. Looking forward, clients are slower and more cautious to make decisions, especially when it comes to higher-level positions but we continue to see more activity at the SVP levels and the business unit levels.

The Global Technology & Services practice performed well in Asia-Pacific in the first quarter, was about flat in Europe and declined in the Americas. We saw professional services companies cautious about first quarter hiring but anticipate improvement going forward.

The Life Sciences and Education & Social Enterprises practice both grew net revenue year-over-year, but combined are only 14% of our business and therefore do not offset the drop in the Financial Services and the Industrial practice.

Looking at Slide 6, revenue from Leadership Consulting across all regions was $10 million, up 18% compared to last year's first quarter. And despite the market conditions, I'm very pleased with the efforts of our colleagues around the globe to differentiate Heidrick & Struggles in the marketplace.

There's no question we are leveraging our Leadership Advisory capabilities to expand our relationships at this C suite and board level, and truly differentiate Heidrick & Struggles. I heard from a number of consultants in the Financial Services practice that they're beginning to see a shift in their business development activities.

While in the past, engagements began with the search, today, many are seeing more and more searches begin with a leadership consulting assignment and then progress the search. This underscores our leadership advisory strategy, which is based on long-term consultants of relationships.

Today, we have relationships with nearly 2/3 of the Fortune 250 companies.

As you'll see on Slide 7, total search confirmations were down 9% year-over-year, primarily as a result of the slow start of the year reflecting market conditions. But at the same time, our consultants continue to win some of the most highly-sought after searches in the industry.

During the quarter, Heidrick & Struggles helped place Edward Shirley as CEO of Bacardi, and also Steven Mills as CFO of Amyris, one of the fastest-growing companies in the world providing integrated renewal products. In addition, we worked with the board of the William and Flora Hewlett Foundation, which with $7 billion in assets is among the largest -- one of the largest foundations in the world, to help select its next president.

And to give you a feel for 1 of our leadership consulting projects, we are very excited to be selected by Georgetown University on a talent competency project related to their expansion into the Middle East. And these are just a few of the many high-profile assignments we completed during the quarter.

And with that overview, I'll turn the call over to Rich.

Thanks, Kevin, and good morning, everyone. I'll start with a review of some of our key operating metrics and a deeper dive into operating expenses.

On Slide 8, we ended the quarter with 343 consultants, down 4 compared to the end of December. However, as we mentioned in our release, we promoted 16 Associate Principals to Principal Consultants effective April 1.

Slide 9 is a look at our average revenue per search. This metric is a calculation of our search revenue in the quarter divided by the number of search confirmations in the quarter.

As such, not all the revenue in the quarter matches up with confirmations. This metric is more meaningful if you look at it on a trailing 12-month basis and we provided both numbers in this slide.

In short, we did see pricing pressure in the quarter but not to the extent that it's been material.

Productivity on Slide 10, as measured by annualized net revenue per consultant, was $1.2 million in the quarter, reflecting lower revenue in the quarter. We continue to believe that the combination of hires made in 2010 and 2011, where we will reach higher productivity in our efforts to exit under-performing consultants in the fourth quarter of 2011, should help us achieve higher productivity levels in 2012.

But this was not reflected in the trend in the first quarter.

Now let me go into a bit more detail about salaries and employee benefits and G&A expenses.

First, as Kevin alluded to, our key operating expenses were down roughly $17 million compared to last year's first quarter and down $12 million compared to the fourth quarter. When we did the restructuring in the fourth quarter, we estimated an annualized cost savings of $20 million to $25 million or $5 million to $6 million per quarter.

We have achieved those expected savings and more. Despite the decline of the first quarter net revenue our discipline allowed us to produce operating income of $3.2 million in the first quarter and operating margin of 3%, as seen on Slides 11 and 12.

And while this is below our target for the year, we believe this demonstrates the scaling of our business and the control we have over expenses.

Starting with Slides 13 and 14. Salaries and employee benefits expense decline $11.7 million or 13% year-over-year and declined 10% compared to the fourth quarter.

Variable compensation accounted for $6.3 million of the decline, which reflects lower bonus accruals related to lower net revenue levels while changes we made to our cost structure were by variable compensations more directly tied to performance.

Fixed compensation expense accounted for the other $5.4 million of the year-over-year decline. This mostly reflects the reduction in worldwide employee headcount and were approximately 6% compared to last year's first quarter.

It also reflects the absence of approximately $1 million in severance cost to last year's first quarter.

Turning to Slide 15. General and administrative expenses declined year-over-year by $5 million or 16%, and declined $3.8 million or 13% compared to the fourth quarter.

We're very pleased with this reduction as it comes from tighter controls in a number of areas throughout the firm. Lower professional fees and unbillable travel and entertainment expenses, were the 2 largest contributors to the decrease.

Net income for the first quarter was $700,000 and diluted earnings per share were $0.04. The effective tax rate in the quarter was 84.9% and is based on a full-year projected tax rate of approximately 47%.

The higher rates in the first quarter compared to the expected annualized rate reflects losses for which we cannot realize tax benefit and a few tax expense items that had to be recognized within the quarter.

Please turn to Slide 16. Our cash position remains strong with $82.6 million in cash and cash equivalents, well above our global cash needs of between $40 million to $60 million.

Those of you who are familiar with our business know that our cash position typically builds throughout the year as we accrue for cash bonus payments, which are paid out in February, March and April of each year. In February, we paid out approximately $10 million of cash related to the portion of consultants' bonuses that were deferred from the last 3 years.

In March, we paid out approximately $106 million in variable compensation related to 2011 performance. And in April, there will be an additional payment related to 2011 bonuses of approximately $3 million.

We also used approximately $4 million in the first quarter related to our 2011 restructuring actions. Net cash used in operating activities was $99.1 million in the first quarter and with bonus payments behind us, we expect positive operating cash flow during the remainder of the year.

We also expect to generate higher free cash flow than last year.

Slide 17 shows our backlog and Slide 18 shows our monthly search and leadership consulting confirmations. As expected with an increase in confirmations, backlog is higher going into the second quarter.

Confirmations are tracking similar to last year, albeit down compared to last year. We are seeing a different trend in revenue from a year ago.

Much more will be determined by confirmations in May and June.

We are forecasting second quarter net revenue of between $125 million and $135 million and like last quarter, we're not guiding to quarterly margins. We believe it's more meaningful to share with you directionally where we are taking the company for the full year.

As we evaluate the second quarter and the remainder of 2012, we're cautious about net revenue, but not ready to back off the goals we set for the company. We have considerable faith in the capability and talents of our consultant teams around the world to rise to the challenges of this operating environment.

At the same time, we are cognizant of that fact that our first quarter revenue, although within our guidance, was at the lower end of the range we provided. And if we combine that with the mixed signals we're receiving about a global recovery and continued weakness in certain sectors and regions, we're now tracking at the low end of our 2012 net revenue guidance of $510 million.

Most importantly, we're not backing off our improvement in operating margin and still expect to achieve between 7% and 9% overall. The range still mostly depends upon achieving revenue targets for the year.

And with that, I will turn it back over to Kevin.

Thank you, Rich. The first quarter is historically our low water mark for revenue and margin.

We continue to be extremely mindful of the larger macroeconomic conditions, which clearly drive our business, but the first quarter is also not indicative of our expectations for full-year performance. We are focusing on expanding the work we do for clients as well as growing our client base.

So we continue to concentrate on those aspects of our business that can truly differentiate us in the marketplace: Our people, leveraging technology and ensuring that our service offerings match the needs of our clients, because those are our value drivers.

From a people perspective, we believe that our consultants are the best in the industry. This is due in large part to the emphasis we place in developing our talent and promoting from within.

During our most recent promotion cycle, 11 consultants achieved partner status and as Rich mentioned, another 16 were promoted to Principal Consultants. We made promotions at all levels of the firm based on a similar process.

Although we will always recruit qualified consultants to fill regional or practice gaps, our analysis demonstrates that our productivity is greater when we promote from within. We believe this strategy also allows us to attract the most talented professionals in the industry.

When you couple this with our global reach and extensive practice experience, we are able to provide our clients with unparalleled advice and service execution.

Our global partners meeting in the third quarter is designed to bring our consultants from throughout the globe together to network and share best practices. When we roll out Latitude, our proprietary search database at the end of second quarter, our consultants will have access to the state-of-the-art technology that would allow them to better leverage the knowledge of the entire organization for the benefit of our clients.

Our clients face increasing challenges with how to attract, engage and develop their talent to remain competitive in the current economic climate. This provides us with the incredible opportunity to leverage Heidrick & Struggles' brand and expertise while shifting our business from one that historically has been transactional to one that is more consultative to our Leadership Advisory strategy.

We believe that by focusing on those initiatives that have a direct impact on client service, Heidrick & Struggles and its clients will achieve sustainable, long-term success.

Before we open up the call to questions, I'd like to acknowledge our colleagues around the globe for their hard work and dedication. Our people are the defining factor and without them, we would not be able to achieve our objectives.

So thanks again for taking time to join us this morning. And at this time, Rich and I would be happy to take any questions that you all may have.

Thank you.

I guess when I look at your full year guidance and the revenue guidance specifically, it clearly suggests that the second half, you expect to get back to positive revenue growth. And just based on trends you're seeing, I'm curious to know what you're thoughts are.

What practices do you see being more strong? Is it a continuation of what you saw in the first quarter?

Any color would be helpful.

Sure, Giri, it's Kevin. What we're seeing is -- it's been an interesting 3 years because historically we've started off the year slowly.

Financial Services has been all over the map the last couple of years. 3 years ago we saw a huge uptick in Financial Services in June and July, which historically hasn't happened.

Last year, we saw a big increase in March, April timeframe. And this year, what we're hearing first and foremost is that a number of our Financial Services consultants are saying whether it's New York, Hong Kong or London, the 3 major centers, that they're starting to see a lot more interaction with their clients.

The result that some of these investment banks in the first quarter were much better than anticipated and there's pent-up demand in the Financial Services sector in areas like legal and compliance, risk management, the hedge funds base. So there are areas of asset wealth management.

So there are areas within Financial Services that will continue to probably recruit going into the third and fourth -- and to the second, third quarter, so that's one area. And we'll also -- in Technology and Professional services, as I mentioned, a lot of companies cut back in Professional Services at the beginning of the year but we've seen an increase in demand in that area as well.

So across the board, and whether it's the functional area, they continue to thrive in our CFO space, CIO space, et cetera. So there are still pockets of recruiting and I think what we're seeing collectively as a leadership team here is that in every market in which we operate, there seems to be some pent-up demand that we will see coming through in the second and third -- in the second and third quarter.

Okay. And then a quick question in the leadership consulting.

Clearly there's -- you've seen more integration between search and leadership consulting and -- I know you don't necessarily break out revenue by geography, et cetera, but could you help us understand if Leadership Consulting, you're seeing broad-based demand or any visibility you can give on what sort of trends you're seeing by vertical for that line of business will be helpful.

Sure. If you think about Asia-Pacific we're seeing -- it's pretty much spread across the globe.

So Asia-Pacific for example, the CEOs and executives of Indian companies, Asian companies -- excuse me, Indian companies, Japanese companies, Chinese companies, et cetera, they want to know if they have the talent to compete globally if they enter European markets, Latin American markets, African, South African markets as well as the U.S. markets.

So really assessing and looking at development for their individual and their executive teams there. It's been a critical component of our leadership advisory strategy.

Now the same holds true here in North America. I mentioned Financial Services.

So what you're seeing in Financial Services to be specific is that investment banks and banks in general are looking at do we have the right talent going forward before we go out and recruit again. So they're looking at how do they offset and develop their needs within the investment banks and that holds true in Industrial, Technology, consumer goods, et cetera, as well.

So they're broad-based across the board. And in Europe, we see a lot of board effectiveness, board surveys, CEO succession as well.

So I'd say across the globe, it's different in terms of the solutions we provide but there's broad-based demand for that service.

I'm was wondering if you could talk just a little bit more with regards to the Industrial and the Global Tech practices in terms of what you're seeing across the globe and how confident you are that that's going to pick back up?

It's Kevin. What we’re seeing is -- Rich and I were just in Hong Kong meeting with the Industrial team and we had an unbelievable start.

Giving the Mining and Metals practice last year in the region, we had just an outstanding start to the year particularly in Australia, which was significant in terms of revenue for the region and it’s just been a slower start. The demand is still there and we're still seeing it in the alternative and renewable energy space and actually, there's been an increased demand in the metals and mining area as well.

Most of the commodities we're seeing out there. So we believe that we have a very solid Industrial practice covering all aspects and we'll definitely see a bounce back.

It's just -- it was a tough base given last year's large revenue numbers particularly in the ANZ region.

Got it. And Global Tech, how are you seeing that?

I think Technology again, we are seeing Professional Services, I mentioned a few minutes ago, starting to bounce back. And in certain areas of tech, we are seeing demand.

But it was a little softer than last year, there was a lot of recruiting last year. We were just talking to one of our major global clients who said they had a hiring which is again a significant amount of revenue for us.

You think about 2 or 3 of these. There's 1 of our major global clients that we're working with that we just sat down and said they had hiring freeze until April but there's a number of searches and leadership consulting assignments they're looking to give us after that's lifted -- excuse me, the hiring freeze is lifted.

And what Rich and I are focusing on is making sure that we stay close to the clients during this time because, as the market tends to come back, we want to make sure that we're first and foremost on the client's mind. And just to add to that, Mark, we just spent a number of months, weeks, talking to CEOs and executives and the perception out there is last year we ended up with somewhat of a pyramid in terms of the front half of the year being fairly strong.

And what we're consistently hearing is that the back half of the year is going to be much stronger and we're starting to see that with some of the interest we're getting from clients now.

Okay. And then you did really well in Europe, outside of the U.K.

U.K. certainly understandable given Financial Services.

Do you feel like you have the right teams in place? You obviously had to go through a rebuild over there a few years ago.

Does that feel like everything is pretty well set and that we should continue to see a build even if the economic environment gets worst?

We're really proud of what we've done in Europe and I'll let Rich add to this. Well if you think about the number of consultants in restructuring, revenue year-over-year was flat with roughly 25-plus less consultants.

I'm really happy with Germany. I mean, Germany year-over-year both in Leadership, in Consulting and Search has bounced back as well.

If you think about Europe, again, London and -- I was on the phone with the head of our London office yesterday. With the Queen's jubilee this year, with the Olympics, it may be a tough couple of months.

But at the back end, they expect it to really bounce back as well. Financial Services is a big -- London is a big help for Financial Services, but we do have a team in place.

We do need to still fill some gaps over there in certain industry sectors, Life Sciences, in particular. We have a huge opportunity, but very happy with what the team's done and the progress we've made.

Rich?

We probably benefit a little bit in Europe off of a better comparison in Q1 versus Q1 of last year. And we'd still like to see it stronger across the board.

But as Kevin said, we like the team, we like the way we've been going about rebuilding it and the culture we're building in Europe. It's still a very volatile economy and sovereign risk is still pretty high in the charts relative to the overall marketplace.

But in overall, I still think we feel good about the longer-term prospects.

Right. And then in Asia Pac, what percentage of the revenue is Financial Services?

Roughly the same as all the other regions. I mean, Financial Services really hit hard in some of our bigger offices like Singapore, like Hong Kong.

And the volatility that we saw. And Kevin noted that the 2 areas that probably impacted Asia Pac the most were Industrial and Financial Services.

Okay. And Industrial would be the second largest.

So that's the reason why the consultant count's going up while the revenue is coming down to those practices. It's not -- there's nothing that's going on from a productivity perspective aside from that?

Yes, I think it's the tougher flooding in the short term. Yes.

Okay. Great.

Can you just talk a little bit about the pricing? You mentioned softer pricing.

Where are you specifically seeing that?

Well, I think we're seeing that globally in Financial Services. I think that's probably the #1 area where we've seen the most pressure relative to the change in just for pressure on the core model.

Mainly because there are structural changes happening in the composition of the clients. So the way they're actually paying people, the levels at which they're paying people have changed.

And so I think we're seeing certainly a short-term or near-term impact relative to how that plays out. In general, across the rest of the business, I think we've seen this hold relatively well and certainly it's been, again, an environment where we've seen a little bit of pressure but not to the point that it's been material.

I think the biggest area we've seen it globally is Financial Services.

I guess, first I had a kind of a housekeeping question. The guidance you have for operating margin of 7% to 9%.

On the slideshow, it's 6% to 8%. What's the delta there?

It says 6% to 8%. It's just an error, Tobey.

It's just an error. It's been 7% to 9% since year end.

We'll make that correct.

Okay. And then, Kevin, you mentioned a hiring freeze at one customer.

And I know periodically you get kind of group orders from customers because your close relationships with them. What has the appetite then from those customers that have kind of larger orders with you to execute those orders?

Have they hit the pause button?

No. I mean we'd see across the board sometimes when you get a senior executive and they want to build out their teams, so you would see 4 or 5 hires at the senior level.

I would say, Tobey, right now, what we're seeing is there's a number of firms that are being cautious. There's a lot going on, as Rich mentioned, the macroeconomic environment, elections in Europe and the United States.

So they're just being cautious right now as they get through the first quarter. And that's what we're hearing across the board.

We still have a very strong business when it comes to our strategic partners program of clients that are looking for us for both search and leadership consulting. But historically where you'd see at the beginning of the year, you have 5, 10 senior level hires to build out a division et cetera for a company just kind of puts -- no, not kind of.

They have put some of that on hold as they get through their first quarters.

Okay. From a cash perspective, what do you see for cash flow per share?

Or in absolute opposite dollar term?

Well, as I kind of indicated relative to my cash flow, I expect that cash flow will continue to build for the rest of the year. And I'm actually pretty pleased.

I think we're going to be generating cash flow probably in $30 million to $40 million range, probably near the higher end of that range of free cash flow. So I have no balance sheet worries here.

I have no financial capabilities. Whereas our people have done an amazingly good job of managing working capital and I'm very pleased with that in the efforts we've made there, so I feel very good.

We've got an untapped credit facility, so from a financial strength position, we couldn't be in better position. We have the flexibility to invest and grow and support any of our strategy anywhere in the world.

The course we've taken quite frankly is to kind of approach at it from a more conservative standpoint. We're just not going to throw dollars at a very volatile revenue and economic climate.

I don't think that's a right strategy longer term. I think that's -- we see every day, amplifying what Kevin said, every day, we see 3 steps forward, 2 steps back in terms of the economy and the overall feeling in financial markets.

I mean, if you just read the headlines, you guys do it every day as well, you see the headlines every day. There's no -- there still isn't that sustainable market momentum that sent a clear signal to people that they're opening up a lot of investment dollars and I think in those types of environments we're trying to keep our people extremely tightly focused and serving clients, meeting their expectations, but at the same time we're not going to let investment dollars get too fluid here.

Okay, last question for me. Where do you see consultant headcount going?

I guess, you just recently promoted some people, so maybe it'll be up sequentially in 2Q. But directionally, where do you see it progressing throughout the year?

Well, I think you're probably going to see -- directionally, I would expect what might have a single-digit, slight increase in that headcount year-over-year, but I don't think it would be in the neighborhood of 10%. I think it will be less than 10%.

First, I want to ask if you can give any more color on April? It looks like it's down pretty weak, so just any more color on kind of practice level and regional in terms of what you're seeing?

This is Rich. Clearly, we don't give individual month guidance or comment too strongly on the months.

There's no question coming off our first quarter, which is our low revenue quarter, we're still coming out of lower backlog and lower momentum. We're going to watch, as Kevin indicated, we're going to watch pretty closely the end of the second quarter and the trends over the third quarter.

Because the overall indication we're getting from the client side and the people side are that the revenue trends of this year would be slightly different than last year. It will be a little bit more back-end focused.

We're not sitting here believing in a hockey stick, but just by the level of activity we just think things are going to trail more in the second half of the year.

Okay. And then, Rich, on the G&A, how sustainable is that and then that level that you're adding in Q1?

And then, I know at least I heard you mentioned, the partners' meeting for Q3, I believe it was. How big of a bump up will that be?

A partners' meeting usually is worth maybe a couple million bucks of in expense in terms of additional expense over year but from a productivity standpoint and from a G&A, we're trying to keep this very run rate very sustainable. Again, I'm going to continue to compliment, one of the things that I've seen this year is while I think there were a few areas we could tighten up, our people have done a great job and we're certainly watching expenses in a very tight revenue environment.

The good position we're in is that if we see a better revenue environment we can easily open up the valves a little bit and can afford to take that and still not let our expense ratios get out of whack. But we've changed the discipline of this company a little bit and, again, our people are keenly focused on it.

And we're spending the money the right way and so I'm comfortable where it’s going. And our effort is to drive the right scale of the business so that we're profitable and free cash flow positive at levels of a volatile time and easily able to add to our margin in the good times.

And Rich did you say a 47% tax rate for the full year?

Yes.

Okay. So much lower...

Much lower, yes. We're seeing a lot of the stuff that's impacted our tax rate especially last year start to flow through and get out of the way now.

So I think we're going to get back, at least from a book tax rate, a little bit more normal as we play out the balance of the year. Again, from a cash tax rate perspective, we're in relatively decent shape.

I just want to follow-up on the consultant headcount question. You mentioned single-digit growth in the consultant headcount this year.

Is that going to come primarily from the promotions or are you still looking to hire selectively from the outside as well?

This is Rich. We're still looking to hire.

We're hiring in all levels across the business but we're hiring in a very disciplined way. We're making sure that our business cases are solid.

We're making sure that our capabilities are good and that we're putting people in the right geographic areas for the time being where we can get the most benefit. So we certainly are looking to hire but it's not something that we're going to chase that aggressively.

Okay. And you mentioned perhaps for that specific geographies, for hiring.

Are there any particular areas that you're targeting in terms of industry or geography?

Well, I will tell you that there is no restriction on our any of our practices or regions but there are certainly areas where, as Kevin indicated, we'd like to have more, I think Asia Pac is an area where we'll probably do more hiring than less. I think we'll be a little more cautious in select areas in Europe.

But there are certainly areas of Europe where we have needs and we have strengths where we're going to continue to add people. From a practice perspective, we're more likely to add people in, say, Life Sciences or in Consumer than we will in Financial Services, just from a position of scale.

Because we look at that from the standpoint of also what do we have on the ground, if you will, and what do we have embedded in our investment base. We have a very good group of people with a lot of good coverage so we're going to fill more holes than we are just broaden the base.

Great. And lastly, I think Rich, you said perhaps you were tracking even a little bit above the $20 million to $25 million in cost savings for the year.

Is that correct? And I mean, what should we think about a meaningful variance from that?

I don't think it's a meaningful variance. I still think the numbers is pretty accurate relative to the overall impact.

I'm just glad to see that we're tracking at that level and actually delivering on the actions we took. Again, at the end of the day, I want to keep the right ratios of the business model in place and we're going to spend less time worrying about what happened in the past and just making sure that we're redeploying those dollars, as I indicated we would last year, in the right places.

And actually, I'd like to get to the point where our expenses actually trickle up a little bit at a sustainable rate because that means we're investing in the growth of the business and were hoping to see that environment come through here.

I was wondering, could you talk a little bit about the productivity enhancements you would expect from Latitude when it gets rolled out?

Yes, Mark, one of the things it'll do is it'll decrease the average time to complete a search. I mean it really helps tap into a lot of the Web 2.0 technologies to help us get in sync with all of assessments that we do globally.

So in terms of the front end to delivery to clients, it'll really help expedite that process. And therefore the knock-on effect would be the average number of searches a consultant has the ability to do by freeing up the associate, and the leverage in the firm would increase.

So that's where we get a lot of the productivity from.

Great. And so would you expect that the average number of searches -- I guess what I'm wondering is, how many searches are you turning down now?

Obviously, there's a huge variance between some of your most productive consultants versus some that are ramping up. Are there some that you're turning down that it's like with Latitude you'd able to pick up?

No. What we'd have is -- it is tough to gauge the average number of searches.

So for example, we have somebody in India, 1 of our top consultants who would 33 searches in the year just given the average fee per search, but then in the United States, you'd have somebody do maybe 14 or 15 a year. So what we try to do and drive through the practices is make sure that we understand where the consultants are, either, a, just got promoted or, b, are coming up to speed.

And before, we never turned down a search. The practice leaders are responsible for making sure that we'd steer that work in that direction.

So that also helps with the productivity gains.

Okay. Great.

And with regards to the variable comp, as we look at the ratio that we saw this first quarter, is that how we should think about it for the balance of the year and that you basically perform at it?

No, our variable compensation will track the trends of the balances of revenue and will probably grow slightly as a percentage of the total comp accruals because, obviously, as we scale the business. But in aggregate, through the full-year basis, the variable will actually be a higher percentage of total compensation than fixed.

And that's the way we wanted to keep trending the business. We wanted to keep tying the compensation expense to productivity and to production and that's the result of some of the changes we made structurally last year.

So I would look forward to increase proportionately over the course of the year as revenue tracks.

Kevin, wanted to get your updated thoughts to the extent that they have evolved on how social networking is or is not impacting the business both from a productivity side and from a competitive demand side?

Sure. I think we had this -- you and I had spent some time with this before.

What we do see is the same as last time, I think. Will social networking impact the search industry?

I think at the lower levels, it's a much faster pace than people anticipated. But we work at the C level and the executive suite.

It's still very difficult to go out and find executives on a Web 2.0 technology, so where we add value is that the assessment, the cultural fit, et cetera, for executives. So we're still saying, it'd be a challenge.

I mean, what companies have done is they've built up at the lower level, very individual intensive recruiting teams to go through these technologies. Because, Tobey, I've mentioned before, we have had a couple of clients and many more since that you talked to and whereas we provide 3 to 5 candidates already assessed and appraised for a client and had gone to the cultural fit, et cetera, they get anywhere from 400 to 1,700 resumes, and particularly in this environment for a particular search.

And it's very challenging to sift through that and then figure out from a cultural standpoint and fit if this individual is going to work. So yes, I mean you do see it at the lower end of the market and you'll continue to see that.

But as you get up into the upper echelons and the area in which we operate, it hasn't impacted us yet.

How much of the firm's revenue is derived from C suite and board level searches?

It's a little over 50%.

Well, thank you, everybody. We really appreciate you getting on the phone today.

I hope you have a great rest of the day and a good week. So thank you very much.