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Korn Ferry International (KFY) Q4 2018 Earnings Conference Call

Motley Fool Staff, The Motley Fool
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Korn/Ferry International (NYSE: KFY)
Q4 2018 Earnings Conference Call
June 13, 2018, 8:30 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:

Operator

Welcome to the Korn/Ferry International fourth quarter Fiscal Year 2018 conference call. At this time, all participants are in a listen-only mode. Following the prepared remarks, we will conduct a question-and-answer session. As a reminder, this conference call is being recorded for replay purposes. We have also made available in the investor relations section of our website at kornferry.com, a copy of the financial presentation that we will be reviewing with you today.

Before I turn the call over to your host, Mr. Gary Burnison, let me first read a cautionary statement to investors. Certain statements made in the call today, such as those relating to future performance, plans, and goals, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.

Although the Company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, investors are cautioned not to place undue reliance on such statements. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties which are beyond the Company's control.

Additional information concerning such risks and uncertainties can be found in the release relating to this presentation and in the periodic reports filed by the Company with the SEC, including the Company's quarterly report for the quarters ended January 21, 2018, and the Company's soon-to-filed annual report for Fiscal Year 2018.

Also, some of the comments today may reference non-GAAP financial measures, such as adjusted fee revenue, constant currency amounts, EBITDA and adjusted EBITDA. Additional information concerning these measures, including reconciliations to the most directly comparable GAAP financial measures, is contained in the financial presentation and earnings release relating to this call, both of which are posted in the investor relations section of the company's website at www.kornferry.com.

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

Gary Burnison -- Chief Financial Officer

Thanks, Leah. Hello, everyone. A really great quarter. It's that simple. Top line growth was 17%. We achieved about $475 million in fee revenue. The fiscal year that just ended here in April was the highest revenue in our firm's history. We were up about 13% year-over-year. Our top line performance was consistent across all geographies and solutions. Looking back here over the past few months, and particularly the last year, to say I'm proud is an understatement. We hit revenue, fee revenue of almost $1.8 billion. That's up a few hundred million year-over-year. We achieved record EBITDA for the fiscal year of about $275 million.

We transformed ourselves from a monoline business to an global organizational consulting firm. Today, almost half our revenue is generated outside of talent acquisition. We've reshaped our workforce. 70% of our colleagues today work outside the United States. 53% are millennials. 14% are Baby Boomers. 61% of our colleagues are female. One of the things I'm most proud of is during this last fiscal year, we promoted nearly 1,000 of our colleagues internally. We also had incredible talent just out from the outside, from major consulting firms and clearly they're having an impact on our business and with our clients.

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We've certainly come a long way on our journey, but we're just at the beginning. When I just think about where the organization is headed, it first starts with purpose and that should start for any company, not the what or the how or the when, by really the why. The why for us is we help people in organizations exceed their potential. For any leader, for any CEO, the challenge is harmonizing their strategy with their talent. That's absolutely what we do. That's what today's Korn/Ferry is all about. That's what we're building, a firm that is indeed, can synchronize our client's strategy with their talent to help them drive superior performance.

That need, that desire to create that melody today is more important than ever. So, to seize this opportunity, as I talked about on past earnings calls, we have to continue to move our company toward an industry and solution orientation, realizing the collective power of Korn/Ferry, the enterprise, rather than individual lines of business or distinct parts. So, today, we're taking the next logical step in our transformation, officially moving to one brand, Korn/Ferry. So, as a result, we will be sunsetting our legacy brands, achieving a more unified branding approach to the marketplace as Korn/Ferry, making the whole of Korn/Ferry synonymous with enable people and organizations to exceed their potential. In essence, making the whole greater than the sum of the parts.

We're going to begin this sunsetting process later this month and it will be completed over the next 18 months. I'm excited about this effort. I'm excited about this natural evolution in branding, and about the future. I think this next step here brings us closer to our vision, which is to be the preeminent global organizational consultancy.

For us, we're never more powerful than when we come together as one firm. Again, as you know, the firm that helps companies design their organization, how to motivate people, how to compensate people, how to develop people, get people to wake up at 4:30 without the alarm clock, and to find out the talent that fits the strategy of a particular company. So, today's Korn/Ferry, we transform individuals, teams, entire organizations, and we do change people's lives. I got a big push that we really inside/out that we focus on interdependence.

We continue that journey that we started several quarters ago, making the whole greater than the sum of the parts. At the end of the day, for any CEO, it's really not about the technology or strategy or structural process; it's people. It's all about people anchored in a common purpose. The reality is we are more than. We are more than a talent acquisition company. We're more than a leadership development company. We are more than compensation and reward advisors. We're more than a licensor of data and IT.

We're more than organizational strategy advisors. We're Korn/Ferry. Collectively, we purposely enable people and organizations to exceed their potential. For clients, for the marketplace. We know what work is. We know how to organize it. We know how to find the best people to do it, how to reward them for it. We know how people develop and we know how to gauge them. That's the firm we're creating and I'm excited about the future.

I'm joined here, as usual, with Bob and Gregg, and I'll turn it over to you.

Robert Rozek -- Chief Financial Officer & Executive Vice President

Thanks, Gary. Good morning, everybody. I share Gary's enthusiasm for the quarter that we just delivered, as well as the full-year. Before I make comments, I want to say thanks to our 3,500 colleagues for all the energy that they put into creating our Fiscal 2018. Let me start with a few key highlights here.

First, our results in the fourth quarter and full fiscal year clearly demonstrate the potential of our firm. Our global revenue accelerated for the fourth consecutive quarter, reaching a record high of $475 million, which was up 17% year-over-year at actual rates and 13% in constant currency. Growth once again was broad based. Each of our major operating segments achieved record high fee revenue and double-digit growth. Growth continues to be the strongest in our talent acquisition businesses, both Executive Search and Futurestep, which grew year-over-year in the fourth quarter by approximately 18% and 31%, respectively.

We also saw strong revenue growth for the Hay Group. Revenue reached $208 million. Year-over-year growth rate of 12%, the second quarter in a row at that level. It's again indicated for all of FY18, our fee revenue was $1.767 billion, which was up about 13% year-over-year with 10% constant currency.

Second, in the fourth quarter, one of the things we're very proud of is the growth in our earnings continued to outpace our revenue growth. Adjusted EBITDA in the fourth quarter grew to $75 million. It's an improvement of $14 million or 24% year-over-year, while our adjusted EBITDA margin improved 90 basis points year-over-year to 15.7%. All of our operating segments achieved record high adjusted EBITDA in the fourth quarter, as well as the full fiscal year. For all of Fiscal '18, our consolidated, adjusted EBITDA was approximately $275 million, which was up about $39 million, or 15% year-over-year, and we had an adjusted EBITDA margin of 15.5%.

Now, let me turn to some new business trends, which in the fourth quarter were also as record highs for each of our business segments. First, Executive Search. The new business continued to accelerate in the fourth quarter. Globally, our Executive Search new business in the fourth quarter was up approximately $192 million. It's up 11% year-over-year, driven by strength in North America, Europe and Asia PAC.

Similarly, new business growth in the fourth quarter for the Hay Group was also strong. It came in at $226 million. It's up about 12% year-over-year and up double-digits for the third consecutive quarter. Finally, Futurestep was awarded a record $152 million of new business in the fourth quarter. That includes about 120 of long-term RPO contracts.

At the end of the fourth quarter, our total cash and marketable securities were $658 million. That's up approximately $127 million compared to the fourth quarter of Fiscal '17. Then excluding amounts reserved for our deferred comp arrangements and our approved bonuses, our investable cash balance at the end of the fourth quarter was about $312 million, and that's up about $67 million year-over-year and our debt at the end of the year, the outstanding debt was $236 million.

Finally, our adjusted, fully diluted earnings per share were $0.80 in the fourth quarter of Fiscal '18. That's up $0.18 or 29% compared to fourth quarter of Fiscal '17. On a GAAP basis, which includes the ongoing amortization of retention bonuses and adjustments related to the new U.S. tax legislation, our fully diluted earnings per share for the fourth quarter were $0.73. For the full fiscal year, our adjusted fully diluted earnings per share were $2.72. That's up about $0.48 or 21%, compared to Fiscal '17.

On a GAAP basis, again which includes the impact of the net income and both the amortization and retention bonuses, as well as the change in the U.S. tax law, fully diluted earnings per share were $2.35.

Let me turn it over to Gregg to review the operating segments in a little bit more detail.

Gregg Kvochak -- Senior Vice President of Investor Relations

Okay, thanks, Bob. Growth for our Executive Search segment continued at a strong pace in the fourth quarter, as global fee revenue reached $190.7 million, a new all-time high. Compared year-over-year and measured at actual exchange rates, global Executive Search fee revenue grew $28.4 million, or 17.5% in the fourth quarter, and 14% measured at constant currency. Growth was broad-based, with each of our geographic regions up double digits in the fourth quarter. North America was up 15%, Europe was up 22%, Asia Pacific was up 23%, and Latin America was up 11%.

In Executive Search specialty practice, growth in the fourth quarter was mixed. Compared to the fourth quarter a year ago, our education practice grew 28%, our financial services practice grew 17%, our industrial practice grew 5%, our consumer goods practice was up 2%, while our life sciences and health and our technology practices were both flat.

The total number of dedicated executive recruitment consultants worldwide at the end of the fourth quarter was 541, up 24 year-over-year and up 5 sequentially. Annualized fee revenue production for consultant in the fourth quarter was $1.42 million, and the number of new search assignments open worldwide in the fourth quarter was 1,590, which was up approximately 4% year-over-year. Adjusted EBITDA for Executive Search in the fourth quarter was $48.6 million, up $14.4 million or 42% year-over-year. Adjusted EBITDA for Executive Search was positively impacted by a decrease in the fourth quarter in the value of the liability associated with the firm's deferred compensation plan.

As in the past, quarterly market-driven gains or losses and the value of the liability associated with the firm's deferred compensation plan are recorded as increases or decreases in compensation expense and primarily affect North America Executive Search. This does not benefit the Company's consolidated EBITDA, as the plan is funded and the assets sit on the quarter balance sheet and therefore an offsetting gain or loss is recorded in the corporate segment.

The consolidated adjusted EBITDA margin for Executive Search in the fourth quarter of Fiscal '18 was 15.5%, compared to 21.1% in the fourth quarter of Fiscal '17. For the full year of Fiscal '18, Executive Search revenue grew to $709 million, which was up year-over-year by $91 million, or 15% at actual exchange rates and 13% at constant currency.

Additionally, adjusted EBITDA for the Executive Search segment for Fiscal '18 was $158.9 million, which was up $21.5 million or 15.7% year-over-year. The adjusted EBITDA margin for Fiscal '18 for Executive Search was 22.4%, compared to 22.2% for Fiscal '17.

Now turning to the Hay Group, where fee revenue measured year-over-year accelerated for the fourth consecutive quarter. In the fourth quarter, Hay Group achieved fee revenue of $207.5 million, which was up 12.1% year-over-year and 7% measured at constant currency. Growth was driven by strength in both the Europe and Asia Pacific regions, which were up double digits, and emerging growth in North America, which was up 3%.

As previously mentioned, new business awards for the Hay Group in the fourth quarter accelerated and were up approximately 12% measured year-over-year. Higher revenue drove improvement in earnings and profitability for the Hay Group. In the fourth quarter, adjusted EBITDA was $38.7 million, an improvement of $5.7 million, or nearly 17% year-over-year with an adjusted EBITDA margin of 18.6%, which was up 80 basis points year-over-year.

For the full-year Fiscal '18, Hay Group achieved $785 million of global fee revenue, which was up year-over-year by $57 million, or 8% at actual exchange rates and 6% at constant currency. Adjusted EBITDA for Hay Group for Fiscal '18 was $142 million, which was up $13.8 million, or 10.8% year-over-year. The adjusted EBITDA margin in Fiscal '18 for the Hay Group was 18.1% compared to 17.6% for Fiscal '17.

Finally turning to Futurestep, where growth continued to accelerate in the fourth quarter. In the frequent, Futurestep generated $77.1 million to fee revenue, which was up 31% year-over-year on actual rates and up nearly 27% at constant currency. All geographic regions grew at double-digit pace in the fourth quarter. As previously mentioned, in the fourth quarter, Futurestep was awarded over $152 million of new business globally. Futurestep's earnings also improved sharply in the fourth quarter with EBITDA of f$12.5 million and an EBITDA margin of 16.3%, which were both up year-over-year.

For the full-year of Fiscal '18, Futurestep's fee revenue grew to $273 million, which was up $49.5 million, or 22% at actual exchange rates and 20% at constant currency. Adjusted EBITDA for Futurestep in Fiscal '18 was $42.6 million, a year-over-year improvement of $9.7 million or nearly 30%. Futurestep's adjusted EBITDA margin for Fiscal '18 was 15.6%, compared to 14.7% for Fiscal '17.

Now, I'll turn the call back over to Bob to discuss our outlook for the first quarter of Fiscal '19.

Robert Rozek -- Chief Financial Officer & Executive Vice President

Great. Thanks, Gregg. Before I get into any guidance on the FY19 first quarter, I'm going to provide a little bit more color on the rebranding that Gary spoke about. As he mentioned, we'll be harmonizing our operations under one single master brand-Korn/Ferry. We have enough proof points at this point to conclude that the time is right for an integrated one Korn/Ferry brand. Let me give you a couple of examples.

Our example growth for our marquee accounts and the level of our referred revenues between lines of business are both growing at twice the rate of revenue growth for our company as a whole. Revenues from clients that we're serving with multiple lines of business are four to five times greater per client that those of clients using only one line of service. When we step back and look at those activities, the common theme in all those instances is that we go to market and service all those clients with fully integrated teams who deliver the full spectrum of Korn/Ferry resources and deliver tangible results with real business outcomes.

So, with those proof points in mind, we will be discontinuing the use of our sub-brands, including both Hay Group and Futurestep. So, starting in the first quarter of Fiscal '19, the Hay Group's segment will be renamed "Korn/Ferry Advisory" and the Futurestep segment will be renamed "Korn/Ferry RPO and Professional Search." This change will impact the names of our segments but will not impact our segment financial reporting. The financial makeup and leadership of each of those segments will remain as is, ensuring that the ongoing quarterly segment results are consistent in composition and comparable with historic segment results.

Obviously, the Executive Search segment will remain unchanged as we go forward, as well. In connection with the discontinuance of our sub-brands, we will be taking a non-cash impairment charge in the first quarter of FY19 of approximately $106 million, and that relates to the trade names that were established for Hay Group and Lominger and those were established at the time the companies were acquired. It was part of our original purchase accounting.

Also, going forward there will operating costs associated with the rebranding but we have planned carefully so that we will simply absorb them as part of normal operations and do not expect them to be material in any one future quarter or to have any impact on our margins going forward.

Now, turning to FY19 first quarter guidance, new business activity exiting Fiscal '18 and entering Fiscal '19 has been strong for all of our business segments. Globally, for Executive Search, new business awards in the months of March and April were very strong. In May, new businesses were up approximately 24% year-over-year and month-to-date in June, we see that strength continuing.

For the Hay Group, which will be renamed Korn/Ferry Advisory, first quarter is typically down sequentially from the fourth quarter, but we do expect the improvement in new business trends that we have experienced in recent months to continue. Fourth quarter new business for Hay Group increased 13% year-over-year, and May new business kept pace with 12% year-over-year growth.

With regards to Futurestep, which will be renamed Korn/Ferry RPO and Professional Search, both business under contract and the pipeline of potential new business opportunities remains strong and we expect that we'll drive continued growth in the first quarter. Now, considering all these factors and assuming worldwide economic conditions, financial markets, and foreign exchange rates remain steady, we expected our consolidated fee revenue in the first quarter of Fiscal '19 to range from $450 million to $750 million, and we expect our consolidated, adjusted diluted earnings per share to range from $0.67 to $0.75.

Finally, considering the non-cash improve charge of approximately $106 million that I previously discussed, as well as the ongoing quarterly amortization of approximately $2.3 million for the retention bonuses related to the Hay Group acquisition, we estimate that Fiscal '19 first quarter fully diluted loss per share measured by U.S. GAAP will likely be in the range of $0.74 to $0.66.

That concludes our prepared remarks. We would be glad to answer any questions you may have.

Questions and Answers:

Operator

Ladies and gentlemen, if you would like to ask a question, please press *1 on your telephone keypad. You will hear a tone indicating you have been placed in queue. You may remove yourself from queue by depressing the # key. Once again, please press *1 if you would like to ask a question.

Our first question is from the line of Tim McHugh with William Blair. Please go ahead.

Timothy McHugh -- William Blair & Company -- Analyst

Thank you. First, I was just going to ask on the branding. Can you talk about, I don't know what the right word is, risks? But how you plan to mitigate any concerns. I can imagine there'd be some questions from Executive Search about the brand in terms of saying up market versus some of how the other brands are used to it. Can you just talk about the puts and takes as you kind of go through this process of rebranding?

Gary Burnison -- Chief Financial Officer

Yeah, sure, Tim. Look, I hope that this has been pretty consistent over the quarters and years. We want to move the company toward being in the business outcome business. So, we have to move the organization to being in the solutions business, rather than the point of sale and vitamin business. So, that's been an effort that's been under way for a long time. I think secondly, if you were a buyer of an organizational consulting firm's services, you would buy based on industry knowledge, whether you believe they can solve your problem, whether you trust them, and whether they have the scale to be able to meet you where you are around the world.

Third is that we are continuing to move this organization to really meet the challenge that any leader or CEO has, which is synchronizing their talent and their strategy. So, this is something that has been part of our playbook in terms of how we've been moving the firm for quite some time. The reality is we have acquired and made investments into companies over a long period of time. We've gotten great people and we've gotten great IP and data.

I think we've shown that we can do something with that. But the reality is that as we have embarked on this journey, there is one brand that rises above the rest and that is Korn/Ferry. I believe that we have a much more connected offering, a real value proposition. My fear has been that if we continue with Executive Search, Futurestep, Hay Group, that it's a little bit like audit tax and consulting. The truth is, there's much more connectivity between the solutions and the services that we offer and certainly some of Bob's data points absolutely certainly prove that.

I would say that the reality is even though we've used Executive Search and Futurestep and Hay Group and many other brands that we've bought, the drive and the push, the go-to-market strategy, all of that has been behind one brand. The other thing that I would say is that the services that we're offering, I believe, are all very high end and high impact. There may be "different buyers" within an organization but they all ultimately touch what makes businesses successful. That would be the 38,000-foot view.

Again, we're going to approach this like we've done everything, in a very purposeful manner. We are going to do this carefully. We're going to do this over the next 18 months. We have a plan. We have it developed. It will be done in a very orderly manner, both with clients and as well as within the organization. I think your point on that search comment, we've obviously done an incredible amount of data collection and we're 200% confident in the direction that we've outlined here.

Timothy McHugh -- William Blair & Company -- Analyst

Okay, great. That's helpful. Does that impact how you think about M&A? I suppose you'd be likely, anything you have prior going forward would be something you'd want to migrate to this brand as well?

Gary Burnison -- Chief Financial Officer

It really depends. The reality is that when you acquire something, you're really acquiring a culture, people, capability, IP. It really depends. If it's an area that we don't have an expertise in at all, we're not known for, I think keeping the brand longer is certainly -- that makes sense. To the extent that you are in that business already, then I think that you would probably move to consolidate it quicker. We tend to look at the business. We're going to increasingly look at it along solution lines. We've got five solutions. We'll certainly give color to you along those solution lines as well.

Timothy McHugh -- William Blair & Company -- Analyst

Okay. And this last one, just on I guess what used to be called the Hay Group. The product side? Are you seeing an improvement there? I think the perception I would've had the last 6 to 12 months before this was that it was more [inaudible] but it looks like this product is helping this quarter. What do you see on that side of the business?

Gary Burnison -- Chief Financial Officer

I would still caution it's early days. As I've talked about, we've got a big opportunity there and there's quite a bit of investment going on in that part of the business. But yes, the product business was up 11% and the advisory business was up 13%. Good news on both fronts.

Timothy McHugh -- William Blair & Company -- Analyst

Okay. Thank you.

Operator

Our next question is from the line of George Tong with Goldman Sachs. Please go ahead.

George Tong -- Goldman Sachs -- Analyst

Hi, thanks, good morning. Consultant head count growth in Executive Search was 5% for the full year. This was a modest step down from 6% head count growth in Fiscal 2017. Can you talk about what your hiring plans are for Fiscal '19 and separately how you see consultant productivity trending in Executive Search?

Gary Burnison -- Chief Financial Officer

Yeah, we don't guide out more than a quarter. We're always in the market looking for talent. We're always trying to promote. Like I said, one of the things I'm most proud of is that we promoted 1,000 colleagues over the course of this past fiscal year. In the "Executive Search" segment, the average revenue per partner was $1.4 million. We had about 541 consultants. In the first quarter, we'll promote quite a few colleagues, to say the least, that I'm happy about. We're always in the market for talent. We have to continue like any CEO in any industry. That's the name of the growth. It's strategy and talent combined to drive performance. We're going to do that like we've always done.

George Tong -- Goldman Sachs -- Analyst

Got it, that's helpful. The Hay Group revenue growth meaningfully rebounded this year in Fiscal '18. Can you talk about your longer-term growth targets for the Hay Group segments and what initiatives you have from a product and go-to-market perspective?

Gary Burnison -- Chief Financial Officer

Well, I've said this for a long time that I thought that business could at least generate 10% growth, and finally over a couple quarters, we strung together some wins here that demonstrate that. So, that's what I've said publicly in terms of our commitment and we've now met that for two quarters. I would say that again, when you look at our company, I would point out there's basically five solutions. Half the company is essentially anchored around organizational strategy, assessment and succession, leadership development, and rewards. Those would be half. The other half is talent acquisition.

It's really not so much a strategy just for Hay Group. I really believe that the strategy is enterprisewide. This is not an audit, tax, and consulting business. The reality is the design of the organization and the people that you get to fill that team are absolutely linked. So, in terms of growth path in the future, we believe No. 1 that we'll continue to drive an integrated, go-to-market strategy. As you know, we have a real focus on top-down, what we call marquee accounts-multi-million-dollar clients that are loyal where we have real impact. We change the destination of those companies. That is one pathway for us.

The second pathway is the products business. Today, it's about annualized run rate is kind of $240-$250 million. That has the ability to change thousands and thousands of people's lives through our IP. It's a bit of a Trojan horse. It gets in there. It's very sticky. It's year after year. That is kind of the second strategic pathway for us.

The third is this solution orientation. So, specifically, building our capability around organizational strategy, around assessment and succession, around leadership development, and rewards and benefits. The next would be M&A. That's a growth pathway that we have executed on and will continue to be part of the playbook. Those are our strategic pathways. I think we've been pretty consistent in how we've described those and hopefully we've executed on those.

George Tong -- Goldman Sachs -- Analyst

Very helpful. Thank you.

Operator

Next we go to the line of Tobey Sommer with SunTrust. Please go ahead.

Kwan Kim -- SunTrust Robinson Humphrey -- Analyst

Hi, this is Kwan Kim on for Tobey. Thank you for taking my questions. First off, could you talk about the underlying drivers of growth in Asia Pacific and Europe and whether those regions will continue to lead growth ahead compared to Latin America and North America? Thank you.

Gary Burnison -- Chief Financial Officer

Kwan, that's a big question. I'm enormously proud. We're sitting in Frankfurt, Germany. One of the things I'm most proud of, absolutely, is our business in EMEA, and also our business in Asia. The reality today is 70% of our colleagues are outside the United States. I think that this last growth clearly, it helps to have favorable tailwinds, no question about it. But when you look at the last investment that we made in Hay Group, the reality was 80% of their business was outside the United States. I think that we've delivered on that promise that we can take tremendous IP, great people, combine with that and have this real impact.

I really believe that that's probably more than anything, it's certainly helped to drive the growth in EMEA and Asia. This last investment that we made that's now a couple years old, the United States was actually undersized relative to that organization that we invested in.

Kwan Kim -- SunTrust Robinson Humphrey -- Analyst

Got it. Thank you. On foreign exchange, has the impact of fluctuating exchange rates become may be more challenging to manage and could there be a strategy in dealing with the volatility on that front?

Robert Rozek -- Chief Financial Officer & Executive Vice President

This is Bob. I would say it's not more challenging than it has the past couple years as things have been pretty volatile. When you look at our consolidated reported results, by the time you look at the revenues and the expenses, currencies generally don't have a major impact on us. It kind of nets out. Where we have the bigger issue is on our, we have a lot of inter-company transactions and activities. We have a pretty robust program in place in our foreign contracts to manage our exposure. I think we've done a pretty good job when you look at the size of some of these balances, to keep our gains and losses down to a very minimal amount each year. I don't see any real change. I think it's kind of become the norm for us over the past couple years.

Kwan Kim -- SunTrust Robinson Humphrey -- Analyst

That's helpful. Thank you very much.

Operator

Our next question is from the line of Mark Marcon with R.W. Baird. Please go ahead.

Mark Marcon -- Robert W. Baird & Co. -- Analyst

Hi, Gary, and Bob, and Greg. First of all, congratulations. This has been a multi-year journey and it's great to see it came off. I'm wondering just with regard to your overall client base, what percentage of the clients just use one solution at this point?

Gary Burnison -- Chief Financial Officer

We've got thousands of clients. I'll tell you. About 60% of our revenue comes from clients that use at least two of our lines of business. However, the percentage of actual by number that represents is about 14% or 20%. So, in other words, there's another 80%, or thousands, of clients that only buy one thing from us.

Robert Rozek -- Chief Financial Officer & Executive Vice President

Mark, when you've been thinking about the whole brand transformation, that's the part that really gets exciting when you think about the opportunity to convert those two away from monoline to multiple lines of business and you start looking at some of the statistics that we have for those clients where we serve them as one Korn/Ferry. That's where the real opportunity is.

Mark Marcon -- Robert W. Baird & Co. -- Analyst

How will you, over the next 18 months, how will you actually communicate that brand change? For the clients that perhaps may have used just Hay only or Futurestep has really developed a real reputation within RPO and people are used to seeing that name, both in trade rags, as well as in terms of their experience. How is that going to get communicated?

Gary Burnison -- Chief Financial Officer

We're going to do that literally very carefully. The reality is that over the past, we've embarked on this for a while where Korn/Ferry was linked to everything. So, it was called Korn/Ferry Futurestep. I guarantee you the first words out of our people's mouths was Korn/Ferry. So, and Korn/Ferry Hay Group. So that's been done for a long period of time. So we've already got that track record. So, clearly, there is going to be an outside-in effort that we have planned out. We are going to do this on a country-by-country basis. It'll go over the next call it 18 months. We've got a logical progression in terms of how we've mapped this out strategically. But honestly, like with any company, there's the outside-in, but the bigger is inside-out. We've got a whole host of activities anchored toward that as well.

Mark Marcon -- Robert W. Baird & Co. -- Analyst

Great. Then with regard to the productivity levels within Executive Search, how does that make you think about -- we're hitting new highs in terms of productivity. Can you talk a little bit about how you're thinking about what the potential is there?

Gary Burnison -- Chief Financial Officer

The average was about $1.4 million globally. In the United States, it was substantially, substantially higher than that. I think the one thing that is playing out is that the platform, if you will, that we have is pretty attractive. Intellectually, our consultants can differentiate themselves, but also the impact they have and their compensation can also increase. So, when I think about if you just were to be myopic and look at Executive Search revenue "per partner," a very old and historic way of looking at it, you could see yourself toward 10, 15, 20% kind of capacity or gains in this kind of environment that we're sitting at today.

The wild card is delivering the entire enterprise. To the extent we are successful at that, that calculus changes significantly. So, an example could be a big RPO contract that we just signed. $60 million actually came from if you look at it this way, a search person. Although actually, it was driven by an integrated go-to-market strategy. It was one of our marquee accounts. Then the kind of revenue per partner in the historic way of looking at things is obviously tilted quite substantially.

Robert Rozek -- Chief Financial Officer & Executive Vice President

Yeah, Mark, this is Bob. One of the things that we've also looked at is the impact of the platform in terms of partner retention and so on. One of the things I was taking a look at is if you go back over the past five years, because we're obviously thinking about the same issue you just raised. We looked at North America Executive Search partner. We look at it more now along the lines of business origination. Business origination in the past five years has grown on average from $2.1 million to $2.6 million per partner, almost 25% growth. Again, that's really attributable to the platform and what they have to take to market with their clients, as Gary said.

Mark Marcon -- Robert W. Baird & Co. -- Analyst

I imagine that's fairly uneven in terms of there's probably a top [inaudible] that's probably driving that in terms of really buying in, or is it becoming more widespread?

Robert Rozek -- Chief Financial Officer & Executive Vice President

I think it's becoming more widespread, quite honestly. The thing that makes it a little bit more challenging is I went back over 5 years. If you go back 2.5 years ago, Hay Group didn't exist within Korn/Ferry. So what they have to go-to-market with today obviously is a much more robust set of tools and solutions for clients. I think over time I fully expected to see that number to continue to grow now that we've got the Hay Group in place. You know, as Gary went through all of our solutions are lined up, they start to mature a bit more, people get more comfortable with it. I fully expect that business origination to grow per partner.

Mark Marcon -- Robert W. Baird & Co. -- Analyst

Great. Then just a couple of quick numbers questions. First of all, Hay Group? How much did it grow in the U.S.?

Gary Burnison -- Chief Financial Officer

In the fourth quarter, it was about 3%.

Mark Marcon -- Robert W. Baird & Co. -- Analyst

Okay. Are you seeing that increase in terms of new business opportunities in the U.S.?

Gary Burnison -- Chief Financial Officer

The new business, I just think we're undersized in the U.S., just to be candid. There is just no doubt about that. The new business has been up about 10% or so over the last several months. One of the solutions is leadership development. That, for us, today, it's probably 11% of the Company, something.

Robert Rozek -- Chief Financial Officer & Executive Vice President

12%.

Gary Burnison -- Chief Financial Officer

Yeah, something like that.

Mark Marcon -- Robert W. Baird & Co. -- Analyst

Both with regard to Futurestep, as well as Hay, the margins are up. How should we think about margin targets for both Hay and Futurestep given the progress?

Robert Rozek -- Chief Financial Officer & Executive Vice President

I think for the Hay Group, we've talked about margins. I think it's in the sort of 16% to 19% range, long term. Where I sit today, obviously we're toward the high end of that range. I think we can continue to drive the products business successfully. I would expect that to continue to be at the high or even go through the high end of the range I talked about. On the Futurestep side, we've always talked about sort of 13% to 15% or 13% to 16%. I think one of the things that Greg and I have been talking about is potentially taking that range and shifting it up a little bit. I think it's probably long-term more in the 14% to 17% range.

Mark Marcon -- Robert W. Baird & Co. -- Analyst

It looks like you're making good progress there. Congrats to all.

Gary Burnison -- Chief Financial Officer

Thank you, Mark.

Robert Rozek -- Chief Financial Officer & Executive Vice President

Thanks.

Operator

Next we have a question from the line of Marc Riddick with Sidoti. Please go ahead.

Marc Riddick -- Sidoti & Company -- Analyst

Good morning.

Gary Burnison -- Chief Financial Officer

Good morning, Marc.

Marc Riddick -- Sidoti & Company -- Analyst

Just wanted to follow up. You've really covered a lot of everything else that I had on the plate. One of the things I did want to touch on is where you are as far as leadership positions. Are there any holes that you think you need to get filled through the world that you think are kind of key that you think we should be focusing on? Thanks.

Gary Burnison -- Chief Financial Officer

Leadership positions internally for the company?

Marc Riddick -- Sidoti & Company -- Analyst

Correct, yes.

Gary Burnison -- Chief Financial Officer

We've certainly taken our own medicine. I've spent literally with our CHRO, we spent weeks over the past several months looking at what we can do to grow from within. We've identified the top 200 or so in the company. We've done various things. We're now on campuses recruiting. We've got our first class starting this summer. They're starting in Dallas. We put them through training for 2 months and we send them to solution areas and cities or service academies recruiting. We've obviously got to focus on diversity and inclusion.

We've made a number of promotions-probably 12 in the last 12 weeks or so. So, we've been doing an awful lot ensuring that we have a deep bench. We're going to continue to do that. The most recent is we've made a change here in EMEA, where our individual who was leading that is now going to assume a chair role and we'll focus on building our Board presence on the Continent.

So, I think we've spent a lot of time in this area and we've actually taken some action there.

Marc Riddick -- Sidoti & Company -- Analyst

Okay, great. Thank you very much.

Operator

We have a follow-up from the line of Mark Marcon with R.W. Baird. Please go ahead.

Mark Marcon -- Robert W. Baird & Co. -- Analyst

Just one more. Gary, you've always been very sober about the economic outlook. How would you assess on a global basis what you're seeing in terms of confidence among your clients?

Gary Burnison -- Chief Financial Officer

Confidence is pretty high, for sure. Obviously, there are clouds out there. Italy is a cloud. Brexit is a cloud. There's geopolitical risks. Those are obviously, it's hard to handicap any of those. Look, this thing has been going on for ten years. But I will just tell you that there is a lot of confidence, for sure, in terms of CEOs and companies that we're doing business with.

Mark Marcon -- Robert W. Baird & Co. -- Analyst

Great. Thank you.

Operator

There are no further questions. I'll turn the call back to you, Mr. Burnison.

Gary Burnison -- Chief Financial Officer

Okay. Well, listen. Thank you all for joining us. Very pleased, to say the least, with the past. But the future is more promising and thank you to our shareholders. Thank you to our Board and to our colleagues. We look forward to speaking to you again. Thank you.

Operator

Ladies and gentlemen, this conference call will be available for replay for one week starting today at 10:30 a.m. Eastern Daylight Time, running through the day June 20th, ending at midnight. You may access the AT&T executive playback service by dialing 1-800-475-6701 and entering the access code of 450306. International participants may dial 3203653844. Additionally, the replay will be available for playback at the company's website at www.kornferry.com in the investor relations section. That does conclude your conference for today. Thank you for your participation and for using AT&T teleconference. You may now disconnect.

Duration: 55 minutes

Call participants:

Gary Burnison -- Chief Executive Officer

Robert Rozek -- Executive Vice President & Chief Financial Officer

Gregg Kvochak -- Senior Vice President of Investor Relations

Timothy McHugh -- William Blair & Company -- Analyst

George Tong -- Goldman Sachs -- Analyst

Kwan Kim -- SunTrust Robinson Humphrey -- Analyst

Mark Marcon -- Robert W. Baird & Co. -- Analyst

Marc Riddick -- Sidoti & Company -- Analyst

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