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Executives

Julie Creed - Vice President of Investor Relations and Director of Workplace Strategies

Jory J. Marino - Interim Chief Executive Officer, Regional Managing Partner and Vice Chairman of Financial Services Practice

Richard W. Pehlke - Chief Financial Officer and Executive Vice President

Analysts

Frank Atkins - SunTrust Robinson Humphrey, Inc., Research Division

Stephen Sheldon

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

Randle G. Reece - Avondale Partners, LLC, Research Division

Josh Vogel - Sidoti & Company, LLC

Heidrick & Struggles International (HSII) Q2 2013 Earnings Call July 30, 2013 10:00 AM ET

Operator

Good morning. This is Heidrick & Struggles Second Quarter 2013 Conference Call. This call is being recorded. It may not be reproduced or retransmitted without the company's consent. [Operator Instructions]

Now I'll turn the call over to Julie Creed, Vice President of Investor Relations and Real Estate. Please go ahead.

Julie Creed

Good morning, everyone, and thanks for participating in Heidrick & Struggles 2013 Second Quarter Conference Call. Joining me today on today's call is Jory Marino, Interim Chief Executive Officer; and Rich Pehlke, Heidrick & Struggles Chief Financial Officer. As a reminder, we're referring to supporting slides that are available on our website at heidrick.com, on the IR homepage, and we encourage you to follow along or print them. As always, we advise you that this call may not be reproduced or retransmitted without our consent.

In today's call, we'll be using terms adjusted EBITDA and adjusted EBITDA margins. These are non-GAAP financial measures that we believe better explain some of our results. A reconciliation between GAAP and non-GAAP financial measures can be found on Page 3 of our press release and Slide 12 on our supporting slide.

We'll be making forward-looking statements on today's call and ask that you please refer to the Safe Harbor language contained in our news release and on Slide 1 of our presentation.

The slide numbers that we're going to be referring to are shown on the bottom right-hand corner of each slide.

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

Jory J. Marino

Thanks, Julie. And good morning, everyone, and thank you for joining today's call. As this is my first conference call since being appointed interim CEO on July 15, and for the benefit of those who may not know me well, I'd like to begin today by telling you a little bit about myself.

I bring more than 25 years of search and consulting experience to the role. I was one of the founding partners of Sullivan & Company, a New York-based executive search firm that was acquired by Heidrick & Struggles in 1999. During my tenure with Heidrick & Struggles, I have worked in the Financial Services practice and have held a number of practice leadership and senior operating roles, including Head of the Americas region since the end of last year, where I had responsibility for all business operations in the U.S., Canada, Mexico and Brazil. My commitment to this firm and to the more than 14,000 colleagues we employ worldwide and to the clients we serve around the world is unwavering. My focus is on moving Heidrick & Struggles forward, fully supporting our vision to build a premier professional services firm focused on serving the leadership needs of the world's top organizations.

Our strategy to build an integrated leadership talent offering is the right one. I know this firsthand because our clients are asking for more advice on leadership talent and to provide a broader portfolio of talent solutions. And I'm confident our firm can deliver.

Today, we reported second quarter net revenue of $122 million, up 5% from the 22 -- 2012 second quarter and up 19% compared to our first quarter. The Americas and the Asia Pac regions drove this revenue growth, up 11% and 7%, respectively, year-over-year. Europe, which continues to operate in a challenging macroeconomic environment, was down 11%.

Our 3 primary service lines are shown on Slide 4: Executive Search; Leadership Consulting; and Senn Delaney, the culture-shaping firm we acquired at the end of last year. The year-over-year increase in net revenue reflected the addition of Senn Delaney and improvements in 2 of our larger Executive Search practices, Financial Services and Global Technology & Services. As you can see on Slide 5, second quarter revenue -- excuse me, second quarter executive search confirmations were up 7% compared to last year's second quarter and increased 10% sequentially compared to the first quarter.

Looking at Slide 6. We ended the quarter with 315 consultants in Executive Search and Leadership Consulting. This is down from last year and compared to the first quarter due to a combination of attrition and performance management, partially offset by hiring.

We are pleased with the quality of our recruiting this year and the improving productivity of our core consultant base, a priority in all 3 of our regions. During the first half of 2013, we hired 23 new consultants globally, many of whom are already bringing business to the firm, and we continue to build a strong recruiting pipeline that will allow us to add more consultants through the second half of 2013 and into 2014.

Slide 7 illustrates annualized consultant productivity, defined as Executive Search and leadership consulting revenue divided by the average number of consultants during the quarter. We are pleased that productivity improved to $1.5 million in the second quarter. Explained in a slightly different way, in this year's second quarter, an average of 320 consultants produced $117 million of revenue. In last year's second quarter, by contrast, an average of 350 consultants produced only $116 [ph] million of revenue. Overall, we believe we have a better-performing consultant base today than we did a year ago, which is attributable to increased performance management and our focus on A level recruiting.

Turning to Slide 8. Revenue per search consultant was $109,000 in second -- in the second quarter compared to $115,000 in last year's second quarter. However, we believe that it is more meaningful to look at this metric on a trailing 12-month basis where it is running at about $113,000, down slightly compared to last year in the first quarter. The decline mostly reflects the mix in confirmations, as opposed to anything we are seeing that is fundamentally different in the business today.

Before I turn the call over to Rich, who will provide more color on our results, I would like to provide my perspective on the 3 regions. The Americas achieved 11% year-over-year growth and 11% sequential growth. Key growth drivers in this region were our Executive Search business and Senn Delaney. In our core business, the Financial Services and Global Technology & Services practice were the biggest contributors. We've made a lot of progress in this region on a number of fronts since the end of last year and have a lot of momentum on our side.

Asia Pacific started off a little slower, as we mentioned on our last call, but search confirmations started picking up at the end of the first quarter and have stayed steady above 2012 levels through June. Second quarter revenue was the highest in 7 quarters, up 7% year-over-year and up 27% compared to the first quarter. The growth was broad, with more than 2/3 of our offices up year-over-year.

As already noted, Europe continues to lag. Year-over-year revenue declined 11%, although compared to the first quarter, revenue was improved by 27%. We have a strong leader in place in Europe and have been actively recruiting experienced consultants there. In fact, 9 of the 23 new hires made through June were in Europe, most of whom are already productive and adding revenue. And that's the key to turning the results in this region around: more productive consultants. We feel good about our consultant base and our hiring pipeline and are encouraged about the remainder of 2013. We can ensure -- we can assure you that improving Europe's results is one of our key priorities. In fact, I plan to spend a good part of September in this region meeting clients; working with Luis Urbano, the regional leader; and engaging our colleagues and helping to recruit.

With that, I'm going to turn it over to Rich, who will provide further detail on the second quarter.

Richard W. Pehlke

Thanks, Jory, And good morning, everyone. Jory has already provided highlights for the first (sic) [second] quarter results, but I'll add some additional commentary.

Similar to last quarter, the year-over-year comparisons are affected by the inclusion of results for Senn Delaney. Senn Delaney continues to perform as expected. Recall that in our call in May, we explained that are were limited in the amount of pre-acquisition deferred revenues that we are able to recognize related to Senn Delaney as the results of purchase accounting. The total amount of this permanent difference or unrecognizable revenue will be $4.4 million in 2013. As a result, the $5.4 million of revenue reported for Senn Delaney in the second quarter would have been $7 [ph] million on a standalone basis.

Referring to Slides 9 and 10. Salaries and employee benefits expense was $83.1 million, up $3.2 million or 4% compared to last year's second quarter. Variable compensation accounted for $2.4 million of the increase, reflecting the increases in accruals related to consultant performance. Fixed compensation expense increased $0.8 million. But excluding Senn Delaney, fixed compensation expense would've declined $2.6 million primarily due to decreases in guarantees and sign-on [ph] bonus expenses, as well as a lower consultant headcount.

Turning to Slide 11. General and administrative expenses increased $4.3 million year-over-year or 15% to $33.2 million in the second quarter. Of the increase, $2.9 million is related to Senn Delaney, which is comprised of their ongoing G&A expense run rate, as well as $1.4 million for intangible asset amortization and another $0.5 million associated with the accretion expense of the earnout payment. Of the remaining $1.4 million increase in G&A, it's largely associated with the regional consultant meetings that were held in the Americas and Europe during the second quarter that were not held in the previous year at that time. In addition, we did experience some onetime Professional Services costs related to the strategic review process the company undertook.

Now I'll refer to Slides 12 to 14. Last quarter, we introduced adjusted EBITDA and adjusted EBITDA margin discussion for our business. We did this in order to provide you with more meaningful comparative results of our core operations that exclude the noncash expenses, many of which are specific to the purchase accounting treatment of Senn Delaney. Our definition of adjusted EBITDA is on Slide 12, and Page 3 of the press release.

Adjusted EBITDA in this 2013 second quarter was $11.9 million, resulting in a 9.7% EBITDA margin. For the second quarter of 2012, adjusted EBITDA was $11.2 million, also resulting in a 9.7% EBITDA margin.

Moving to Slides 15 and 16. We reported net income in the quarter of $1.9 million and diluted earnings per share of $0.11. The effective quarterly tax rate was 61.7% based on a full year projected tax rate of approximately 64%. This has increased from the 58% that we anticipated for the full year tax rate at the end of the first quarter primarily due to updates in the projection and mix of income earned worldwide for 2013. As a reminder, our effective tax rate is higher than the statutory rate because of losses incurred in certain jurisdictions that we cannot -- that cannot be benefited for tax purposes due to valuation allowances. It is important to remember that our cash effective tax rate is much closer to statutory rates and the [indiscernible] of the taxes deferrals I'm referencing do provide us the flexibility for utilization in future periods.

Please turn to Slide 17. The cash position remains strong. Cash and cash equivalents at June 30 were $99.7 million. Our cash position, net of debt, is $61.2 million. We also began our quarterly repayment process of the debt for the Senn Delaney acquisition on schedule. We expect to continue to build on this cash position throughout the year, and again, we have ample financial flexibility to continue to invest in and grow the business as needed.

While we're pleased with many of the trends and improvements we saw in the second quarter, there is much work left to be done in the second half of the year. As you've seen in our release and as shown on Slide 18, revenue for the first 6 months of the year is up just 1% compared to the first 6 months of 2012. Adjusted EBITDA increased 4% and adjusted EBITDA margin improved from 8% to 8.2%.

And as in past quarters, we provide you with the backlog, shown on Slide 19, and monthly confirmation trends, shown on Slide 20. While July confirmations aren't final and continue to move on a daily basis, they were impacted by the timing of the Americas regional conference as well as the timing of the Fourth of July holiday in the current year.

As we said in the press release, we are forecasting third quarter net revenue of between $115 million and $125 million. The factors which we base our forecast on include our current backlog, confirmation trends for Executive Search and leadership consulting, as well as their anticipated fees, the expectations for Senn Delaney, the number of consultants, the current economic climate and stable currency rates.

With that, I'll turn it back to you, Jory.

Jory J. Marino

Thanks, Rich.

The leadership talent industry has changed considerably since I first entered into it more than 25 years ago. We've seen our clients' needs change dramatically, and there is no doubt they will continue to evolve. It's our job to stay close to clients and make sure that our service platforms -- platform aligns with the needs of C-suite and board-level executives. I provided my perspective on the 3 regions earlier in the call, now I'll spend a few minutes on our service lines.

Building strength in our core Executive Search business is a major priority and key to our value proposition to clients. By region, our search teams are seeing very big differences in their results. For the first 6 months of 2013, executive recruiting has grown 6% in the Americas. It has been essentially flat in Asia Pacific and is down 19% in Europe. Executive Search, as you know, is the most cyclical of our businesses, and it is no surprise that economic conditions in each region support or hinder growth. With that said, we all what we need -- we all know what we need to do. We need to have the best people. We need to hire and invest in top-level consultant talent, all of which we are actively doing across every one of our practices around the world. But we're focused, however, on a few practices where we believe we can make immediate impact, for example, Life Sciences and Industrial.

Next is leadership consulting. We believe that our ability to advise clients across a broader spectrum of leadership issues will ensure our firm's continued long-term growth. Our clients want more and better advice. Our solutions today, however, are very customized. And in order to serve our clients more effectively, we need to be able to deliver more scalable solutions anchored in the defined methodology that is identifiable, repeatable and delivers results. Thus, the main focus in our core leadership consulting business will be on assessment, succession planning and top team and board effectiveness, with an increasing ability to scale these offerings.

Senn Delaney is a huge arrow in our quiver and a distinct competitive differentiator. The ability to provide culture shaping has added meaningfully to our dialogue with clients. And for those consultants who have worked with Senn Delaney, it has added substantial value to their clients. The integration is going well, and we are very pleased with the quality of the Senn Delaney team and the interactions we have across both service lines.

Senn Delaney has qualified more than 100 sales leads from Heidrick & Struggles consultants, which has led to more than 38 opportunities. As well, Senn Delaney's relationship in the -- relationships in the C-suite have led to at least 6 opportunities for Heidrick & Struggles. Working together, we are delivering more value to our clients, which in turn will be accretive to our company over time. Our focus going forward will be to continue to execute against our strategy to achieve more profitable growth. We have a solid service platform, worldwide reach and outstanding consulting teams, but we can do better.

We are already seeing the results of our efforts to upgrade the quality of our consultant base, as evidenced by productivity. And we are committed to creating an environment that supports our people and offers them the best opportunity for success. We intend to be the employer of choice by driving high-performing -- by driving a high-performing team culture where people want to work. In our view, our strategy is the right one. We now simply need to execute.

Serving our clients by delivering superior results will generate stronger performance for our company and enhance shareholder value. I have the utmost respect and confidence in my colleagues in Chicago and around the world. Together, we will move Heidrick & Struggles forward.

Operator, at this time, Rich and I would be happy to take any questions.

Question-and-Answer Session

Operator

[Operator Instructions] And we'll take our first question today from Tobey Sommer with SunTrust.

Frank Atkins - SunTrust Robinson Humphrey, Inc., Research Division

This is Frank, in for Tobey. Wanted to ask a little bit more about the Financial Services sector. Can you give us some color on what you're seeing there, actually [ph], what outlook is in [ph] guidance and maybe a little bit of color on the backlog?

Jory J. Marino

Yes, I think there's a couple of things there. First of all, as you know, I practiced my entire search career in the Financial Service side. I have a pretty good handle on the ebbs and flows of the business. No surprise the 3 years preceding 2013 were tough. However, what we've seen is a solidification, actually, in all 3 regions of -- in Financial Services, with the most notable uplift in the Americas. There has been growth in our consumer and commercial banking practices. There has been a growth in our -- excuse me, in our core investment banking practice. And we've seen a tremendous uplift in our infrastructure work that we do in Financial Services, particularly around risk and -- risk management and compliance. So the legal, risk, compliance function, commercial and consumer banking business, and our core investment banking business have actually all seen an uplift. Layering onto that has been significant growth in wealth and asset management. So across all the -- across all 3 regions, that's been pretty much the story.

Frank Atkins - SunTrust Robinson Humphrey, Inc., Research Division

Okay, great. That's helpful. And then if we look at the expense side in terms of compensation expense, where do you see that going in terms of the mix of variable versus fixed? Or do you have any goals further out in terms of what you'd like to see the movement there be?

Richard W. Pehlke

Sure, Frank. This is Rich. Yes, from a goal perspective, as you know, we try and manage overall compensation expense as a percentage of revenue. We look to try and keep that in the mid- to high-60s overall at the business. A lot of times, we can't control that on an interim basis, or it's -- a lot will depend upon individual consultant productivity. Our model is such that fixed compensation rolls into variable compensation or discretionary compensation as the year progresses and as our consultants move along the structure of the tiers. And so it's the expectation, really, that fixed compensation, especially from a producer standpoint, really [indiscernible] Net variable composition, becomes an offset, if you will, of the total compensation equation. And that continues to build as the year goes on and depends upon the individual productivity. The encouraging thing that we reported in the second quarter is that, again, we've been able to make additional compensation accruals related to the consultant performance, which reflects the increase in productivity. We're not exactly where we need to be as an overall company in terms of individual productivity. We'd like to see it go a little higher. And there are certainly some people that are or are well above that average range and some people that are still -- need to pull up the bootstraps a little bit. But overall, we're pleased in the direction it's going.

Operator

We'll now go to Tim McHugh with William Blair.

Stephen Sheldon

This is Stephen Sheldon in for Tim. First, I wanted to touch on turnover and kind of just see how it trended over the quarter. And then more specifically, you've seen 2 quarters of fairly strong sequential headcount declines in the Americas. Is there anything in particular that's going on there? Is it more voluntary, or involuntary? Any color there would be appreciated.

Jory J. Marino

Thanks, Steve. This is Jory. Look, it's been both, right? We had -- in the second quarter, we had consultant turnover of 23, with 14 of which were voluntary and 9 of which were involuntary. I don't think there's any particular drivers of turnover in the second quarter, other than the fact that we've been paying a lot more attention to performance management and setting some fairly clear guidelines as to what we expect from our consultant base. And as anything else, we are also inspecting what we expect and working with our teams around the globe to ensure that our consultant population are achieving their objectives. And where they can't, we've made the tough calls. We always have turnover around bonus times, so you saw a little bit of that. And I think, as our business stabilizes on a whole host of levels, we'll see less turnover on a go-forward basis. I think the other comment I would make would be a light has gotten shined pretty heavily on turnover because, historically, we haven't recruited as aggressively and as effectively as we can and we've put a big push throughout the first -- throughout the past 4 months, starting back in February, around the consultant recruiting, and I think we're starting to see the results of that as well. So a more robust business, a more stable environment -- economic environment, combined with better practices in managing and leading our business, I think, will minimize the turnover on a go-forward basis.

Stephen Sheldon

Okay. And then one numbers question. If we look at the -- at Senn Delaney on a pro forma year-over-year basis, what was the growth rate there?

Richard W. Pehlke

I don't really have that directly, but it probably showed modest growth on a year-over-year basis. Again, that's a business that, when we acquired it, was ranging in the high 20s in terms of annual revenue. And we gave indication that we expect it to be about a $30 million business for this year. The important thing is the mix of revenue. It's a high-margin business. It continues to perform as expected. As they take their clients into longer-term relationships, the nature of their business changes because they move really from a consultative solution to a technological solution, which is what builds a higher margin. So the key thing there is the sustainability of both levels of business, and we're seeing the right trends in both cases.

Operator

[Operator Instructions] And we will now go to Kevin Steinke with Barrington Research.

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

I wanted to just follow up on the -- consultant headcount was lower than my expectations, but productivity quite a bit ahead. And you referenced performance management a few times. And so is that something that you really stepped up in the second quarter relative to what you had been doing? And is that something you expect to continue going forward?

Jory J. Marino

So the answer is, yes and yes. And it really began in the first quarter with the -- my appointment as regional leader of the Americas and Luis Urbano's appointment as regional leader of Europe. And Steve Mullinjer, in his role, has historically done a very good job of performance management. We really work with all the consulting teams on establishing threshold levels for each level within the company: partners, principals, et cetera. And we set that bar, we clearly communicated that to all of our consultants worldwide. And we work collaboratively with our region leaders, our office leaders and our practice leaders to ensure that we were monitoring the performance of the consultant base. The goal, of course, is to raise productivity across the platform, and we'll talk a little bit more about that later, but fundamentally, there's been a renewed focus and an increased focus on managing our population more effectively and -- as opposed to episodically as we may have done in the past.

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

Okay, great. So this level of about $1.5 million per consultant, is that something that you believe is sustainable?

Richard W. Pehlke

We would like to see this as sustainable. And frankly, over time, we'd like to raise it. And when you think about what our target level of business is and where we want to operate in the C-suite, it's more appropriate that our productivity be at this level, or above, over a sustainable long-term period. Now some of that will depend upon mix and which region of the world maybe is contributing a little bit more than others. And as you well know from following us for a while, the productivity of an Asia Pac consultant or a European consultant is lower than an Americas consultant, but the Americas represents well over right now, probably a little bit over 50% of our business. It is our stronger region and the productivity is even higher there. And as I mentioned earlier, some of our more successful consultants have productivity that is well above this. So it's all about the right mix of talent. It's all about helping our people to get successful, engaged and properly utilized in serving clients. And at the end of the day, the rest of it takes care of itself.

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

Okay. And this might be too fine of a point, but in terms of the sequential improvement you did see in consultant productivity, is there any way to kind of attribute a portion of that to the demand environment versus your own performance management initiatives?

Jory J. Marino

Kevin, this is Jory. It's been a little of both. You -- we do need -- we thankfully have a more benign economy in the Americas. We saw the challenging economy in Europe and the sort of a flat economy in Asia Pac. So -- but in a more benign economy and with the Americas representing better than 50% of our firm's aggregate revenue, we'll -- we have had that just sort of [indiscernible] to help along productivity. But also, we've put a pretty big stake in the ground on what we expect in terms of performance across the population. So when you put the economy and better performance management and, frankly, better leadership in management across our businesses, well, I think you'll -- we'll -- that's all been contributing factors to the aggregate. I'll make one other point to sort of support that: For those of you old enough on the phone to have been a student of Peter Drucker, you know that bottom line on that is people want to come to work to do good, and what you have to do is just show them the way and lead the way, and then you can increase the performance as well.

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

Now on the search confirmations, your slide shows the -- estimated a bit of a decline in confirmations year-over-year in July, but you also cited some onetime factors that might have affected that. Do you feel like the demand environment continues to be stronger and that, yes, you might see a pickup in confirmations as you move throughout the quarter?

Jory J. Marino

Yes, I think the reason I mentioned that is to make sure that we don't overcaution on that. But clearly, that could change on a daily basis. We've seen a lot of -- as we've said over the last probably 12 to 18 months, a lot of volatility in monthly confirmations. Decisions sometimes take a little bit longer, and by the time things finally come through. So our guidance for the quarter reflects our expectations where we think we're going to be. You get a little bit of seasonality, you get a little bit of just nuances of things like the Americas regional [ph], like, immediately coming right before the July 4 holiday, which impacted maybe the timing to when some deals get closed. So I don't think it reflects any kind of the change in long-term trend. I mean, we're going to be very anxious to see how the summer season kind of comes through in the Q3 results. And we're anticipating -- we're targeting to try and finish strong at the balance of the year.

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

Okay. Just shifting gears a little bit, on the CEO search. I don't know if you would be able to offer any comments on perhaps the profile of a permanent CEO that the board would be looking for and if that person necessarily would have to have an executive search background.

Jory J. Marino

Look, we've all read the press releases from our board and we know that this is a board-driven event. I suspect that they're in the process of formulating exactly the answer to your question. But beyond that, we have no comment.

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

Okay. Just one last housekeeping question in terms of the numbers: Do you have the breakout of Senn Delaney contribution to each of the geographic segments?

Richard W. Pehlke

It's -- we do. It's primarily, the U.S., I think, for the 6 months, it's...

Julie Creed

6 months...

Richard W. Pehlke

It was about $4.2 million of contribution for the quarter, right?

Julie Creed

Yes, in the Americas.

Richard W. Pehlke

In the Americas. In -- it was about $4.4 million totally for the quarter, I think. So a slight contribution to Europe. It's about 90%, 95% U.S.-based.

Kevin M. Steinke - Barrington Research Associates, Inc., Research Division

Okay, great. Well, yes, sorry, did you -- is there anything else? All right, well, that's all I had for my question.

Julie Creed

I can get back to you with the exact numbers, Kevin.

Richard W. Pehlke

Yes, we'll get you the exact numbers, Kevin.

Julie Creed

I just don't have them right in front of me.

Operator

And the next question comes from Randy Reece with Avondale Partners.

Randle G. Reece - Avondale Partners, LLC, Research Division

First of all, if I look at the productivity from the Americas, how much does that reflect the beginning consultant level entering the quarter versus the level exiting the quarter?

Julie Creed

It's -- this is an average number throughout the quarter.

Randle G. Reece - Avondale Partners, LLC, Research Division

Okay. Does the change in headcount occur kind of continuously through the quarter? Or was it decided [ph] at a certain time?

Julie Creed

Yes, yes, it's pretty continuous.

Randle G. Reece - Avondale Partners, LLC, Research Division

Right. Can you give any insight as to at what point possibly hiring might overwhelm the amount of the pairing that you're doing?

Jory J. Marino

Could you repeat that question? Because I didn't...

Richard W. Pehlke

I caught the question, I'll repeat it to some -- and Randy, you were a little bit late here [ph], so I'll repeat it. But I think the question was at what point do we think hiring will overtake kind of the negative attrition in the headcount. And I -- well, I guess the answer I will offer there is we're pretty aggressively targeting the hiring and development process to build our consultant base. One of the most important things we can do is to try and -- Randy, I think we're getting a lot of feedback from your phone. If you can maybe put it on mute. All right, one of the most important things we can do is we go through the hiring process and manage our consultant base. There's really 2 aspects of it. Number one is obviously to build the experienced -- to hire experienced consultants and fill out areas of need, as Jory indicated, whether it be by practice or by region. The second is the full utilization and development of our current consultants and associate base because one of the things that we are seeing is that a large number of our most productive consultants are very busy. And as we support them appropriately and are able to put more leverage resources against their work, we can increase productivity, increase contribution of the firm, and all boats rise as well. So it's going to be a combination of that. At the end of the day, though, the key to us reaching our overall headcount target will be stemming the attrition, developing and hiring good people to serve our clients, and we're going to continue to do that on a constant basis. That effort never ends on a year-over-year basis.

Jory J. Marino

Yes, the only thing I'd add to that, Randy, which really gives you a little context, is year-to-date, our turnover was approximately 9.2%. Clearly, we want to keep that number under 10%. And aspirationally, we have a goal of 8% that we established recently. So when you -- if you do the math on all of that, there is a point in the curve where our hiring -- because we have a very robust pipeline across all of our regions, and it's -- historically we've hired in the first half of the year. We've declared this year that we're going to be hiring throughout the year so that we shouldn't -- we don't have gaps on our ramp-up. So the answer to that question is, we keep turnovers to a minimum. And we're going to do that by some better engagements with our teams around the globe, more connectivity. We certainly will anticipate connecting our regions more aggressively than we have in the past so it's more cross-border collaboration, and utilizing our associate base in a much more effective way. So you put all of that into the mix. There's no silver bullet there, but fundamentally, all those levers that we'll pull will make us a better place to work and a more fun place to work and a more engaging place to work. And we believe our consultants will have the vested -- will thus have a greater stick rate. Was that helpful, Randy?

Randle G. Reece - Avondale Partners, LLC, Research Division

Yes.

Operator

And we'll now go back to Tobey Sommer with SunTrust.

Frank Atkins - SunTrust Robinson Humphrey, Inc., Research Division

This is Frank. Just had a quick follow-up. Wanted to ask if you've seen any impact of the June 3 announcement of potential strategic alternatives. And has that impacted confirmations in your view at all?

Jory J. Marino

Not at all, no impact whatsoever. As I've commented, inside the company we are focused on our clients. Our clients are focused on us. They enjoy the work that we do with them. And we've seen absolutely 0 degradation. Obviously, there were questions as to why or why not, but it had no impact on confirmations at all.

Frank Atkins - SunTrust Robinson Humphrey, Inc., Research Division

Okay. And to the extent that you can comment, can you give us any color on that situation and where you stand?

Richard W. Pehlke

Well, as you may recall from the release a couple of weeks ago regarding Jory's appointment, that process has been pretty much closed down. The board believes the best course for the company right now is to stay independent as a public company, and that's what we're going to do.

Operator

And next up is Josh Vogel with Sidoti & Company.

Josh Vogel - Sidoti & Company, LLC

Can you please talk about the margin profile of the consulting work versus executive recruiting? And then also remind us why LCS was soft in Q1 and what drove this sequential improvement?

Richard W. Pehlke

Sure. The margin profile that we target in the consulting base is twofold. Number one, there is one element of our consultative aspect that feeds very closely to search where some of our mapping and search profile and talent profile work can come either through the Executive Search ranks or the Leadership Consulting ranks. And that's not necessarily an overly high-margin business, but it's more additive to the prospect of doing individual search assignments. When we get pure consultative assignments, we try and target an operating margin in excess of 20%. It tends to be much more of a time and materials and capability and delivery aspect of the business. And it's a business that, while we don't intend to scale it in an excessive way relative to the size of our Executive Search business, we do need, as a Jory pointed out in his comments, to become more scalable in our offerings. And when we target things like assessment, succession planning and team and board effectiveness, those opportunities, and we've said this many times and on many calls, we're going to continue to invest in methodologies, in IP and business models that can offer us the availability to scale it across a broader base of consultants and people so that we can provide more client service in that regard. And that's how you improve the marginal profitability. That target marginal profitability they'll see is not quite at the level of, say, Senn Delaney, which is more like the 30% offering, because that uses more technology in the longer term.

Josh Vogel - Sidoti & Company, LLC

Okay, that's helpful. And with regard to the sequential improvement, was that -- did that come mostly from the Americas?

Jory J. Marino

Yes. The big lift was, first, from the Americas of -- well, the sequential improvement was 11%, if I recall the number correctly, in the Americas in terms of growth. That included Senn Delaney. So in our core business, I believe it was 6% of sequential growth.

Richard W. Pehlke

And Asia Pacific also [ph], it's a sequential growth, I believe, in LC as well.

Julie Creed

Yes, all 3. In Leadership Consulting, all 3...

Jory J. Marino

Josh, I'm sorry, are we addressing the question more broadly as it related to the Executive Search business?

Richard W. Pehlke

In LC, and across all 3 regions.

Julie Creed

All 3 regions.

Josh Vogel - Sidoti & Company, LLC

Okay, great. And I'm just trying to get a better handle on quarter-to-quarter trends. Were there any costs or regional margin pressures that hit up in Q2 that you don't expect to see in Q3?

Jory J. Marino

Yes, I -- look, I think we took a little more G&A pressure than I would like in Q2, and we're going to take a hard look at that. We did have some onetime costs, as I indicated, both from the travel perspective and the meeting expense perspective of our regional conferences, which last year appeared in Q3 as our global partners meeting. And then we also had some Professional Services expenses in Q2, which were largely legal in nature relative to the strategic process. So it -- there were a few things that I would like to see go better from a trend perspective, and we're going to address that pretty directly. I -- again, it's nothing I'm concerned about longer term, but you can't ever let your guard down. And so I think we've just got to be a little tighter. And we're taking a look at everything across-the-board.

Operator

[Operator Instructions] And we'll now take a question from Ty Govatos [ph] with TG Research [ph].

Unknown Analyst

A couple of questions. Not to belabor the point on the labor costs, but it would seem that a more focused approach from what you're saying, it would pay you to increase associate cost and probably offset some of that by getting rid of a low-producer consultant. But does it also imply that sign-up bonuses might start to go up? And I guess, for you, Rich, second half bonus accruals, percentage of net revenues, close to the first half average of about 15%, or might that be low?

Richard W. Pehlke

I don't know the percentage off hand, Ty [ph], but I mean, I would expect that the bonus accrual expense will continue to build. And again, how I watch that is kind of an overall percentage of revenue because we do have some discretion on that. But at the end of the day, we're going to -- you're going to see it probably go into the 15 to -- it's probably somewhere in the 15% to 20% range, I would say, is a fair range. And as for your first point, you're spot on, on a couple of things, except for the sign-on expense, so let me explain that. Number one, one of the things we are trying to do is migrate towards a model where we view -- it is taking more work at the associate and execution level to fulfill searches, and we've talked about this for some time. And so we have seen associate costs and support costs go up a bit, and we've got to leverage that as best we can and make sure we're utilizing that. We've spent a lot of time on capacity reports, utilization reports to make sure that we're engaging, to Jory's point, all of our people productively and where the client work is. And so I think that has longer-term implications on our business model as we think about the rate of hiring to get up to our target consultant headcount, for example. If we can continue to raise productivity in the way that we did in the second quarter, it's not as important in the pace at which we increase the consultant base, but it's very important in terms of the quality of that consultant base, as well as the execution quality behind that consultant base. So we're taking a very hard look at it, and your point is spot on. The good news on the hiring front is, I think we've done a much more diligent job of making intelligent hires both in terms of the quality of people we brought in and the way we brought them in, much more production oriented in terms of structuring the deals. The wallet has been thrown into the room and just given carte blanche in terms of the huge sign-on bonuses. And I think you've seen that discipline now for well over 12 to 18 months, and it's been a better result for the company. And Jory pointed it out, in the people that we've hired in Europe, some of our best-performing consultants in the short term have been new hires. So the quality of the effort has been much better, our people are doing a better job. We'd just like to see it intensify a little bit better. And so it's going to be a combination of all those things.

Unknown Analyst

Okay. I'd like to have a follow-up on some numbers? You said the regional consultant meetings were $1.4 million in the quarter.

Julie Creed

No. I think what we said is that a big part of the -- that additional part of the G&A increase was related to the meetings. But there are a lot in-and-outs but a big part of the additional increase in G&A was related to those.

Richard W. Pehlke

But it's -- certainly, [indiscernible] $1 million to $2 million of expense in the quarter.

Unknown Analyst

Say that again, $1 million to $2 million?

Richard W. Pehlke

It's probably in the range of $1 million to $2 million of expense in the quarter.

Unknown Analyst

For the [indiscernible].

Richard W. Pehlke

For 2 meetings -- for 2 the meetings, yes.

Unknown Analyst

Would you take a stab at the professional fees?

Richard W. Pehlke

They -- the professional fees, I would say, were probably less than $1 million in aggregate.

Julie Creed

And that wasn't all related to the...

Richard W. Pehlke

It wasn't all related to it, but a good portion of the increase -- related to the strategic process itself, it was less than $1 million.

Operator

With that, I'll turn it back to Jory for any additional or closing remarks.

Jory J. Marino

So thank you very much for taking the time to be on this call today. If there are any follow-up questions, please feel free to direct them to Julie, Rich or myself. And we look forward to the next quarter. Have a great day, guys. Thanks.

Operator

Thank you very much. And that does conclude our conference for today. I'd like to thank everyone for your participation, and you may now disconnect.

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