Gary Burnison - CEO Robert Rozek - CFO, EVP and Chief Corporate Officer Gregg Kvochak - IR

George Tong - Piper Jaffray Mark S. Marcon - Robert W. Baird Stephen Sheldon - William Blair Tobey Sommer - Suntrust Robinson Humphrey

Ladies and gentlemen, thank you for standing by and welcome to the Korn/Ferry Fourth Quarter Fiscal Year 2016 Conference Call. [Operator Instructions] 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 is being recorded for replay purposes. We have also made available in the Investor Relations section of our Web-site 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 the investors. Certain statements made on 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 that 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 expected or desired because of a number of risks and uncertainties which are beyond the Company's control. Additional information concerning such risks and uncertainties can be found in the release relating to this presentation in the Company's annual report for fiscal 2015 and in other periodic reports filed by the Company with the SEC. Also some of the comments today may reference non-GAAP financial measures, such as adjusted fee revenue, constant currency amounts, EBIDTA and adjusted EBIDTA. Additional information concerning those 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 Web-site at www.kornferry.com. With that, I'll turn the conference over to Mr. Burnison. Please go ahead, sir.

Okay. Thank you, Tom, and welcome everybody and thank you for joining us. First, I'd say how proud I am of our results and of our firm. Secondly, I'm equally excited about the firm we are creating, a firm that's at the intersection of strategy and organization and its people, a firm that accelerates our clients' business performance through solutions and through productized services, and that may span from strategy implementation, an org design to recruitment and leadership development to compensation and reward strategies. Now make no mistake, we are indeed creating the preeminent organizational and people advisory in the world. As I said, I am very, very proud. We closed out the fiscal year with a really strong quarter. Adjusted fee revenue was up 49% year-over-year, and more importantly over 7% organic at constant currency to $405 million, with adjusted diluted earnings per share of $0.58, which compares to about $0.51 last year. All business lines grew during the quarter, and over the last 12 quarters our growth has averaged over 13% in constant currency. And moreover, if you go back, since the global financial crisis, we have quadrupled the top line of this firm. In fact, the Korn/Ferry story is really about transformation and growth. This has been a period, it will continue to be a period of great change and reinvention for Korn/Ferry, and let me just put these results in context. Before the Hay Group combination, our run rate adjusted EBITDA was a little over $160 million. In the fourth quarter, it was $220 million. On an annualized run rate basis, revenue was $1.1 billion, and in the fourth quarter it was $1.6 billion. Today, one out of every two employees is new to this firm in the last few months due to expansion and growth. And moreover, the Hay Group combination is working. Growth was almost 4% in the quarter for the new Hay Group, and that's constant currency. EBITDA commitments are well ahead of schedule. And as importantly, during the quarter, we closed more than 200 joint opportunities between Hay Group and Search and Futurestep, including a series of million-dollar-plus engagements and renewals with major companies, and that spanned all regions, and we've also got a robust pipeline of additional joint opportunities. On the real estate front, we've reduced the office footprint from 186 to 140 offices. These moves that were done in the last few months and will continue into July, they entailed more than 3,000 of our 7,000 colleagues, and all of the offices have been combined with the exception of nine. On the training side, we brought 3,500 colleagues into our SAP system. We trained 2,000 colleagues on market facing initiatives. And as I said, the Hay Group, it has exceeded my expectations and we ended the fourth quarter with adjusted fee revenue of $193 million. And overall, this business now represents about 50% of the firm's revenue mix. So to tell this story of growth, of profitability, in the face of all this change where one out of every two employees is new, this absolutely was according to our plan and I'm very, very proud. I'm also proud of our Search and Futurestep businesses. They've never been stronger than what we've seen in the fourth quarter. We established all-time highs for the amount of searches and RPO engagements that we conducted during the fiscal year. I talked about this, we are continuing to move this organization, our firm, from who we know to what we know, and the foundation for that is intellectual property. We have management data now covering 114 countries. We've got reward data on 20 million professionals and 17,000 companies. We've got engagement data on 6 million professionals, and obviously assessment data on millions of leaders around the world, and we're taking this IP and we're weaving it into everything we do. For example, we are taking the pay data and best-in-class job profile data from Hay Group and infusing it into our Search business, and at the same time we're taking the pay data on millions of people from our Search database to bolster the strength of our Hay Group reward offerings, so while we've experienced more growth, I believe we still have to have the mindset of a startup within a big brand. We've got to continue to be relentless in our thinking about our clients and how we help our clients grow. Now to the other side of the coin, the reality is, if you look around the world today, there are conflicting economic signals and it's particularly tough to read given next Thursday's vote in Britain in addition to the normal summer seasonality, but the moves that we have made during this fiscal year, like the Hay Group combination combined with our brand and diversified solutions definitely make us a much more balanced company. Now I can assure you that our firm is going to continue to seize this multi-billion dollar opportunity creating this firm that's the preeminent organizational and people advisory. So I'm joined here today with Bob Rozek and Gregg Kvochak. And so, Bob, I'll turn it over to you.

Great. Thanks, Gary, and good afternoon everyone. Before I begin my remarks, just want to stop and say thanks to everybody at Korn/Ferry for their contributions in fiscal 2016. This was a year of unprecedented change with the Hay Group acquisition, and in spite of all the energy that we put into the acquisition and all the associated integration, we still managed to deliver extraordinary operating results, which in my mind is a real testament to the quality of the folks that we have here at the Korn/Ferry family. Now turning to our results, let me start first with a number of key highlights. So first, in the fourth quarter, as Gary indicated, we continued to make significant progress integrating legacy Hay Group, and as forecasted we’ve realized material cost synergies that benefitted the profitability of the new Hay Group segment. In the fourth quarter, the new Hay Group segment generated $30.7 million of adjusted EBITDA with an adjusted EBITDA margin of 15.9%. This clearly is evidence that we're realizing the cost synergies in amounts and at a pace that actually exceeded our initial expectations. If you remember, at the time of the acquisition we told you that the run rate EBITDA margin for the Hay Group was 8%. For the five months that we've owned the Hay Group, their legacy operations have generated an adjusted EBITDA margin of 13.4%. We achieved 11% in the third quarter and drove that up to 14.9% in our fourth quarter. Second, in the fourth quarter, and really it's been the case for most of the fiscal year, we continue to see strong growth in both North American Executive Search and in Futurestep. In the fourth quarter, these segments achieved year-over-year growth at constant currency of 8.5% and 27% respectively. And then finally, in an effort to give the firm enhanced financial flexibility in the future and in recognition of the accelerated pace of the Hay Group integration cost and the related cost savings, we have entered into a new senior secured credit agreement with a syndicate of banks that expands our access to debt capital to $400 million and which provides us with more favorable terms and conditions. The $400 million breaks down between a term loan of $275 million and a revolver of $125 million. Now turning to our operating results, fee revenue in the fourth quarter was seasonally strong. Including a full three months of results for legacy Hay Group and the $5.1 million of acquisition related deferred revenue that under U.S. GAAP we can't recognize, our consolidated adjusted fee revenue in the fourth quarter was $405 million, up 49% year-over-year. Excluding the results of legacy Hay Group, our consolidated fee revenue was slightly over $285 million in the fourth quarter, which is up almost 5% year-over-year, and at constant currency up a little bit over 7%. For all of fiscal 2016, we achieved $1.3 billion of fee revenue with year-over-year growth on a constant currency basis in all of our operating segments, again led by North American Search and Futurestep. Now turning to our new business during the quarter, first for Executive Search, our new business in the fourth quarter reached an all-time high of $166 million. On a monthly basis, we had experienced a relatively weak January and that was followed by a stronger February and then a seasonally stronger March and April. At actual at foreign exchange rates, worldwide Executive Search new business was up 2% year-over-year with the number of new engagements up almost 6%. For the new Hay Group segment, new business awards were just over $200 million in the quarter. And finally, Futurestep achieved another strong quarter of new business in the fourth quarter with a total dollar amount of confirmed new business just over $58 million. For all of fiscal 2016, Futurestep was awarded over $270 million of new business, which included approximately $195 million of longer term RPO and related services work which we expect to recognize as revenue over a three to four year period. A big congratulations to Byrne Mulrooney and the entire Futurestep team for just another incredible job. Recognize that Futurestep now has achieved 20% plus fee revenue growth for two consecutive years. Just an outstanding job on their part. During the fourth quarter, we incurred additional restructuring, integration and acquisition costs related to the acquisition of the Hay Group totaling approximately $14 million, as well as a non-cash foreign currency loss of $13.7 million related to the devaluation of the Venezuelan currency. As previously indicated, the restructuring and integration investments are driving initiatives that improve our operational efficiencies and lower our overall consolidated cost base. And again, this was evidenced by the achievement of the 15.9% adjusted EBITDA margin in the Hay Group segment. On a consolidated basis, in the fourth quarter, our adjusted EBITDA was $54.3 million at an adjusted EBITDA margin of 13.4%. That's a year-over-year improvement of $13.5 million or 33%. For all of fiscal 2016, our adjusted EBITDA was approximately $190 million, which was up $28 million or over 17%. Adjusted EBITDA, as you know, excludes restructuring charges, integration and acquisition costs, the deferred revenue write-off as well as the Venezuelan foreign-currency exchange loss. At the end of the fourth quarter, total cash and marketable securities were $415 million, down $110 million compared to the fourth quarter of fiscal 2015. Excluding cash and marketable securities reserve for deferred comp arrangements and for accrued bonuses, our investable cash balance at the end of the fourth quarter was approximately $90 million, down about $147 million year-over-year and up $8 million sequentially. And as you know, we had outstanding debt at the end of the fourth quarter of approximately $140 million and that related to the Hay Group acquisition. And finally, after all the previously disclosed adjustment items, our adjusted fully diluted earnings per share were $0.58 in the fourth quarter, up $0.07 or 14% compared to the fourth quarter of last year and up $0.06 or 12% sequentially. On a GAAP basis, the fully diluted earnings per share for the quarter were $0.10. Now with that, let me turn it over to Gregg who will take you through our operating segments in a little bit more detail.

Okay. Thanks, Bob. Let's start with our Executive Recruitment segment where globally fee revenue was seasonally strong in the fourth quarter. At actual foreign exchange rates, consolidated Executive Recruitment fee revenue in the fourth quarter was $159.7 million, up $3.1 million or 2% year-over-year. Adjusting to a constant currency basis of measurement, consolidated Executive Recruitment fee revenue in the fourth quarter was up $7 million or 4.5% year-over-year. On a regional basis, compared to year-over-year at constant currency, growth in North America was strong at 8.5% while Europe was down 6% and the Asia Pacific region was down 2.4%. Compared to the fourth quarter a year ago, growth in our Executive Recruitment specialty practices was mixed as growth in our life science and healthcare practice up 11%, our technology practice up 10%, our financial services practice up 3% and our consumer goods practice up 3% was offset by weakness in our industrial practice which was down 3%. Financial services accounted for approximately 21% of all Executive Recruitment fee revenue in the fourth quarter, which was flat year-over-year. For all of fiscal 2016, fee revenue for our Executive Recruitment segment was up 9.2% at constant currency with positive growth in every region, led by North America which was up 13.2%. Full year growth for our Executive Recruitment specialty practices was mixed, with growth in financial services up 14%, technology up 13%, life sciences and healthcare up 12% and consumer goods up 1%, being offset by weakness in the industrial practice which was down 9%. The total number of dedicated Executive Recruitment consultants worldwide at the end of the fourth quarter was 488, up 36 year-over-year and down four sequentially. Annualized fee revenue production per consultant in the fourth quarter was seasonally strong at $1.3 million. The number of new search assignments opened worldwide in the fourth quarter was 1,463, which was up 5.8% year-over-year. Consolidated Executive Search adjusted EBITDA in the fourth quarter was $31.2 million with a 19.5% margin. Adjusted EBITDA in the fourth quarter was negatively impacted by higher bonus expense directly related to the year-end surge in consultant productivity, including the greater production of new hired consultants joining KF early in fiscal 2016. For all of fiscal 2016, adjusted EBITDA for the Executive Recruitment segment was $151.7 million with a 24.3% margin, an improvement of $19.3 million or nearly 15% with a 210 basis point improvement in margin. Now turning to our new Hay Group segment which had its first full quarter of operating results in the fourth quarter, adjusting fee revenue to exclude an acquisition related deferred revenue write-off of $5.1 million, the new Hay Group produced adjusted fee revenue of $192.9 million. On an organic basis at constant currency, our legacy Leadership & Talent Consulting operations grew approximately 2% year-over-year in the fourth quarter. Adjusted EBITDA in the fourth quarter for the new Hay Group segment was $30.7 million with a 15.9% adjusted EBITDA margin. For all of fiscal 2016, the new Hay Group segment generated $78.9 million of adjusted EBITDA with an adjusted EBITDA margin of 16.4%. Finally, turning to the firm's fastest-growing segment, Futurestep, in the fourth quarter Futurestep generated $52.5 million in fee revenue, which measured at constant currency was up 27% year-over-year. On a regional basis, year-over-year at constant currency, growth was broad-based with North America up 30%, Europe up 22% and Asia Pacific up 24%. For all of fiscal 2016, Futurestep grew 21% at actual rates and 28% at constant currency, with growth in every region. Futurestep's earnings also continued to grow in the fourth quarter. EBITDA in the fourth quarter was $7.9 million, which was up $1.8 million or over 29% year-over-year. Futurestep's EBITDA margin in the fourth quarter was 15%, which was up 60 basis points year-over-year. Now I'll turn the call back over to Bob to discuss our outlook for the first quarter of fiscal 2017.

Great. Thanks, Gregg. As projected, our fourth quarter new business and revenue were both seasonally strong. I'm going to provide some perspective on FY 2017 first quarter by starting to talk about new business across each line of business. So in Executive Search, new business in May was down from March and April levels, which is the consistent pattern that we see on a historical basis. However, with approximately one-half of the month of June behind us, we are seeing sluggish new business globally for Executive Search. With respect to the new Hay Group, we have now converted the top 16 locations onto our business systems and processes. And if you recall back to what Gary was commenting on in terms of the training that these folks have gone through and are going through, we estimate that this effort will consume about 2,000 total workdays out of the Q1 effort from the Hay Group. And then with respect to Futurestep, we continue to see robust levels of both new business and we expect that to translate to revenue for them in the first quarter. So taking all of this into consideration and assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, we expect our consolidated adjusted fee revenue to range from $375 million to $395 million. This adjusted fee revenue includes $3.8 million associated with the deferred revenue adjustment that relates to the Hay Group acquisition and this will be the last quarter that we have that adjustment. After that, it will be back to sort of business as usual. Our consolidated adjusted diluted earnings per share are expected to range from $0.50 to $0.58. As previously announced with our fiscal third quarter earnings, we will execute the next phase of our planned restructuring activities related to the Hay Group acquisition in the first quarter of fiscal 2017. These actions will primarily be focused on the consolidation of office space and the elimination of other redundant G&A and overhead expenses. As previously announced, we estimate these actions in total will drive an incremental $17 million to $23 million of annual cost savings, which we expect to realize on a full run rate basis by the third or fourth quarter of fiscal 2017. We estimate the cost of these actions to be in the range of $20 million to $26 million. Also in the first quarter we'll incur additional professional fees and other expenses related to the continuing migration of legacy Hay Group operations onto our systems and processes, in addition to the expenses for retention bonuses that we previously discussed. We estimate that these acquisition and integration costs will range from $7 million to $9 million in the first quarter. Finally, measured by U.S. GAAP, fiscal 2017 fourth quarter consolidated fee revenue is likely to be in the range of $371 million to $391 million, and fully diluted earnings per share are likely to be in the range of $0.02 to $0.20 per share. With that, I'll conclude our prepared remarks and we would be glad to take any questions you may have.

[Operator Instructions] Our first question today comes from the line of George Tong representing Piper Jaffray. Please go ahead.

Could you provide an update on customer spending trends in the Hay Group segment and if you're seeing any changes in response to broader macro concerns?

No, we are not. We haven't seen anything there. We've continued to unify our businesses, go to market as one, and no there hasn't been any kind of measurable decline, George.

Got it. And as it relates to your North American Exec Search business and Futurestep, two very strong performers this quarter, how is the pipeline evolving? You mentioned a little bit of weakness in Exec Search. Can you elaborate on North America specifically and Futurestep?

It's very difficult to reiterate now, and it's hard to say with the typical summer malaise or whether there is something that is broader than that. Certainly, the vote next week in Britain has impacted not proposal activity but it has impacted clients making decisions. We have absolutely seen that in Europe, and to some extent we've seen that in North America. Now I cannot attribute the North America directly to Brexit, but it's very difficult to read the tea leaves today.

Got it. And then lastly, could you elaborate a bit on the remaining cost savings actions you have in the Hay Group segment to drive improved margins?

So George, what we're doing in Q1 is going to be actually our biggest quarter in terms of the real estate co-location activities that Gary was talking about earlier. So we've got 26 locations that we are bringing together in the quarter. Spending on that is roughly around $14 million. We think we're going to save about $6 million on a run rate basis. The rest would be, as we migrate their business activities on to our systems and processes, we'll get some efficiencies from a headcount perspective, and then we've got a number of initiatives where we're going to be eliminating duplicate sort of G&A type expenses. So, all of that comprises the dollar amount that I talked about, the $17 million to $23 million of saves and the $20 million to $26 million of spending. And then as we go forward from here, we'll have one more sort of large round of moving the Hay Group folks onto our systems and processes. And when I say largest, not from a revenue perspective, because with what we've done or will have done by the beginning of the first quarter, where about 75% of the revenues are now on our systems and processes, so we'll capture another say 20% by the one-year anniversary of the transaction.

Very helpful. Thank you.

Our next question today comes from the line of Mark Marcon with RW Baird. Please go ahead. Mark S. Marcon: With regards to the Hay Group, as you've gone further along in terms of the integration, how are you thinking about where the margin should end up getting to on an adjusted EBITDA basis once you are completely done with all the integration?

I think, Mark, as we look at it today, we've got that business up to almost 15%. As we talked in the call last time, that should settle in somewhere in I'd say 16% to 18% margin range on an adjusted EBITDA basis, and as we continue to grow that thing and we get some leverage, we would expect it towards the higher end of that range. Mark S. Marcon: Okay. And any adjustments to the thinking with regards to where you were previously in terms of how you were thinking run rate and profitability should be within Hay Group not L&TC, in other words, the legacy Hay Group?

You really can't – we're at a point now, Mark, where we really can't look at it that way anymore. Those businesses have come together very rapidly, and at this point it's almost like trying to pull apart a milkshake. We just can't do it. So I think as we look at it, we always look at it on a combined basis, and I think as I said the 16% to 18%, the only thing that's probably a little bit different for us at this point is the speed with which we think we can get there. As we continue to make progress on it, I think the pace probably continues to be a little bit quicker definitely than when we initially started up, even from where we were last Q3, especially when I look at the success that our folks had in terms of doing all the conversion activity. It was a massive undertaking and I have to tell you, my phone has not rung once by somebody saying we've got a problem here or an issue there. So our team did an absolutely fantastic job on all that. Mark S. Marcon: That's great to hear. Just to ask the question another way, is there any difference in terms of the savings that you think you're going to generate just out of the Hay Group relative to what we talked about last time?

No, I think it's pretty consistent in terms of we've got headcount reductions we've talked about, we've got real estate co-location and the G&A activities. Right now, Mark, we're simply in execution mode making sure that all happens without a glitch and that we continue to overachieve in terms of timing. Mark S. Marcon: Okay, great. And then can you talk a little bit about the joint projects that you’ve signed up? It sounds like you are seeing some early successes there. Can you give a little bit more color, particularly in terms of some of those seven figure projects that you talked about?

Sure. They are largely along the lines of organizational design and leadership development assessment, all trying to – I can think of two or three clients where you're trying to really innovate and transform an organization and we were brought in to help design the offense. I think about something we are pursuing right now for a major economy, helping to reshape that economy. Those are the kinds of projects. And the synergies between our firms have absolutely been as we expected, Mark. So I'm very, very pleased with where we are. I mean in some places we could be further along and in other places we're a little bit better than what I thought. So we've absolutely delivered on the EBITDA commitments, we've shown some growth in the business in the context of just incredible change.

Mark, the only thing I would add to, it's not just our people going to market together but it's the folks in the organization, I'll give you an example, in Byrne's business, Futurestep, he's got several large RPO RFPs that he is pursuing and he's actually taking some of the IP and the tools that we acquired from the Hay Group and has baked them into his RPO process already and uses that as a way to differentiate and give himself a competitive advantage. So it's the people coming together as well as the organization's recognition and use of the tools that we acquired. Mark S. Marcon: That's great to hear. And I think I may have misheard, did you say reshaping an economy or just a major company?

This was an economy. Mark S. Marcon: How do you do that?

I don't want to get into specifics because it's something we are pursuing right now, Mark, but if you look around the world today, there are economies that are struggling. Some of those economics are dependent on an industry or two and… Mark S. Marcon: Got you. I know what you're talking about now. Okay, great. And then can you talk a little bit about – I mean that actually sounds like it should be a huge opportunity in terms of the size of that sort of a project.

Again, I'll just say that I think that as the CEO of this intersection of strategy and an organization and its people, it is unclaimed white space and I feel more convinced today than ever that people come before strategy and enabling organizational success through the design of the offense and the connection with the people you have is something that we are claiming and we're going to continue to pursue that aggressively. Mark S. Marcon: All right. And then can you just comment with regards to what you've been seeing in May and June? You mentioned Europe, but can you tell us specifically out of EMEA how big is the U.K. and what differences you are seeing in the U.K. in terms of behavior relative to what you're seeing on the continent?

So let me just say counter-intuitively, in the fourth quarter the U.K. was down but it wasn't down as much as, say, Germany or France. So, go figure. But having said that, so in May what we say, as Bob talked about, we usually see a pretty material decline in new business in May, and generally what happens in June is there is a significant rebound, and that's happened over the last few years. And in my talking to clients and our colleagues and what we are actually seeing, there is a big shadow that has been cast and some people may call it the tail but I think it's quite significant. The proposal activity is still strong but we've certainly seen not only in the U.K. but across Europe a hesitancy to pull the trigger. Now to some extent that's also true in the United States. And Mark, what I can't read, is this kind of a summer malaise or is there something more significant there? Mark S. Marcon: So it sounds like you're not seeing a marked distinction between the U.K. relative to the continent. Can you just remind us how much the U.K. is [indiscernible]?

So, Mark, we do about roughly $59 million in Executive Search, another $26 million in Futurestep, and then another $50 million or so in the Hay Group segment. Mark S. Marcon: Thank you very much.

Our next question comes from Tim McHugh with William Blair. Please go ahead.

It's Stephen Sheldon for Tim this afternoon. Thanks for taking my questions. First, I wanted to ask, what you're thinking about from a hiring or headcount perspective in the Executive Search business as you're going into fiscal 2017?

We are actively looking to develop from within and also go to the outside, but we are actually looking at it today much more broadly. We're looking for consultants that can span the types of things that we do, from strategy implementation to rewards. So I think that we have made a shift in the types of people that we are now looking for to take us to say $4 billion from $1.6 billion. There are targeted investment areas. Executive Search will always be one. The consultative work we do under the Futurestep brand is also an area that we're looking for. But we're also targeting investments in the area of rewards, reward strategy. Today, reward strategy is a little bit less than 25% of our advisory business. We think there is significant opportunity given our brand and the data that we have to help CEOs drive behavior through broad-based reward strategy. So we have a very targeted effort to bring in consultants around the reward strategy area. The second targeted area would be around healthcare. Today, healthcare is all-in, give or take, and Gregg can correct me, but it's about $100 million or so out of the today $1.6 billion 20% run rate. And we really think, if you think about healthcare being 20% of an economy, particularly say the United States, that would seem to suggest that there is $200 million to $300 million of opportunity there. So we have a targeted initiative towards consultative capabilities in healthcare. And by the way, that range is again from search professionals to RPO to the advisory business. So that's probably how I would answer that question.

Thanks. And then could you provide some more granularity about what you're seeing within the financial services sector for Executive Search? Did you see any particular change as you progressed through the quarter and were trends different by region?

They were a little bit different by region. Europe, we saw a little bit of moderation. But where we saw some uplift was actually in private equity and real estate, probably maybe what you would assume, and not so much in capital markets. But nothing really marked, I mean nothing that would – not a real big positive trend or negative trend one way or the other.

Our next question is from the line of Tobey Sommer with Suntrust. Please go ahead.

I'm curious, Gary, at this time of year you're typically pretty rapidly hiring people so that you can harvest their productivity in the Executive Search business as you work your way through the fiscal year. Is there a plan to continue to grow that headcount, and if so, by how much in fiscal 2017?

There is a plan. The Search business as you know gives us tremendous permission and it gives us a very nice access. So our view all along was that that is a business that we need to continue to infuse intellectual property and data and knowledge into and we are absolutely doing that. We are taking the Hay Group IP around job design and work design and job titles and we will make that the front-end of our Search business. We'll then tie that into our intellectual property around competencies and experiences and traits and drivers. And the backend will be the compensation. We collect literally thousands of pieces of data around compensation real-time around the world. So we view this very much as an enterprise-wide endeavor. But you are right with respect to Executive Search. It is a purposeful plan where we are looking to continue to bring in people and develop people from within and we're investing in that business in all regions of the world.

So the sluggishness or kind of slowing and green-lighting new engagements has not altered your plans at this stage?

No, it has not, it has not.

And remember, Tobey, the sluggishness that we're seeing really is in June. So we've got, whatever it is, 14 or 15 days of the month to surpass that. It's really just a data point at this point.

I mean really there's two things. You've got, as Bob said, about 2,000 training days in Hay Group. So you're going to see that could be a revenue decline sequentially of kind of $10 million, and we know that is absolutely going to happen for sure. And we're just seeing malaise right now and I can't tell you if that's going to continue for the next seven days and something is going to open up or is it the next 15. It is very difficult to reiterate now.

Okay. Just curious in terms of the arc of cash flow this year, Bob, how will that progress in maybe couple of milestones, like when does the bonus payment get paid out and that kind of thing, because you did put a new credit facility in place, so I kind of want to understand that a little bit more?

Maybe before I get into the credit facility, Tobey, the big cash payments that we have going out obviously is our bonus and that happens in July-August timeframe and we pay in the U.S. in the middle of July and then in other parts of the world the timing is plus or minus a couple of weeks from there. So that's when you'll see a big slug of cash go out the door. We do have an acceleration in our capital spending this year because of the co-location activities. That will be in the first quarter as well and that's kind of spread across the globe, so it's not concentrated in any one particular geography. But beyond that, I mean the cash flows as we sit here today, there is nothing else that's out or unusual that we expect. We've got our dividend in place now for over a year and that will obviously continue. So there's really nothing else that we are aware of at this point that would be a huge user of cash. And I think as we step back on the credit facility, when we did the Hay Group transaction, we worked with Wells Fargo who has been a great partner for us, especially driving that transaction, and we went with a one bank deal at that point in time recognizing that we were going to do something more permanent after the deal got done, and the thought was, rather than getting involved with syndication of a bunch of banks and the roadshow, everything we have to do, we focused our energies on the transaction. And so what we did was what we always plan to do after the transaction closed, was to put in place a more permanent facility. And we upsized it to some extent on the basis that in the uncertain times that we're in right now, lot of times you see opportunities arise and we wanted to make sure we had the financial flexibility to take advantage of those opportunities. And I think equally important, if you look at the accelerated synergies and spending that we've done, the Hay transaction, to drive the cost savings sooner, we were actually able to sit down with the bank and negotiate more favorable terms and conditions in this agreement than what we had in the prior transaction. So we are working with our management team here and our Board, we felt the best path to take was to do what we did on the credit facility.

Just two questions for me remaining, if I could. Gary, how do you think about deploying capital now, kind of follow-on question to the credit facility, including share repurchase? And then I was wondering if you could comment broadly on what you're seeing in terms of compensation inflation across your different businesses, both internally and externally?

First of all, what we published many months ago is we thought based on all of our IP and survey that the pay increase would be 2.5% globally. And it varied by country. We went out with that data at the beginning of this year and that's in fact the way things are playing out. You look at the BLS numbers, you look – we are absolutely spot on so far. So I would say that's probably it. I don't think it's any more significant than that in terms of wage pressure moving up. I think so far it's played out that way. In terms of the capital deployment, our first priority is to invest in the business. That is absolutely number one. There will be opportunities that are going to come our way. We may create a lot of those opportunities but there will be opportunities for us as an organization to create this brand and an organization and people. So that's the first use of cash. We think we've put in place a very balanced capital allocation plan around returning money to shareholders vis-a-vis dividends, as Bob talked about, and investing in the business. And so that's the current playbook that we're going to go with.

Gentlemen, there are no further questions at this time. I'll turn it back over to Mr. Burnison for closing remarks.

Listen, I want to thank everybody for joining us. And again, I just thank you for listening to our story. I think this is indeed the word 'transformation' we've used so many times, but I do believe when you look at the definition, it deals with the dramatic change in substance and appearance, and that's absolutely what we are doing. We are creating I think white space. This is a multi-billion opportunity to create the brand, to help organizations grow, to set forth structure or design, leadership development, all the way through compensation and obviously recruitment. So, we're very, very excited and thank you for taking the time to listen. We'll talk to you next time.

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