Gregg Kvochak - Senior Vice President of Investor Relations Gary Burnison - Chief Executive Officer Robert Rozek - Executive Vice President, Chief Financial Officer and Chief Corporate Officer

George Tong - Piper Jaffray Kevin Mcveigh - Deutsche Bank Timothy McHugh - William Blair & Co. LLC Tobey Sommer - SunTrust Robinson Humphrey Gregory Mendez - Robert W. Baird & Company, Inc.

Ladies and gentlemen, thank you for standing by. And welcome to the Korn/Ferry First Quarter Fiscal Year 2017 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, the 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 in the Company's annual report for fiscal 2016 and in the other periodic reports filed by the Company with the SEC. Also some of the comments today may reference non-GAAP financial measures, such as adjusted fee revenue, constant currency amounts, EBITDA and adjusted EBITDA. Additional information concerning these measures, including reconciliations to the most directly comparable GAAP financial measure, 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.

Okay. Thank you, Lori. I'm joined here by Bob Rozek and Gregg Kvochak and I'm going to make some comments first on the results and strategy. For the quarter, we did about $379 million of fee revenue, which is up 42% year-over-year. But believe it or not, sometimes I have to hit myself. I mean, that's still – that topline result is a little bit short of my expectations for our firm. But on the other side, I'm proud of our performance, particularly as it relates to profitability. Of course, that's on an adjusted basis, given the actions that we've talked about for several quarters around synergies and the combination with Hay Group. But overall, for the quarter, way I kind of look at it is Search was down a little bit, Futurestep was up big again and Hay Group, essentially, the new Hay Group, was essentially kind of flat year-over-year on a same-store sales basis. Adjusted EPS was $0.52, that's up 10% from a year ago, and adjusted EBITDA was very strong. That was $56 million in the quarter and that was up about $15 million year-over-year on increased revenues of about $112 million and the $112 million is essentially from the Hay Group combination. When we last spoke, I think it was June 15 and I mentioned at that point how the – it’s difficult to read the market based on a number of events, including the upcoming vote that was going to happen with Brexit. We were also partly through June and we experienced this kind of typical seasonal decline in May in the Search business and it was unclear if we were going to get a rebound in June and through July. So I'd at least like to start there and flash forward to today and kind of level set everything, address those two events in particular. While the vote in Brexit did happen and we did in fact see some minor impact on our business in this first quarter that ended in July, particularly around a handful of European countries, I don't anticipate, I certainly don't have a crystal ball, but I don't anticipate any further declines coming out of Brexit at least over the next two or three quarters as far as one could see here. So that's one clarifying factor. The second is on the Search side. We did end up seeing a decline in search new business in June and in fact, that continued in July. For example, new business in North American search was down about 12% between June and July combined, that compared to the prior year. And I would tell you that was – I think that was really the result of client’s kind of delaying decisions rather than hiring freezes or cancellations. But the good news is that although one month doesn't necessarily make a trend, I am pleased that August had rebounded significantly. And in fact, August new business was consistent with the prior year. So with that kind of level setting and murkiness behind us, I think I can speak through a clear lens today than I could maybe at June 15, but particularly about the promise ahead for our firm and for shareholders. Looking back now operationally, I think the combination with Hay Group and the investments in our own business; they've clearly enhanced our performance. They provide us with a more compelling platform to not only accelerate our client's success, but accelerate our own growth and in fact, generate stronger earnings power. I mean, there is no better evidence than that, even in this quarter, the Hay Group on an adjusted EBITDA margin basis. It was almost 17%. That was up from, say, 16% in the fourth quarter. So the good news now with nearly all the restructuring costs, that's really behind us. I do think it's important to put these kind of results in context, given that this combination with Hay Group is really just eight months old. And if you just think about the last eight months and the topline performance, the increased profitability, put it in the context of physically relocating 3,100 of our 7,000 colleagues, I mean, physically relocating them, that's almost half our workforce. We combined 85 offices. We converted 75% of Hay Group's revenue on to our processes that impacted well over 2,000 colleagues. And just over the last few months and in this quarter in particular, we did systems conversion training for over a 1,000 Hay Group colleagues. So everybody is getting used to these new systems. And as I mentioned in last earnings call, I said that could negatively impact revenue in the quarter by about $5 million to $10 million and sure enough, it did. It did have that impact in the quarter. But we've also closed 1,800 joint opportunities between Search and Hay Group and Futurestep. We've appointed new leaders across the global organization. So I think, overall, I'm very proud of where we are today. But I think as we move forward, despite the fact that we're in a 1% growth economy and we've got negative interest rate, I really do believe that we've got to continue to instill a sense of urgency around growth throughout our organization. And four initiatives that I would point to. I think, number one, we've got to make it a bigger priority for us around education and development of our own workforce, because I have no doubt that, that will in turn, lead to growth as we continue to educate and develop our fabulous 7,000 colleagues that we have. I think, secondly, we've got to continue to cascade this rollout of the global solutions that we have in the go-to-market strategies and IP. I think that is the second piece to unlocking growth. I think the third is there is known market opportunities today. We have to invest in those. For example, compensation and benefits, that is a known market. It's addressable it means several $100 million for us. Healthcare is the same. We've now hired almost 20 consultants in these areas that are going to design and drive our solution driven growth strategy. The other known opportunity for us is around productized services. Today, out of the, call it, almost $1.6 billion in topline, $250 million annually comes from productized services. We have the ability to triple that business. That has to be an area where we invest in. And finally, I think we've got to step up our efforts around business development. For example, when it comes to advertising and getting the name out there for what we really do, we are going to be running an advertising campaign in the United States, in the UK around our capabilities. It's going to target CEOs and Board members and CHROs. But it's really – it's more to inform the marketplace around the new capabilities of our firm. I am convinced that as we look forward, this intersection between strategy and talent for a client and for a CEO, that's what it's all about. And to make that intersection work and to make that marriage work is what it's about for any of our clients and for any CEOs that we deal with. And I'm probably more confident today that we have the opportunity to create that industry, to define that market. And I'm convinced that our strategic actions are going to enable us to seize that opportunity, to make us more relevant to our clients and really advance us toward growth and firmly establishing Korn/Ferry as the world-class people and organizational advisers. So with that, I will turn it over to Bob.

Great. Thanks, Gary, and good afternoon, everyone. I'm going to start with a few key highlights. First, as Gary mentioned in the first quarter, we completed another significant phase of our integration activities. And really, we've now substantially completed a major portion of our restructuring and back-office consolidation of the legacy Hay Group. These efforts continue to pay dividends with the realization and material cost synergies that continue to enhance our profitability in the Hay Group segment, as well as the overall firm. In the first quarter, the new Hay Group segment generated almost $30 million of adjusted EBITDA with an adjusted EBITDA margin of 16.7%. That's an increase of 120 basis points year-over-year and 80 basis points sequentially. The new Hay Group's adjusted EBITDA margin has now improved for two consecutive quarters. It ramped from 15.6% in the third quarter of fiscal 2016 to the 16.7% I just mentioned. Second, Futurestep really continues its impressive growth in the first quarter with $54.7 million of fee revenue. That's up $10 million or nearly 22% year-over-year at constant currency. Futurestep has now achieved double-digit fee revenue growth for 11 consecutive quarters. And it's really driven by a combination of premier brand recognition that results from their strong execution in the marketplace; a unique value proposition that supported by our differentiated solution set; and lastly, a growing secular demand for large-scale outsource recruitment services. Finally, following the soft demand environment in both June and July that Gary just spoke about, which again, we believe was driven in part by client caution surrounding some of the uncertainty in the business environment for the economic and geopolitical issues that are out there, as well as, I think, from some of the internal distractions from our co-location activities. The demand for our Executive Recruitment services has stabilized and improved in August. In what is typically a seasonally weak month in Executive Search, our new orders in August were up 7.5% year-over-year and 6% from July. So again, we're pleased to see that rebound. Now turning to our operating results; including $3.5 million of acquisition-related deferred revenue that under U.S. GAAP purchase accounting rules cannot be recognized in the quarter, consolidated adjusted fee revenue in the first quarter was $379.2 million, which is up almost 42% year-over-year. As discussed in our last earnings call, consolidated fee revenue in the first quarter was negatively impacted by the slower demand for Executive Search in North America, as well as sequentially lower fee revenue for Hay Group, which was adversely impacted by international market conditions, as well as disruption from the integration-related training activities that Gary just mentioned. Looking at new business. First, for Executive Search, at actual foreign exchange rates, Global Executive confirms in the first quarter were down 8% year-over-year and down 12% sequentially. As previously stated, slower new business awards in June and July were followed by the stronger month of August. This was especially the case in North America, where August new business was up almost 25% compared to the month of July. For Hay Group segment, new business awards in the first quarter were just over $183 million and are expected to grow in the fiscal second quarter, which is historically been seasonally strong. And finally, Futurestep achieved another strong quarter of new business in the first quarter with the total dollar amount of confirmed new business just over $43 million. During the first quarter, we incurred additional restructuring integration and acquisition costs related to the acquisition of the Hay Group totaling approximately $32.5 million. As previously indicated, these restructuring integration investments are driving operational efficiencies in the firm and lowering our overall cost base. The benefit of these actions continue to be realized, and are reflected in our improving operational profitability. On a consolidated basis, in the first quarter, our adjusted EBITDA was strong at $56.4 million with an adjusted EBITDA margin of 14.9%. That's almost a $15 million improvement year-over-year just about 35%. At the end of the first quarter, our total cash and marketable securities were $381 million. It's down $33 million compared to the first quarter of fiscal 2016. Excluding cash and marketable securities, reserved for deferred compensation arrangements and accrued bonuses, the investable cash balance at the end of the first quarter was approximately $195 million. That's down $18 million year-over-year and up $100 million sequentially. The increase sequentially is primarily due to the additional borrowing from the refinancing of our credit facility that we announced in our fourth quarter earnings release. At the end of the quarter, Q1, the firm had outstanding debt of approximately $275 million. And finally, after all the previously disclosed adjustment items, our adjusted fully-diluted earnings per share were $0.52 in the quarter. It's up $0.05 or 10% compared to the first quarter of FY 2016. On a GAAP basis, fully-diluted earnings per share for the first quarter were $0.06. Okay. Let me turn it over to Gregg now, who will review the operating segments in more detail.

Okay. Thanks Bob. Let's start with our Executive Recruitment segment. On a global consolidated basis, fee revenue decelerated in the first quarter of fiscal 2017. At actual foreign exchange rates consolidated Executive Recruitment fee revenue in the first quarter was $146.4 million, which is down $5.7 million or 3.8% year-over-year. Adjusting to a constant currency basis of measurement, consolidated Excitement Recruitment fee revenue in the first quarter was down approximately $2 million or 1.4% year-over-year. Regionally, growth rates in the first quarter were mixed. Compared year-over-year at constant currency, North America fell 9.2%, while Europe was up 2.3% and Asia Pacific region was up 4.8%. Fee revenue growth for our global specialty practices were also mixed in the first quarter. Compared to the first quarter a year ago, growth in our consumer goods practice up 9% and our financial services practice, up 1% was offset by a contraction in our industrial, life sciences and healthcare and technology practices, which were down 9%, 9% and 3%, respectively. Financial services accounted for approximately 22% of overall Executive Recruitment fee revenue in the first quarter, which was up 100 basis points year-over-year. The total number of dedicated Executive Recruitment consultants worldwide at the end of the first quarter was 488, which was up to year-over-year and flat sequentially. Annualized fee revenue production per consultant in the first quarter was at $1.2 million and the number of new search assignments opened worldwide in the first quarter, excluding Mexico, was 1,325, which was down 3.4% year-over-year. Consolidated Executive Search adjusted EBITDA in the first quarter was $31.7 million, which was down $5.2 million or 14.2% compared to the first quarter of fiscal 2016, primarily due to lower fee revenue in the North American region, as well as the impact of market-driven gains and losses on the assets backing our deferred compensation programs. The consolidated Executive Search adjusted EBITDA margin in the first quarter of fiscal 2017 was 21.6% compared to 24.3% in the first quarter of fiscal 2016. Now turning to the Hay Group segment, which in the first quarter of fiscal 2017 completed its second full quarter of combined integrated operations. Adjusting fee revenue to include $3.5 million of deferred revenue written-off as part of the acquisition of the legacy Hay Group, the new Hay Group segment generated adjusted fee revenue of $178.1 million, which was up almost $109 million year-over-year. As previously stated, the new Hay Group’s segment has been the primary beneficiary of the restructuring integration investments incurred over the last several quarters. In the first quarter of fiscal 2017, the Hay Group achieved $29.8 million of adjusted EBITDA with an adjusted EBITDA margin of 16.7%. Finally, turning to the firm's fastest-growing segment, Futurestep. In the first quarter, Futurestep generated $54.7 million of fee revenue, which measured at constant currency was up 21.8% year-over-year. On a regional basis, year-over-year growth, measured at constant currency was broad-based with North America up 17%, Europe up 26% and Asia Pacific up 27%. Futurestep's earnings also continue to ramp with the growth in fee revenue. EBITDA in the first quarter was $8.1 million, which was up $1.4 million or 20% year-over-year. Futurestep's EBITDA margin in the first quarter was 14.9%, which was up 20 basis points year-over-year. Now, I'll turn the call back over to Bob to discuss our outlook for the second quarter of fiscal 2017.

Great. Thanks, Gregg. As previously mentioned, our recent new business activity in Executive Search segment did show signs of improvement in August. There is only been a couple of days in September. But so far, we are actually seeing this trend continue into the month of September. And if our historical patterns remain consistent with prior years, September new business should improve sequentially and then we should see a peak in October. For the new Hay Group, the fiscal second quarter is typically a seasonally strong quarter for both new business, as well as revenue. Its consultants aggressively work to complete their backlog of open assignments before the end of the calendar year. And our compensation databases are refreshed, generating high seasonal demand. With regards to Futurestep, we continue to see a strong pipeline of new business opportunities. The fiscal second quarter is typically their strongest quarter for new business, and we expect new business in the second quarter of fiscal 2017 to equal or exceed last year's total. In addition, we expect Futurestep's second quarter new business to be a healthy mix of contract renewals, expansion of existing relationships and most importantly, new client relationships. And last, as we previously announced, we will no longer guide to and report on an adjusted fee revenue as such adjustments are immaterial for Q2 and non-existent thereafter. Now taking all this into consideration and assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady. We expect our consolidated fee revenue for Q2 to range from $380 million to $400 million and our consolidated adjusted diluted earnings per share to range from $0.54 to $0.62. Finally, in the second quarter, we will incur additional restructuring charges ranging from approximately $0.5 to a little over $1 million related to further real estate consolidation and in addition to incremental integration and acquisition costs ranging from $5.5 million to $6.5 million. The most significant portion of this is about $4 million of ongoing Hay Group acquisition-related retention bonuses and then the rest really relates to our ongoing system conversion activities. Net of these charges, we estimate that fiscal 2017 second quarter fully-diluted earnings per share measured by U.S. GAAP will likely be in the range of $0.44 to $0.55. So that concludes our prepared remarks. We'll be glad to take any questions you may have.

[Operator Instructions] And we'll go to George Tong with Piper Jaffray. Please go ahead.

Hi, thanks. Good afternoon. Can you elaborate on your expectations for Hay Group synergies over the remainder of the year and what specific actions you need to take to achieve those synergies?

Well, let me just say, I mean, at some point here, we've got to get beyond the synergy, and this has to be about growth. So I'm trying to, number one, we've got to – I think we've done a very, very good job so far in terms of driving the profitability of our firm and delivering on the promise we made to shareholders. But I think the ultimate synergy here is we've got to get our orientation towards growth. And Bob, why don't you talk about on the cost side.

Yes, I think on the cost side, George, I don't think we have any more major actions or some real estate consolidation that we just couldn't get all lined up for Q2 because the terms of the leases and try to negotiate with landlords and so on. So we'll have some additional co-location activities in Q3, as well as in Q1 of next year. Those will end up saving, on an annualized basis, somewhere $1 million each, not big dollars. There are some remaining synergy or some remaining cost savings coming into Q2 from the Q1 actions. But those, we go through our annual performance appraisals and promotion process and people get raises associated with it. So those two are primarily going to net out in the second quarter. So we are not going to – I don't think we're going to see much more in terms of synergies at this point. It's really focused on growing the topline.

Yes. And following up on the topline comment, assuming that the Hay Group were part of Korn/Ferry since the beginning of 2015, I think you mentioned the same store performance. But can you discuss what the pro forma revenue growth of Hay Group would have been and how you expect that growth to evolve over the next…

No, I'd say pro forma is flat. I mean, if I look at, just take this quarter, revenues was up $112 million. Constant currency, that'll be about $125 million or so, times four is $500 million, which is the Hay Group business that we said exactly a year ago we were buying. So the Hay Group business pro forma is essentially, it's flat when you really look at it.

Yes. And then expectations for growth in the coming quarters?

Well, look, I can't – we only guide out a quarter. I've said in the past that I do not understand why we cannot grow the advisory part of our business by 10% a year. Now, I have not achieved that, so I think that that's the goal that I have set out publicly, but we have not yet achieved that. So I think time will tell. The market opportunity is there, no question about it. We've got a much more compelling offering to clients. It's a $30 billion to $50 billion market and we're going to define the industry. So I don't know if in your modeling, you want to use something that's single-digit, I don't know how you want to do it. But I publicly said we should hit 10% but we haven't actually been able to pull that off.

Got it. Very helpful. Thank you.

Our next question from Kevin Mcveigh with Deutsche Bank. Please go ahead.

Great. Thanks so much. Hi, Gary, Bob, Gregg. Hey, can you just run through the sequential trends in the Search business. It sounds like your new orders grew 7.5% in August, if I heard you right. What were the trends in June and July? And then just, that would be a good start?

Yes, let me just short. So June and July combined, search new business was down 12% compared to the prior year. And in August, search new business rebounded considerably. And in fact, it was on the same basis as the prior year. So that's compared to prior year. Now...

So sequentially, the most significant increase has been in the North America region which is up 25% in August compared to July.

So the 7.5% was year-on-year and that was 6% sequentially from July, Gregg, right?

Correct, yes.

So part of the 6% growth was a 25% boost in North America?

That is correct, yes.

Okay.

Which is a larger segment.

And Gary to your point, was that - is there just there was some budget that's there that people hit the pause in June and July and now, they're seeing something that says theoretically, the markets recovered, we're going to go make some hires? Is that what's driving that? Or what's driving that type of rebound because it seems pretty significant?

Yes, we certainly saw, and I'll tell you when I did this last call on June 15, we definitely - we saw clients delaying decisions. Not hiring freezes and not layoffs, so not that, but just kind of delaying decisions. And in August, we've seen a good rebound compared to May, June and July, actually. And so I don't know if you attribute that you had your vote in Brexit. You have that vote and now the world has moved on. That could be part of it for sure but that's what we've seen.

And then not to thread it too fine, but if North America was a 25% boost and it was only up 6% sequentially, does that mean EMEA, Asia Pacific, LatAm is just still negative?

No, I think the overall is actually, it is up in each of the regions.

So you need to be thinking, well, first of all, you are correct in the European region. This is - August is a very, very seasonal month. It's usually a low point of new business. So it did contract in the month of August, but that is just seasonal. August versus July. Yes. that is correct.

Okay. And then just if you think about - I mean, it sounds like you're clearly feeling better. When you talked about - how much did FX and Brexit impact the reported revenue in Q1 and the guidance in Q2? Like if we were to look at those two items and quantify it, how much did FX and Brexit impact the reported U.S. dollar and then - in Q1 and then the Q2 guide?

Well, you are trying to - you're really trying to thread this pretty fine. I would say that the fourth quarter was - it was a record quarter, right? So I think we did...

$405 million.

$405 million of fee revenue. It was absolutely spectacular. So when you look at Brexit in the first quarter, I would probably attribute $5 million to $10 million in Brexit. I'd probably attribute – this is the decline from the April quarter to the first quarter, right. I would probably attribute $5 million to $10 million around the systems conversions that we've done and we took people out of the market to do training. And then I would attribute the rest to North American search. I mean again, those numbers don't fully add up, but that's how I would kind of think about it, at least in real dollars.

Got it. But I mean, there had to be some FX impact too, just given the way the pound got crushed...

Yes. I think Kevin he was combining FX and Brexit together.

Got it, okay. That’s helpful. And then may last question and I'll get back in. Gary, can you achieve these goals organically or is in there – do you need to do some deals to kind of particularly as you think about some of these ancillary services around HR?

I think we need to continue to do acquisitions. I think we have to have a balanced approach. I think we've got to have a balanced capital allocation plan and we've also got to have a balanced agenda around growth and in fact, we do internally. That's what our strategic plan calls for, so it's both a combination of organic growth, but we also have the opportunity to continue to do acquisitions. This is an incredibly fragmented industry and we are the leader, and we are going to be the leader.

I'll get one more and then I'll jump back in. How are you guys thinking about buyback at this point?

We talk to the Board consistently around this topic. I think, as a Board, that we have agreed, again, we would be balance, that the first priority would be, number one, to invest in our business. That is absolutely priority number one. Priority number two is that to the extent we're not returning a level to our shareholders in terms of return on capital, then we must do something about that. And the thing that I would compliment our Board around is how we have been disciplined. The fact that today, we have put on debt on to our balance sheet, I think, at a very, very reasonable level. So those would be the macro answers. We also – in December, we'll have a bit of the Hay Group shareholdings vast. We are going to need to deal with that which we will do from our balance sheet. So that's without going across certainly my line, that's how I would answer that question.

Helpful. Thank you.

And next question is from Tim McHugh with William Blair & Company. Please go ahead.

Hi, guys. Thanks. First, just I'm a little confused on the new business metrics. What was the up 7%? Because I thought, Gary, you said flat year-over-year for August and then there was a plus 7% number, too.

The plus 7% number is going to be August of fiscal 2015 compared to August of fiscal 2015 and 2016, for August, for a total Executive Search new business.

And so was the flat year-over-year in August...

My flat is North America.

North America, okay. When you talk about wanting to get now focused on accelerating the growth, do you need to invest in the business again to drive that? I mean, do we need to think about from today's margin level, allowing for a period of investment in additional headcount and/or product related support to drive a faster growth rate going forward?

I wouldn't contemplate that. Today, I mean we are continuing to make investments in the way we have continued over the last few quarters to make investments into the business that we don't necessarily talk about nor did we flag. So we're going to continue to do that. But I don't foresee that we've got to throttle back the EBITDA margin by 200 or 300 basis points or something that would come screaming off the page. I don't see that at least as we sit here today.

Okay. For Futurestep, can you normally just talk about RPO and the success of that, but the kind of the project driven individual search, what are the trends there? And has that changed at all?

Yes, no, the trends in the individual search remained very strong. If you look at the growth quarter sequential over the past three or four quarters, I think quarter on quarter on quarter Burn continues to grow that portion of business very nicely.

Okay. And then, lastly, I understand Brexit was a little bit of a headwind. But I think probably what surprised me was the North American part of the Executive Search. And I guess, you've been asked a few ways in terms of just broadly a slower pace of decision-making. But if you got more granular into some of these sectors that were weak in terms of industrial and tech and healthcare, was there anything with retention of staff or is there kind of anything...

Well, no, no. Absolutely, not internal. There's things that are – I got to tell you, it's somewhat counterintuitive when you look at the new business in North America in June and July. I mean, for example, healthcare search new business was down in this quarter. That makes – that's not. There is nothing going on there that would suggest that, that is a trend, right. So now, life sciences was down, healthcare was down in June and July. There's nothing fundamentally different about those market or market opportunities or our internal makeup absolutely nothing. The other thing that was countered – and we actually saw an increase in energy to some extent, which is a good sign. But no, we actually did see people were delaying making decisions. That's actually what we saw in North America.

Okay. And is there something you need to do – so North America in August, I guess, flat – better certainly, but flat. I mean, do you think about is it just hoping for a faster pace in decision-making at clients? Or there's something you can do to accelerate the growth? How are you thinking about trying to grow Executive Search from this point?

Well look, we ultimately believe that the differentiated proposition that we have for clients around not just finding people, but designing an organization, doing performance management, doing comp and benefits consulting. I mean, we actually believe that all of those are going to drive a greater share of search. And I think over the last few years, we've demonstrated that our growth in our Search business has exceeded the competition. So I continue to believe that the strategy of an integrated go-to-market strategy anchored in IP, anchored in solutions is the key for the entire firm, including the Search business. Now as it relates to the Search business, we're going to continue to grow from within and we will also augment that with bringing people from the outside, and we're continuing to do both of those.

Okay. Fair enough. Thank you.

Next question is from Tobey Sommer with SunTrust. Please go ahead.

Thank you. Maybe to start out with a Futurestep question. What is the pipeline from new business headed into fiscal 2Q at Futurestep? Do you have prospects to keep the streak of 20% plus organic growth alive?

I think the pipeline remains pretty strong. I think some of the dynamics of the pipeline, Tobey, Burn continues, have mentioned this in prior calls, as he continues to get incrementally larger engagements and successfully executes on those that opens up more opportunities. So one of the things we're finding is some of the engagements that he's now pursuing are again, continuing to grow larger and larger. So we're pretty bullish from that perspective. I think his compares are going to start to get a little bit more challenging. I would expect to see - continue to see double-digit growth. I don't know if we'd be able to maintain 20%. At some point, it gets pretty challenging, but I would definitely continue to expect double-digit growth out of that business.

Okay. On the Executive Search side, do you plan this fiscal year to increase your consultant headcount from the levels exiting the July quarter? Sort of sequentially, should we think you ending the year end at a higher number?

I hope so.

Is it kind of a low single-digit kind of percentage growth? Any kind of color you can give about your plan?

We don't - look, we never guide out more than a quarter. So I think we've got a demonstrated track record over many quarters of promoting from within and augmenting that with talent from the outside. And actions speak louder than words and we're going to continue to do that.

Okay. You mentioned in your prepared remarks, part of what was going on in the quarter internally was all the co-location and how it impacted a real big proportion of your workforce. Does that co-location, did it largely finish prior to August? Is that partially an explanation for the rebound in productivity in North American Executive Search?

I don't think so because you got to remember that the - its not only the relocation but it's also the systems training. It's both of those. Now, the systems training would - it would have impacted the Hay Group, for example, it wouldn't have impacted the Search business. But I don't think that's the actual cause and effect. I think there's some of that in there for sure but I don't think it tells the whole story.

Okay. So on the Execute Search side, it's more market related than internal...

Yes, yes. And that's - listen, that was consistent with what analysts were saying. If you dial the stack 30, 60, 75 days ago, right, that was - that's what all the staffing companies were kind of foreshadowing and that's what analysts were talking about. And sure enough, June and July, we thought this up.

If we think about the normal seasonal pattern in North American Executive Search, what month is the best month of the current quarter, the October quarter?

October.

Okay, final month. All right.

It's typically the second-highest month of [indiscernible] in any fiscal...

After April?

Actually, March. March would be number one and October…

Prior to March, sure. And then, Gary, you mentioned I think, in your prepared comments, several initiatives for growth including healthcare. Could you - I apologize if you mentioned it but what is healthcare as a percentage of the business now and where would you like it to be?

Healthcare today is about 7% of the portfolio. And I see no reason why that shouldn't be 15% to 20% of the portfolio. Now that may be aggressive and that's certainly where I'm pushing people. You can pick your own number but today, the healthcare part is relatively small compared to the contribution of healthcare in GDP. And to me, that doesn't make sense. The organizations are going through tremendous change. They're going to continue to go through that change and I see a real known market opportunity there.

Thank you. The last question I had, just a technical one for Bob. The Hay Group, the stock associated with the transaction, could you refresh us on the dates and the timing of that vesting? Thanks.

Yes. So there was roughly 6 million shares that were issued on December 1 of last year and 1/3 of those shares will become freely traded on the first anniversary, the second anniversary and third anniversary of the transaction. So I would say roughly 2 million in December, 2 million the following and 2 million after that.

Thank you very much.

Next question is from Greg Mendez with Baird. Please go ahead.

Hi, thanks. This is Greg calling in for Mark. Just one quick question on Hay. Can you just remind us, when is the – when will the integration be complete? And at this point, are you still able to talk about legacy Hay versus the old L&TC business, the performance there?

Yes. So this is Bob. The integration will be substantially completed by the end of this fiscal year. So we'll have everybody on to common platforms and systems and processes and so on. The only thing that will lag into the following year, there is one real estate co-location activity that will take place. We no longer have the ability to pull apart the legacy businesses starting May 1 of this year when we brought, as Gary indicated, 75% of the revenues on to our systems and processes. Everything gets mixed together and it's no longer possible for us to pull it apart and say well, this is legacy LTC and this is legacy Hay Group, it's all Hay Group now. And quite honestly, it's how we're managing the business. We're not looking at it as separate units any longer, it's all blended together.

Okay. And Gary, you mentioned a few initiatives for growth that you're working on. You mentioned you already have brought in hires to support some of those. Can you just talk us through how quickly do those go into effect? Are we already working on all of them? If you can just give any color on that, that will be great.

Well, the ones that are the most tangible are the comp and benefits area, both in terms of solutions and products. In other words, our reward capabilities that we offer to clients. Today, when you look at our advisory business, so call it almost $800 million. I'm rounding up, but almost $800 million, about 20% of that, a little bit around 20% of it would be rewards, both solutions, services and what we call productized services. So call it $150 million, $200 million business. You look at the market opportunity around rewards and it's multi-billion dollars. I mean, that is how we size that market. Overall, we're sizing a market of about $50 billion addressable market for us and a subset of that would be around rewards, consulting and productized services and it's multi-billion dollars. And so we're looking at, today, a business that's $150 million, $200 million. And we're looking, wow, that's very, very attractive. It's very adjacent to what we do overall. It's very adjacent to search. And so we see great opportunities there both advising compensation committees, as well as advising management teams and licensing our data around rewards. We have reward data on almost 25 million executives around the world in over 20,000 companies and so, that is a known opportunity. We have now made investments in hiring people into that business and we're going to continue to do that. I hope that we can harvest those seeds over the next few quarters. The secondary is that's real – that we did talk about was healthcare. You've got the same phenomenon where it represents kind of 7% of the portfolio and you just look at it clinically and say, wow, shouldn't that be more like 15% of the organization? And so in both of these areas, we have to make sure that we have global solutions, that we invest in people and process to be able to seize all those opportunities.

That’s great. Thank you for the color. End of Q&A

And it appears there are no further questions. Mr. Burnison?

Okay. Well, listen, I thank you everybody. Again, I would tell you that the topline was probably short of what I would have liked to do. But I am proud of the organization and our results, and I'm even more bullish on the platform that we're creating and a Company that definitely has bigger staying power and greater earnings power. So with that, thank you for listening and we'll talk to you next time.

And ladies and gentlemen, this conference call will be available for replay for one week starting today at 6:30 PM Eastern daylight time running through the day, September 15 ending at midnight. You may access the AT&T teleconference playback service by dialing 800-475-6701 and entering the access code 401833. International participants may dial 320-365-3844 with the access code 401833. Additionally, the replay will be available for playback at the Company's website, www.kornferry.com, in the Investor Relations section. And that concludes the management's prepared remarks. And I'll just turn it back to Mr. Burnison for any closing comments.

No, that's it. Thank you very much.

Good. And that will conclude our teleconference. You may now disconnect.