Exponent Inc (EXPO) 2016 Q4 法說會逐字稿

Good day, and welcome to this Exponent fourth-quarter of FY16 results conference call. Today's conference is being recorded.

At this time, I'd like to turn the conference over to Whitney Kukulka. Please go ahead.

Thank you, operator. Good afternoon, ladies and gentlemen. Thank you for joining us on Exponent's fourth-quarter and FY16 financial results conference call.

Please note that this call will be simultaneously webcast on the investor relations section of the Company's corporate website, at www.Exponent.com/investors. This conference call is the property of Exponent, and any taping or other reproduction is expressly prohibited without prior written consent. Joining me on the call today are Paul Johnston, Chief Executive Officer; and Rich Schlenker, Executive Vice President and Chief Financial Officer.

Before we start, I would like to remind you that the following discussion contains forward-looking statements, including but not limited to Exponent's market opportunities and future financial results, that involve risks and uncertainties, that may cause actual results to differ materially from those discussed here. Additional information that could cause actual results to differ from forward-looking statements can be found in Exponent's periodic SEC filings, including those factors discussed under the caption, factors affecting operating results, and market priced stock in Exponent's most recent Form 10-K.

The forward-looking statements and risks in the conference call are based on current expectations as of today, and Exponent assumes no obligation to update or revise them, whether as a result of new developments or otherwise. And now, I will turn the call over to Paul Johnston, Chief Executive Officer. Paul?

Thank you. Thank you for joining us today for our discussion of Exponent's fourth-quarter and FY16 results. Exponent's fourth-quarter and full-year 2016 results were slightly better than our prior outlook.

Net revenues increased 4% in the fourth quarter, and net income was up 5%. During the second half of 2016, we began to see in increase in demand, especially for our expertise in the consumer products and construction industry sectors. We are pleased that our fourth-quarter results show year-over-year growth in revenue and profitability.

For the fiscal year, net revenues were $299 million, a 1% increase from last year. Although this is not the level of growth we would like to see, it is slightly better than our prior outlook.

Revenue growth was tempered by a challenging year-over-year comparison in the first half of the year, and softness in a few industry sectors, especially in the oil and gas industry. 2016 net income was $47.5 million, or $1.75 per diluted share. In line with prior expectations, fourth-quarter utilization improved to 68%, bringing the full-year utilization to 70%.

We made prudent staffing adjustments in a few select areas, to rebalance capacity with client needs. Adjustments that we made to headcount during the second half of the year favored profitability and utilization over revenue growth. While the resulting lower headcount created a headwind for year-over-year growth, we have seen modest improvements in utilization, and are prepared to begin headcount growth in 2017, with a focus on practices with strong client demand.

Our engineering and other scientific segment is the largest part of our business, representing 78% of Exponent's 2016 net revenues. Net revenues in this segment grew 6% in the fourth quarter and 5% for the full year, as compared to 2015.

During the quarter, demand for our reactive and proactive services in the consumer electronics industry remains strong. This industry represents approximately 12% of our business.

Last week, you may have seen that Samsung announced Exponent's multidisciplinary team of engineers and scientists assisted them with the evaluation of the Galaxy Note 7, which led to a recall of the product. We presented our findings at a January 23 news conference hosted by Samsung in Seoul, Korea.

Exponent has extensive experience in battery technology assessments, and we have done over 350 battery projects in the last two years. We continue to work with Samsung and other consumer product companies, to evaluate lithium ion battery technology for future products. This exemplifies our opportunity to leverage our experience and reputation in reactive services, in order to drive growth and development of our proactive services, both domestically and overseas.

As we discussed in the third quarter, we are experiencing increased demand for our expertise in construction disputes for major international capital projects. Exponent is unique in being able to bring together experts in construction consulting and complex technologies, in one integrated team. While we have had this experience for several years, more recently we have added people in Hong Kong, and expanded our marketing in Asia, which has resulted in this uptick in international business.

Additionally, in our engineering and other scientific segment, we had several practices with notable growth. The materials practice saw growth from the utilities industry, in performing failure analyses of systems, and providing proactive services in asset and integrity management.

The polymer science and materials chemistry practice has been heavily involved in battery work, as I discussed earlier, the human factors practice have been growing its user study services for the consumer products industry, and the biomedical practice has realized growth in design consulting as well as product liability claims support. We are encouraged by the diversity in both proactive and reactive growth opportunities.

Despite softer market conditions in a few industry sectors in 2016, we are encouraged by our ability to increasingly capitalize on global demand, and generate mid-single digit growth in our largest segment. The balance, or 22% of Exponent's 2016 net revenue, was from our environmental and health segment. As compared to the same period last year, net revenues were down 1% in the fourth quarter and declined 11% for the full year.

It should be noted that the segment actually grew in the fourth quarter before adjusting for foreign exchange, for consolidated financial statement purposes. The food and chemicals practice expanded, as it assisted clients with regulatory issues around the world. The year-over-year net revenue decline in 2016 in this segment was driven by the completion of a major project in the third quarter of 2015, as well as the reduced spending in the oil and gas and industrial chemicals industries.

Challenges remain in the market, but they are not unique to Exponent, and we are not seeing any significant changes to the competitive environment. Our highly skilled professionals, multidisciplinary teams, and geographic reach combine to help Exponent engagements and increased brand recognition in the US and internationally. We continue to be retained to investigate many significant accidents and product recalls, and evaluate reliability, safety, human health and environmental impacts of the increasingly complex technologies, products business, and the global environment.

Turning to our dividend and repurchase activity, in 2016, Exponent paid $18.8 million in dividends, repurchased $24.5 million of common stock, and ended the year with $174 million in cash. Today, we announced an increase in our quarterly dividend from $0.18 to $0.21 per share, and reiterated our intent to continue to pay quarterly dividends.

We believe that our ongoing share repurchase plan, coupled with our increased quarterly dividend indicate our confidence in the Company's long-term financial position, and reflect our commitment to delivering shareholder value. Now, I'll turn the call over to Rich for a detailed review of our financial performance and business outlook.

Thanks, Paul. For the fourth quarter of 2016, total revenues were $77 million, up 5% from one year ago. Revenues before reimbursements, or net revenues as I will refer to them from here on, were $72.8 million, up 4% compared to the same quarter of 2015.

Our revenue growth in the fourth quarter was reduced by [8/10 of 1%] from translating foreign currency for consolidated financial statements. Net income for the fourth quarter increased 5% to $10.4 million or $0.39 per diluted share, as compared to $9.9 million or $0.36 per share in the same quarter last year. EBITDA for the quarter was $18.2 million, a 5% increase as compared to the same period of 2015.

For FY16, total revenues increased slightly to $315.1 million, from $312.8 million in the prior year. Net revenues were $299.2 million, a 1% increase from 2015. Our underlying growth was 4%, excluding the 2.6% impact of the major project completed in the third quarter of 2015, and the [7/10 of 1%] impact from translating foreign currency for consolidated financial statements.

In the first quarter of 2016, Exponent early adopted a new accounting standard for the classification of tax adjustments, associated with share-based awards, which was applied prospectively. While this was primarily a first-quarter event, there was a nominal impact in the subsequent quarters. In FY16, the realized tax benefit was $4.8 million, or $0.18 per diluted share.

Including the tax benefit, net income was $47.5 million, an increase of 9%, as compared to $43.6 million in 2015. For comparison purposes, excluding the tax benefit, net income would have been $42.7 million in 2016, representing a decrease of 2% year-over-year. Earnings per diluted share increased to $1.75, inclusive of the $0.18 per share benefit, as compared to $1.60 in 2015.

For the full year, EBITDA was $74.6 million, down 2% over 2015. For the fourth quarter, billable hours increased 3.8% to 270,000 as compared to the same period in 2015. For the full year, billable hours declined by [6/10 of 1%] to $1.1 million, as compared to one year ago.

Utilization for the fourth quarter was 68%, as compared to 66% in the same quarter of 2015. As a reminder, we have seasonality in our business related to sequential increases from quarter to quarter, in holidays and vacations. The New Year's holiday fell in 2017, giving us approximately 1.5 percentage point benefit in the fourth-quarter utilization, which is attributable to one more workday in the fourth quarter of 2016 as compared to 2015.

We expect the utilization for the first quarter of 2017 to be down approximately 2 percentage points from the 74% we achieved in the first quarter of last year, based on an additional holiday, and a manager's meeting in March, both of which we did not have in 2016. For the full year 2016, utilization was 70%, down from 72% last year.

The decrease in utilization was due to the impact of the major project, which ended in the third quarter of 2015, and softening in a few industry sectors. For the full year 2017, we expect utilization to be flat to slightly up, which includes the impact of the manager's meeting and the extra holiday in the first quarter.

Technical full-time equivalent employees in the fourth quarter were 758, which is down from 760 in the same quarter of 2015. For the full year, FTEs were up 1.7% to 764. We ended the year with approximately 752 FTEs.

For 2017, we expect quarterly sequential headcount growth to be approximately 1% from a base of 752. We will continue to selectively recruit top talent in many of our disciplines to meet current demand, and position the Company for future growth. In the fourth quarter, the realized bill rate increase was approximately 2% year over year, partially offset by a [1/10 of 1%] for translating foreign currency for consolidated financial statements.

For the full year 2016, the realized bill rate increase was approximately 2.5%, partially offset by [7/10 of 1%] for translating foreign currency. For the full year 2017, we expect the realized bill rate increase to be approximately 2% to 2.5%, and the impact of translating foreign currency for consolidated financial statements to be approximately [3/10 of 1%] based on current rates.

EBITDA margin for the fourth quarter was 25% of net revenue, a marginal improvement from 24.9% in the same period last year. For the year, EBITDA margin was 24.9%, down approximately 90 basis points as compared to 25.8% last year, but better than our expectations.

We expect EBITDA margin for the full year of 2017 to decline approximately 25 to 75 basis points, as compared to 2016. EBITDA margins in the first quarter of 2017 will be down approximately 200 to 250 basis points as compared to the same period last year, because of the additional holiday, and the cost of the manager's meeting.

For the fourth quarter, compensation expense, after adjusting for gains and losses in deferred compensation, increased by approximately 4%, as compared to the same period last year. Included in total compensation expense is a gain on deferred compensation of $1 million, which is approximately the same as one year ago. As a reminder, gains and losses in deferred compensation are offset in miscellaneous income, and have no impact on the bottom line.

For FY16, compensation expense increased 2.5%, after adjusting for gains in deferred compensation of $3.9 million, as compared to a loss of $300,000 in the prior year. Stock-based compensation expense was $2.7 million in the fourth quarter, and $13.3 million in FY16, up 10% and 3% respectively. For the full year of 2017, we expect stock-based compensation to be between $13.5 million and $14 million, with approximately $5 million to $5.5 million being expensed in the first quarter and $2.7 million to $3 million in each of the remaining quarters.

Other operating expenses were $7.2 million in the fourth quarter, and $28.4 million for the full year, up 3% and 5% respectively. Included in other operating expenses is depreciation expense of $1.6 million for the fourth quarter, and $6.1 million for the full year. For 2017, other operating expenses are expected to be in the range of $7.4 million to $7.8 million per quarter.

G&A expenses decreased approximately 9% to $4.1 million in the fourth quarter, and increased 1% to $15.5 million for the full year. For 2017, G&A expenses are expected to be $4.5 million to $5 million in the first two quarters, due to the manager's meeting, and $4 million to $4.5 million in the final two quarters.

Our fourth-quarter tax rate was 38.1%, as compared to 38.4% in the fourth quarter of last year. Our FY16 tax rate was 31.3%, compared to 38.7% in 2015. Our 2016 tax rate benefited from the adoption of the new accounting standard, which is primarily a first-quarter event for Exponent.

For comparison purposes, exclusive of the tax benefit, our tax rate would have been 38.3% for the year. Future tax benefits from new accounting standards will depend on gains realized when stock awards are distributed. Currently, we expect 2017 tax rates to be comparable to 2016 levels.

Operating cash flow was $29.7 million for the fourth quarter, and $66.9 million for the full year. Capital expenditures were $1.3 million for the fourth quarter, and $14.4 million for the year. The capital expenditures included the purchase of a warehouse in the third quarter of 2016 which we previously leased, and is adjacent to our headquarters.

For the year, we repurchased $24.5 million of common stock for 491,000 shares, at an average price of $49.78. We have $57.3 million available for future repurchases.

In 2016, we also distributed $18.8 million to shareholders through dividend payments. Today, we announced an increase in our quarterly dividend to $0.21 per share for the first quarter of 2017. We ended the year with $174 million of cash and short-term investments.

Looking ahead to FY17, we expect to achieve modest top line growth, due to the adjustment in headcount during the second half of 2016, and market conditions in a few sectors. As a result, we expect FY17 revenues before reimbursements to grow in the low to mid single digits and the EBITDA margin to decline approximately 25 to 75 basis points, as compared to 2016.

Although market conditions have tempered our underlying growth over the past three quarters, we remain confident in our long-term expectations for revenue growth to return to the high single to low double digits, which will also enable us to continue to improve our margins. I will now turn the call back to Paul for closing remarks.

Thank you, Rich. As we look to 2017, we are focused on the same long-term financial goals: Producing organic revenue growth, increasing earnings per share, and maintaining a strong balance sheet.

As products continue to be more technologically complex, and the Consumer Product Safety Commission escalates enforcement, we are increasingly called upon to assist clients proactively in evaluating their products, and reactively to investigate consumer safety events and potential product recalls. We believe our brand is growing globally, as illustrated to by the high-profile engagements by Toyota on unintended acceleration, by Honda on airbags, by Samsung on the Note 7 and several others on international construction disputes.

We have a diversified portfolio of clients, a world-class team of highly skilled professionals. Exponent is uniquely positioned to capitalize on the increasing technological complexity of products, as well as society's heightened focus on product safety, human health and environmental issues. We believe that our share repurchase program and ongoing quarterly dividend payments are clear signs of our commitment to deliver long-term shareholder value.

We look forward to updating you on our progress as we move through 2017. Operator, we are now ready for questions.

(Operator Instructions)

Tobey Sommer, SunTrust.

I wanted to ask a question about the guidance for growth, versus the long term growth rate, which you clearly endorsed is still how you look at things overtime. I understand that you had some big projects end and some transitions happened recently, but do you a need significant change in the market to get back up to the long term growth rate? Or just some more time to hire more people, and build the engine of growth? Thanks.

Thanks, Tobey. So a couple of things on that. We do need some time, and the time is because we had to do a bit of a reset for the middle of 2016, as we described of adjusting some headcount so we took a little bit of a step back in order to move forward there so that does, until you pass through that time period and get the growth in our headcount back going again this year, as Rich described sequentially 1% per quarter, so that we're acting each quarter on a larger basis headcount, so there is some time required for that to happen.

With regard to the business climate, there are a few things that need to settle into place. Clearly, we've talked quite a lot about oil and gas. Oil and gas is a very important industry sector for us, and something that clearly has had a downturn.

Given the current political climate, there's some promise around that but obviously these things take a little bit of time to come through. We see the same situation for example with the infrastructure area. So in summary, it is time but there are two -- a couple of strengthening industry sectors that would help us do that.

Thanks, that's helpful. That makes sense. I wanted to ask you about your product business, oriented towards government and defense. Has the market for that changed? Or if there was demand for the services that you provided in years past, is that a role that Exponent could easily try to fill again? Thanks.

So, Tobey, we are not looking to fill that, unless there were different circumstances. So just to recap on the circumstances that allowed us to play a significant role there, during the time that we had combat troops in Iraq and Afghanistan, the US Army had a rapid equipping force which was designed to have much more commercial level engagement with business, in terms of providing support, in what I'll call a much more favorable or rapid contractual way.

So the result was that rather than being in a cost plus fixed fee and bidding on long-term projects, it was a situation where we could effectively receive commercial terms, and we were operating in a way that would help insert technology to help save the lives of our troops, because they were -- most of the casualties were around IEDs and there were a lot of technology ideas to help reduce those casualties. That was a fairly unique circumstance, and we knew when that was coming to an end.

Obviously we announced that well in advance, really of the close of 2014, we are talking about. And we did not then and do not now think that we have an interest in our business model to contract with the government on a cost-plus-fixed-fee basis to deliver products to the military.

Thank you. Just two other questions for me. For your guidance on a segment level for growth, could you give a little color as to how that may shake out, relative to the overall Company's revenue growth? And then closing out for me, could you discuss tax reform and the potential benefit to your cash flows? How that may look at this point, given that we are still waiting for a lot of details, of course?

Yes. We don't give guidance on a segment-by-segment basis, but what I would say is that clearly, the engineering area continued to have solid growth here, not up at the level we wanted but good middle single-digit growth at the tail end of this past year, even with some of the impact from oil and gas, a little bit of IP in that area. So I would expect that area will continue to be growing at those levels, be stronger.

The environmental and health area is more challenged, because more of its business was made up in the oil and gas area, and the impact with some of the changes going on in the industrial chemicals area. So we will find that our environmental and health will be a little bit more challenged in the short term from it, than our engineering segment, which is much more diversified in its industry basis.

As it relates to the taxes, clearly aside from the tax benefit we just got, which is just reconciling what was happening already on a cash basis to what was happening on accrual basis, that when we adopted the new accounting standard, leaving that aside, Exponent pays a full freight on taxes. As I mentioned our underlying tax rate is still up over 38%, so any movement 5%, 10%, 15%, whatever it may be, that is a movement in the federal tax rate would be clearly very beneficial to Exponent, based on our current tax structure. We would be looking at a 10% change in the tax rate would probably generate somewhere between 12% and 15% improvement, 10% and 15% improvement in our earnings.

Thank you very much, that's helpful.

Joseph Foresi, Cantor Fitzgerald.

I was wondering on the Samsung work, how big can that project get, and could we be facing another large client issue?

Joe, so what I would say about that retention is that it's not, has not been, and is not, and at the moment we certainly don't foresee that it will get back in the range, that it will ever be in the range when we called out three large projects, plus the work we did for the military. So if you recall that some of those very large projects that we called out ran in the 4% to 5% of the Company's revenues, and we alerted the investors to that, because it was out of the ordinary.

What we always say is that we typically have a number of ongoing projects that are up to, let's say, 2% of revenue that wouldn't be out of the ordinary. It could be 1% or something in that range. Those projects we have on a fairly regular basis, and it's only when they get above 2%, 2.5% that we single them out as being something extraordinary. Samsung is not in that category of being above that threshold.

Got it. And then, maybe we can just get an update, if you can qualify for us as a percentage of revenue, maybe the consumer and construction, so the positives versus the oil and gas which I know you gave before, but just as an update, just are big those as part of your revenue at this point?

So we are in the consumer's area here, just one second, I had that somewhere. So construction in total because it cuts across a broad set of industries, doesn't end up coming in at the highest numbers there, but consumer products tends to run in the low teens for us as an overall part.

Okay. And then the oil and gas, as an update, how big is oil and gas?

About 5% of our revenues.

Okay. And is it safe to say that these businesses are running low-double digits, as far as growth rates are concerned right now?

Yes.

Okay. And the last one for me, you may have talked about utilization being down in 1Q, but I'm wondering how does utilization look for the totality of 2017? And following up on an earlier question, any thoughts on what the Trump administration can mean for you outside of taxes?

As I indicated in my comments, we expect that the full-year utilization will be -- come out to be flat to slightly up, so our expectation is that utilization overall in the back three quarters would be for that nine-month period of time would have to be slightly above where we were in 2016.

Got it.

Joe, with regard to the emerging policy directions and so forth of the Trump administration, we're still in a mode where, from our standpoint, we do see his direction being favorable to the oil and gas industry which we think should help us. We also think that if the infrastructure areas progress as proposed, that would help as well. These may take a little time to develop, but we do think that they are in a positive direction for Exponent's business.

In the short term, there's a little bit of a challenge, because there's obviously a considerable amount of uncertainty on the regulatory side, and uncertainty sometimes means that projects get stalled a little bit. So from that standpoint, I'd say we see some positives and some negatives, but overall, we see that as being reasonably balanced.

And the other thing is, the recent issue with regard to immigration. We do have a number of people at the firm who are on H-1B visas, however we don't have any of those people from any of the seven countries that were identified. So in terms of what I call the business impact it has not been something that has directly affected us in that way.

Okay, thank you.

Tim McHugh, William Blair.

Yes, thanks. First, just talking about profit margins. Is it the Manager's Meeting, or why with revenue growing, it seems like at a pace that's faster than the compensation growth you saw last year, and I would assume you'll see this year. So why -- what's the pressure on margins as we think about 2017?

Yes, there is two things overall. One is a broader base, and that is, if we are going to see revenues only growing in the low- to mid-single digits I think that's a difficult level of growth to be able to realize margin improvement. We've discussed before that costs growing in that middle single-digit range, without really squeezing cost out, is difficult there.

So we view that it -- clearly, we've always seen that when we are growing above middle, high-single digits to low-double digits, we've expanded margins every time. We've been able to do it at lower levels, but as an overall model, it becomes difficult at those lower rates.

In addition to that, we have a Manager's Meeting which is about half of our staff that we are having. We didn't have it in 2016. We're having actually in the first quarter of 2017, here at the end of March, beginning of April, and as such that will be an increased cost of a probably a little over $1 million, let's say.

Okay.

Overall, it's not -- we have over 400 people come to it. It's not hugely over cost per person, but at the end of the day it's something that we really find is valuable for us to do every couple of years, and we get a lot out of it. It's just when we have that year-over-year comparison, it's more challenging.

Okay. And I didn't hear any mention of intellectual property this quarter. Is that less of a headwind, or is it just small enough that it's not something you called out?

I actually think it's both. It's fairly small and there's a little bit more of that's come in lately, but it's pretty small.

Okay. And then lastly, maybe the comment about international, I get obviously why you have won some high-profile work there. Is that a signal though about how you think about growth, and where you want to try and put resources the next couple years? Are we going to see you be more aggressive internationally, or is it still one where just status quo in terms of the existing pace of investment?

So in the past year, we have been increasing our overseas investment, still relatively modest, but adding people to Hong Kong as I mentioned in my remarks, is a part of that, that's very focused on international arbitrations and so forth. But we're also trying to bring some new engineering talent into the UK, and that is focused more on consumer product safety issues in Europe, where we're very well positioned here in the United States.

And I think our international reputation, we do have some of these international clients, multinational clients that actually would like us to have some resources to assist them, more resources in Asia and also more resources in Europe. So I do expect we'll be moving in that direction, but we're not planning on moving so aggressively that we have a lot of expense ahead of the revenue. But we absolutely do think we will be adding resources to both those areas.

Okay, great. Thank you.

Randy Reece, Avondale Partners.

When you talk about low- to mid-single digit revenue growth, should I interpret that as 1% to 5%, or 2% to 4%? Do you have something precisely in mind, or how should I interpret that?

Well, low to mid for us means 1% to 5% at the broadest range. Based on some of the other metrics we have laid in there, that it is more likely somewhere in the middle of that range, is where we fall closer to. But we're somewhere -- it's probably not out, hopefully not out at the lower extreme, and with some positive things, hopefully moving to the upper side, but clearly definitely more in the middle.

As the year goes on, with the consumer electronic work, do you have enough overall that has been stirred up, in terms of combination of proactive and reactive work? Were you going to continue to have momentum in that business through the year, or is there a point in the year where you think that the comparisons will get more difficult?

No. The momentum on the area should continue. Our comment about much of this specific area is not the only thing we do, but there's a lot that's driven by battery storage issues, by lithium ion battery technology. I mentioned how many cases we've done in the last -- how many projects we've had in the last two years.

This is a technology that is involved in not just consumer electronics, but all kinds of consumer products. It's also something that's involved in some medical devices. It's certainly something that's involved in the automotive area, the transportation area, aircraft. It's involved in power tools. It goes on and on.

One of the things that was pretty noticeable about the challenge that Samsung had with the Note 7 is, it's a very sophisticated Company that still ran into significant problems with two suppliers, and it's a wake-up call to not just people in the consumer electronics industry, but to people more broadly. We think this is going to continue to be an area of special interest for not a matter of a few quarters, but certainly for years.

Finally, the way the calendar falls this year, should we expect it to be similarly favorable for fourth-quarter utilization? Because we end up with New Year's Day on a Monday?

It will. This year will mirror, other than in the first quarter, then it will be similar for the fourth quarter of 2016.

Very good. Thank you very much.

Marc Riddick, Sidoti.

Wanted to get a sense of the mix of expertise required with some of the more recent business, and what you were looking for going forward. Particularly, are some of these engagements may be utilizing more of your senior people that maybe it might have historically? And what type of mix you foresee as far as recruitment for 2017.

No, the recent consumer-electronics work, for example, uses a very good distribution across the ranks of our firm. Certainly, there are some very senior consultants engaged in that, but there's a lot of analysis, evaluation, lab work, and so forth that's a pretty comprehensive set of work we do, and also spans across quite a number of our practices and disciplines. So we feel that is pretty well balanced, and isn't tilting too much of the Firm one way versus another way.

Okay, and then maybe as far as recruitment expectations for 2017 in that regard?

Look, our recruitment is the majority of the people we hire tend to be at mostly the entry level. They tend to be in the stronger recruiting that's done out of the universities in engineering and other scientific segment, so we continue to do that. Our main growth model is to hire bright people, primarily out of PhD programs, but not exclusively at the entry level, and grow them up to get to the principal or equivalent of partner level. We selectively are certainly looking for some senior people, and we will continue to do that. They are of course much more difficult to find, but we will continue to focus on bringing some level of talent in at the most senior level.

Okay so it's fair to characterize it as being similar to where your views may have been on that mix three, six months ago. Not much has changed (multiple speakers).

That's correct.

Okay, that's good. One of the other things I want to touch on is the construction area. You made mention of that, as far as a call out, and I wondered if you could give a little bit of an update there, both with maybe if that was part of some of the hiring in Hong Kong, maybe where you see that going, and where that practice is both -- it's smaller here in the States if I remember correctly, but if you can give a little bit of an update in that regard, that would be great.

Yes, so what we found is that there are a lot of -- a considerable number of major capital projects obviously worldwide, whether they be in Asia or Australia, or essentially these are large capital projects that global companies are involved in, and often, there are significant cost overruns and delays and so forth associated with them. These are typically pretty complex projects. They could be major oil and gas development, development of special port facilities, they can be mining related. There's a variety of these projects and where we have a unique play here is that these projects typically involved people with experience in construction, scheduling, delay claims and so forth.

These are technically very complex projects, and the result of that has been that there is substantial reach back to our staff here in the United States, with expertise in material science, mechanical engineering, structural engineering, various different facilities. And that is what has become fairly exciting from that standpoint.

As we get ourselves better known in that business, which was largely started here from the international standpoint by some projects we've had for many years out of London. But we haven't traditionally had much out of Hong Kong or Singapore, and that is where we're seeing some more connections to clients.

That's the international part that is a bit new. We continue to do a fair amount of construction consulting and scheduling projects, and various things within the United States, for various programs here.

Okay. Great. Appreciate it. Thank you very much.

You're welcome.

Ladies and gentlemen, it appears there are no further questions in the queue at this time, and we do thank you for your participation in today's conference. You may now disconnect.