Heidrick & Struggles International Inc (HSII) 2015 Q4 法說會逐字稿

Good morning. This is the Heidrick & Struggles fourth-quarter 2015 conference call. This call is being recorded, and it may not be reproduced or retransmitted without the Company's consent.

(Operator Instructions)

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

Good morning, everyone, and thank you for participating on Heidrick & Struggles' fourth-quarter and 2015 conference call. Joining me on today's call is our CEO, Tracy Wolstencroft, and our Chief Financial Officer, Rich Pehlke. During the call today, we'll be referring to supporting slides that are available on the IR homepage of our website at heidrick.com. We encourage you to follow along (technical difficulties) print them.

Today we will be using the terms adjusted EBITDA and adjusted EBITDA margin. These are non-GAAP financial measures that we believe better explain some of our results. A reconciliation between GAAP and non-GAAP financial measures can be found on the last page of our press release and on slides 12 and 33 in our supporting slides.

Throughout the course of our remarks, we will be making forward-looking statements and ask that you to refer to the safe-harbor language contained in our news release and on slide 1of our presentation. The slide numbers that we'll be referring to today are shown in the bottom right-hand corner of each slide. Tracy will be covering the first 15 slides, starting with slide 3. Tracy, I will turn the call over to you.

Thanks, Julie, and good morning. I am pleased to report our results this morning. The fourth quarter contributed to an excellent year for the Firm.

Employees of Heidrick & Struggles collectively achieved the goals we set last year at this time, and our financial results reflect their hard work. We've established clear and positive momentum in the market. More importantly, our clients are noticing.

In 2015, we focused on four priorities to improve performance and drive shareholder value. Number one, our talent; two, our clients; three, our diversified offering of Search, Leadership Consulting, and Culture Shaping; and four, our internal operations.

As a result of that focus, all of our key business and financial metrics improved in 2015. Some of the highlights include, consolidated net revenue was $531 million, an increase of almost 8% over 2014, or 12% in constant currency.

We also delivered improving the profitability. Adjusted EBITDA, adjusted EBITDA margin, operating income, and operating margin all improved again in 2015.

Revenue in Executive Search & Leadership Consulting grew 8%, or 13% in constant currency. Performance in the Americas region drove this growth. Asia-Pacific contributed as well. Europe's fourth-quarter increase helped minimize the region's full-year reported decline, and in constant currency, Europe actually grew 4% in 2015.

For the first time in at least 10 years, the Healthcare & Life Sciences practice was the largest driver of revenue growth, up 48% year over year, and represented 10% of total billings.

We made meaningful progress in attracting, developing, and retaining the very best talent in the industry, and ended 2015 with 334 consultants, up 9% year over year. Our voluntary turnover was the lowest in seven years. These are strong indicators that Heidrick & Struggles is once again an attractive destination for the most talented professionals in our field.

We confirmed 7% more searches in 2015, delivering on our purpose which is: "We help our clients change the world, one leadership team at a time." The important work we are executing around the world in some of the most well-known and respected organizations has further served to elevate our brand and he power of Heidrick.

In Culture Shaping, we grew our business 5%, or 6% in constant currency. Separately, we paid down $29.5 million of debt related to our acquisition of Senn Delaney in December of 2012.

Last, but not least, we acquired a London-based leadership advisory firm specializing in accelerating organizational performance in October, and with that transaction, gained a new leader for our Leadership Consulting practice, namely Colin Price.

These are just a few of the highlights for 2015. I will get into 2016 after Rich gives you further details on the fourth quarter of 2015.

Thank you, Tracy, and good morning, everyone. I will start with some insight into fourth quarter results beginning on slide 16. Fourth-quarter net revenue came in above our expectations at $144.5 million, up 19% compared to last year's fourth quarter and up 23% in constant currency. Both the Executive Search and Leadership Consulting businesses, as well as Culture Shaping, contributed to the growth of 19% and 25%, respectively.

In the Executive Search and Leadership Consulting segment, revenue grew in all three regions, and Americas and Europe were the key drivers and the fourth quarter. Europe achieved sequential improvements in net revenue throughout the year and finished especially strong. The addition of Co Company in October was partially responsible, but the improvement came from throughout the region in the fourth quarter, with 11 out of 15 offices delivering year-over-year growth.

Globally, executive search confirmations were up 13% for the quarter. In fact, if you look at slide 22, you'll see that fourth-quarter confirmations were the highest fourth quarter in five years, surpassing our last high water mark of 2011.

Turning to slide 23, the Financial Services, Healthcare & Life Sciences, and Global Technology and Services practices drove net revenue growth. Consultant productivity, as shown on slide 25, improved to $1.6 million. And the average revenue per search was higher in the fourth quarter despite currency headwinds.

Looking at slide 27, our Culture Shaping segment also had a good fourth quarter, up 25%. As we've reminded you the last few quarters, there is quite a bit of quarter-to-quarter variability in this segment's results, largely due to a function of the timing of project executions.

Looking at slides 28 and 29, salaries and employee benefits expense increased 22.4%, or $19 million, to $104.5 million in the 2015 fourth quarter. Variable compensation expense increased $10 million, primarily related to higher bonus accruals for consultant performance. With the fourth quarter being stronger than expected, more consultants became bonus eligible, and some and higher tiers of our payout structure.

Fixed compensation expense increased $9 million, largely reflecting higher minimum guarantees and sign-on bonuses for 2015 consultant hires, an increase in headcount, and a higher stock-based compensation expense. Salary and employee benefits expense was 72.3% of net revenue for the quarter, compared to 70.4% in the 2014, fourth quarter.

Turning to slide 30, general and administrative expenses increased 8.3%, or approximately $3 million, to $34.8 million in the quarter. The increased primarily reflects the additional of Co Company and also higher professional services fees related mostly to nonrecurring projects. As a percentage of net revenue, general and administrative expenses were 24.1%, compared to 26.5% in the fourth quarter a year ago.

Now I'll refer to slides 31 through 35. Adjusted EBITDA in the 2015 fourth quarter increased 19%, to $11.4 million. And the adjusted EBITDA margin was 7.9%, the same as in the 2014 fourth quarter.

Operating income in the fourth quarter increased 38.9% year over year, to $5.3 million, and operating margin was 3.7%. The year-over-year improvements in adjusted EBITDA and operating income reflect higher net revenue, partially offset by the increases in salaries and employee benefits expense, and the general administrative expense increased as well.

Turning to annual results. Tracy has hit on most of the 2015 highlights, but I'm going to walk through some additional details that aren't covered in the release. I'll start by referring to slides 36 and 37.

2015 salaries and employee benefits expense was $369 million, representing 69.5% of net revenue. Compared to 2014, salaries and employee benefits expense increased $32 million, or 9.5%. In constant currency, the increase was 14.5%.

As reported, variable compensation increased $18 million as a result of the higher net revenue and improve Company performance. Fixed compensation expense increased $14 million as a result of higher minimum guarantees for 2015 consultant hires, increased headcount, sign-on bonuses, and stock-based compensation expense.

Looking at slide 38, general and administrative expenses declined $2.5 million, or about 2%, to $120 million, and represented 24% of net revenue. The decrease was primarily due to the positive impact of foreign exchange rates across our business, as well as lower amortization and accretion expense and the absence of a state franchise tax matter which we recorded in 2014. These decreases were partially offset by expenses related to the G&A of Co Company, higher IT-related cost, legal fees, and training cost.

Referring to slide 39, cash and cash equivalents at December 31 was $190.5 million, compared to $211.4 million at December 31, 2014. It is important to note that cash flow from operations were strong in 2015. During this year, we had an increase in cash outflows of nearly $50 million related to our debt repayment, acquisition-related payments, and capital expenditures for real estate. Yet we only experienced a decline in cash and cash equivalents of $21 million, for the year.

Those of you who follow us know that our cash position builds throughout the year as we accrue bonuses which are paid out in the following year. In March and April, we will pay out approximately $142 million. Of this amount, about $132 million is for variable compensation related to 2015 performance. The remaining $10 million relates to the payment of consultant bonuses that are deterred each year for three years. Cash provided by operating activities in 2015 was $57.6 million, compared to $56.8 million in 2014.

Finally, I want to take a moment to talk about our effective tax rate for both the quarter and the year. Our tax rate has always been volatile due to the operating results in many of our foreign jurisdictions, and in some cases, we have established valuation allowances. In the fourth quarter, we did finish the year stronger than expected, and most of the increase came in regions where we have higher effective tax rates, especially the US.

During the course of the year as results come in, we are often changing our tax-rate accruals to reflect our best estimate of where our taxable income ultimately will sit. So the effective tax rate for Q4 of 73.6% looks quite high. However, when you look at the full-year results, the effective tax rate is 45.7%, which is the lowest rate we have experienced since 2010.

Looking now to 2016, and specifically looking at the first quarter, our Executive Search backlog is shown on slide 40, and monthly confirmation trends are shown on slide 41. Other factors in which we base our forecast include anticipated fees, the expectations for our leadership-consulting and culture-shaping assignments, the number of consultants and their productivity, the seasonality of the business, and the current economic climate.

As we experienced in the last several quarters, we continue to expect volatility from foreign currency exchange rates. This could lead to an adverse impact on the year-over-year comparisons of net revenue. We are forecasting 2016 first-quarter net revenue of between $120 million and $130 million. Reported net revenue was $115.2 million in the 2015 first quarter.

I wanted to mention that as a result of the acquisition of Co Company at the end of 2015 and the acquisition of Decision Strategies International earlier this month, we are currently reviewing our 2016 segment reporting and disclosure, and we'll comment on that further in future calls. With that, I'll turn the call back over to Tracy.

Thanks, Rich. As I said at the start of the call, we accomplished much in 2015. By virtually every measure, we have further improved our business.

I want to express again my appreciation to all my colleagues for the work they are doing to contribute to the success of Heidrick & Struggles. At the same time, I want to welcome our newest colleagues to the firm.

2016 is off to a healthy start. Our first-quarter guidance reflects continued momentum. Reflecting our well-established development and training program, we promoted 14 people into the consultant ranks as Principals, effective January 1. We also promoted 17 from Principal to Partner.

Our Culture Shaping business has also welcomed five new Principals so far this year to build upon our leadership within this market and support our long-term growth. Additionally, we have welcomed to four new independent directors to our Board. Much as we advise our clients, these new directors exemplify the value of diversity in background and experience. Moreover, they will help us accelerate the strategic agenda occurring at Heidrick.

Earlier this month, we announced the acquisition of another leadership advisory firm. Decision Strategies International. Their talent, including five Partners, their methodologies, and tools complement our global LC business. Together, this furthers our ability to bring to market a distinctive set of capabilities that permit us to engage senior executives and boards around the world.

All of that said, 2016 has opened with market volatility that influences our clients' decisions for investment and expansion. Importantly, we are operating from a stronger foundation. We still have much to accomplish with our clients as we help them to accelerate performance at a leader, leadership team, and organizational levels. Let me highlight the goals for each of our primary services.

First, in Executive Search, our objective is to continue our growth momentum to a combination of increasing market share in the Americas as we build upon the momentum of 2015, continuing to make strides in the growth of our European market presence, and strengthening our capabilities in Asia, while strategically focusing on locally-based companies.

Globally, we will continue to hire selectively, targeting specific practice, functional, or geographic gaps, but are not planning the same level of hiring that was accomplished in 2015. There will be a continued focus on improving productivity.

Second, for Leadership Consulting, our goal is to continue to grow and scale the business to increase our impact with clients. We will integrate our advisory presence globally, adding the capabilities of Co Company and DSI to the best thinking and processes from our original Leadership Consulting business. And through organic initiatives and selective acquisitions, we will continue to invest in consulting expertise, new service offerings, and scalable tools and methodologies. Our go-to-market theme for Leadership Consulting services centers on accelerating the performance of our clients.

Third, for Culture Shaping, our focus is to enhance the business by expanding its reach to more Search and Leadership Consulting clients. We are well positioned to take advantage of the growing C-suite demand for our proven culture shaping services from Senn Delaney. We are making hiring investments and are on-boarding the next generation of leadership to address succession, while supporting sustainable growth.

In summary, we will continue to add additional capabilities and comprehensive services to complement our core search business and extend our brand. Our clients across all regions want more from Heidrick, not less. Despite the uncertainty we are seeing in today's economic market conditions, we are encouraged by our clients' appetite for Heidrick's talent and leadership solutions.

Specifically, they were more of our candid insights on leadership and talent trends connected to their business strategies. They want more creative and agile solutions for the increasingly complex and fast-changing landscape. And they want more in a world where they must balance the need of strengthening their own core business while embracing disrupting change on the leading edges.

By attracting and retaining the best professionals in the business, enhancing our overall client experience with distinctive service offerings, and improving our operations, we will continue to grow and strengthen our business around the world and provide greater return to our shareholders. Now Rich and I will be happy to answer any of your questions.

(Operator Instructions)

Tobey Sommer, SunTrust.

Thank you. I wanted to ask, how are new confirmations coming in, and what you are hearing from your consultants about the tone of customers given the slightly softer macroeconomic data and stock market volatility? Thanks.

Thanks, Tobey. Good morning. This is Rich. I will start with a commentary on that. We don't get too detailed about our forward-looking thinking, but I will give you some sense.

We certainly are seeing the current volatility in the economic conditions factor into client decisions about what they are doing and what they are thinking about the growth of the business and how they are going to deploy capital. The good news is, as we have said many times, is that talent is a hot agenda item for most leaderships and boards today. But at the same time, capital deployment certainly has impact on driving our business.

Where we've probably seen the most is -- consistent with you've read in the news -- where we probably see the biggest volatility right now is in the APAC region, simply because of the impact of China and what you've seen going on there in terms of people's thinking about the region itself. And then certainly from a sector standpoint, we've seen more discussions and commentary in areas like Financial Services, which really are driven by large financial institutions within the larger banks. Obviously, they've moved and certainly have an influence on some of that.

Having said all of that, we are still comfortable with our revenue guidance for Q1. I think we factored some of that in. But certainly, as the year goes on, we're going to watch that very carefully.

Thanks. And in that same context, you mentioned that you probably would be hiring in 2016, but slower. So should we expect net growth in internal consultant headcount? Or just curious on a net basis, maybe what your outlook is for the year.

I will start, and we'll see if Tracy wants to add anything to it. I've said pretty consistently that I still would like to see our consultant headcount land in that 325-to-350 range for the scale of our business. We certainly are comfortable supporting a level of that our infrastructure and in our regional reach.

We will continue to hire. There's no plans to cut back on hiring. I don't think there's going to be the seismic event that we saw last year with the CTPartner event, but we are active very day in looking for good people and developing good people. And we think there has been the demand for that, and certainly, we have the financial capability to support that.

But you are absolutely right. I think relative -- on a year-over-year basis, we're going to be watching that very carefully. But we are continuing to keep our consultant headcount level in that range.

And I would just add, we are in the zone right where we are in terms of what we think we need to cover the market the way we want. I'd say the focus is on quality as much as anything else right now. Clearly, the last two years were to rebuild ranks after we had, as a firm, lost so much talent. The focus now turns even more sharply to getting all that we can from our Team.

As Rich said, we're selectively out there hiring. We're not going to chase talent, but we are going to welcome the right people.

In terms of the number of consultants that you have, it looks like, if I'm doing my math right, up about 9% year over year. Within that, is the growth in the core executive search consultants, is that a comparable trajectory, or is it different? Because I know the way you are calculating, you include leadership consulting as well.

Yes. I'm not sure I totally follow the question, Tobey, but I will take a stab, and if we are not getting at what you want, please come back.

I'm going to start with your last comment first, which is you are absolutely right. By the time we come out in the first quarter, we probably will talk about the consultant headcount slightly differently because in the past, we have traditionally folded our leadership consulting people into the consultant headcount. And if our plans go according to what I think they will, we will probably talk about leadership consulting separately and in a different tone then we do, and not necessarily at a consultant basis, as heavily emphasized as it is on the search side.

Nevertheless, I think at the end of the day, we still would look for a net increase in our consultant base year over year for search.

What I was asking is, is the core just executive search consultant headcount up a comparable 9% to the executive search and leadership consulting headcount.

Now I understand your question better. The answer is, yes. It is still the primary driver of the consultant headcount.

Okay. And then I'll just ask one more, and I'll get back in the queue. It looks like you had real good growth in Health & Life Sciences. I'm curious. Is that a particularly strong end market? Or is that maybe also a reflection of headcount additions becoming productive? Thanks.

It's a combination of increasing the consultants we have in that group to face the market, but also the -- our ability, as our brand continues to strengthen, to reach clients at a different level. And that's -- as you know, healthcare is a pretty broad space, whether you are talking pharma services business, insurance, it's pretty broad. The group we have their is building out across all those subsectors.

It is also a very active sector in the broader market, and you see that everyday in the front page of the papers in terms of how they are adjusting to managed care around the world and how they are adjusting in terms of M&A activity as well. So that's what is increasing the dialogue as well as the strengthening of our Team.

Thank you. I will get back in the queue.

Thank you Tobey.

Kevin Steinke, Barrington Research.

Good morning, Kevin.

I wanted to talk a little bit about Europe. Obviously, a strong quarter there. It looks like that was primarily driven just by people getting more productive. So is that the case?

And also, how sustainable do you think that improved performance is? We've seen some ups and downs in that region over the last couple of years. So just wondering how you're feeling about the region and sustainability of improvement there.

Kevin, I'd say the following. Europe was obviously a challenging year for us in 2015. What we saw at the fourth quarter, which you are noting and what we see continuing, is the dialogue that we know Heidrick is capable of with clients, both on a quality basis as well as quantity. So that's positive.

At the same time, we're obviously, like everyone else, taking a hard look at what's happening in this macroeconomic environment and where that slow down is happening, whether it be in the -- or I'd say where the particular challenges are happening, Financial Services certainly being one area. And no there's shortage of debates happening in Europe that can put a cloud over economic projections. So that's not [using] our clients. We're watching that, but we certainly ended the year stronger in Europe and are starting the year stronger in Europe.

Okay. Good. And obviously, has revenue has improved here the last couple of quarters, you've called out more consultants becoming bonus eligible and driving higher variable comp. As we move into 2016, does that normalize a little bit now in terms of -- you've had a lot of the consultant base reached that bonus eligible level and so now the comps are -- the increase in variable comp slows down next year?

The reality is, it just recycles, Kevin. The way our system works, you wipe the slate clean and start all over again. It's our desire -- and make no bones about it because I know many of our people are listening. I would love for all of our people to be at the peak of the bonus eligibility.

That's our goal every year because that means they're doing great work and they're doing a lot of it. And so we are blessed, both as a Company and as our people, that a lot of people did a lot of good work in 2015. When that happens, especially, the way it happened this year, the fourth-quarter comp expensive drives up because we do a little bit of a catch-up for the whole year because we look at the whole macro environment, and our people are rewarded in part by how the whole Company does.

So as our results improve, it also increases the reward for our people, both in terms of the amount they would get as well as the overall pool. So I'd love to be in that position every year. That is a great problem to have. But we start the slate clean.

And as we have said many times, we are a high-fixed-cost business in terms of having the people and the scope in place. So we have our broad footprint, and our people -- it usually takes them a couple of quarters to work up into that level of starting to turn fixed into variable. And that is the way our business works.

And so that's why you see the variability many times in our quarterly performance. If you look at our EPS, for example, even for 2015, we made a lot of our profitability in the first three quarters, and fourth quarter, some of our after-tax profitability goes down just because of the increased bonus payments. But at the end of the day, we have the highest EPS we've had in many, many years. So it's a great problem to have, but that's the cyclicality and the way our business works.

That make sense. On the other side of the cost structure there, you talked about higher sign-on bonuses and guarantees in 2015. As you maybe slow the hiring a little bit in 2016 and focus on productivity, do you expect to leverage some of those costs, and that helps drive margin expansion next year, or in 2016?

Great question, Kevin. Look, I don't think it will be quite the level that it impacted our business this year because of, again, the phenomenon that we went through in 2015 with the infusion from CTPartners. Having said that, many -- and usually, that phenomenon is about a year in terms of the impact.

Most of those people are ramping up and well engaged in operations today, so we'll be getting back to what I would consider a more normal environment. And so it is a fact of life our business, but at the end of the day, what's really encouraging as the contribution they are making and the fact that -- some of the improvement, both in Europe as well as some of the practices that we've already talked about, have been driven by the fact that we have been able to attract a lot of good people that have had an immediate impact on our business.

Okay. On the G&A side, you said there were some nonrecurring projects in there. I don't know if you want to call any of those out specifically or if any of those continue into the first quarter.

Generally -- I don't expect that there would be a lot of them. Again, they are very hard to forecast. In many cases, they were legal related. Sometimes they are employee matters. Sometimes they are client matters. And so just because of the scale and the size of our expense base, they tend to stick out.

So we probably had a couple million dollars worth of nonrecurring professional fees. A little bit of it was acquisition related. The most of it was either IT related with some consulting as well as legal expenses. That tends to happen.

I will say that our G&A run rate should increase a little bit on a run-rate basis just because of the acquisition of the two new leadership consulting companies. So that's growth-related run rate increase the probably a couple million dollars on a quarterly basis. We'll watch that as it goes on, and we'll probably get some efficiencies as we integrate the operations.

But again, they're not of such large scale that they're going to move the needle. More importantly, they're going to bring immediate client activity, immediate revenue impact, and they're both profitable operations.

Okay. And do you have any regional or global meetings planned for 2016?

The answer is, we do. We have a meeting later this quarter in New York, which is gathering a number of our consultants from around the world. It is not a global partner meeting in the way we have done it in some years past.

This year, we're going to mix that up. We're going to spend time on more targeted topics with smaller groups, and we're going to sprinkle that around the globe.

Okay. So maybe that will contribute a little bit to some incremental G&A in the first quarter?

It might. Nothing that's worth signaling at this point in time, but certainly, as -- if that changes, we will certainly be observant and make sure that we let you know when it's coming.

One more question from me. I think Rich, last quarter, you called out what revenue growth would have been in constant currency just adjusting that year-ago figure for currency. I don't know if you have a similar analysis for the first quarter guidance.

Right now, we think currency impact in the first quarter is probably in the neighborhood of about 2% to 3%. Again, it's really hard to call, Kevin, because it's so volatile right now. But it could impact it by a couple of percent.

Thanks for taking my questions.

Always nice to talk to you.

Kevin McVeigh, Macquarie.

Good morning.

Good morning. How are you, Rich?

Good.

Can you just give us a sense how much the acquisitions contributed to the first guide? Or are you not stripping them out at this point?

We are not stripping them out. But on a net basis, probably it was a very modest contribution for Co Company in the fourth quarter. We had one quarter of revenue. But probably by the time we added in all of the acquisition and accretion expense, it was probably flat to maybe minimally dilutive, just one quarter.

Got it. Nice job on the billings. I was a little surprised. I would have thought you would have seen a little more weakness in industrial and not as much in education. Anything going on there in terms of the mix of where things were? And again, Healthcare looked great. Financial Services look good. Any thoughts on the industrial hanging in as good as it did?

The broader theme there, Kevin, is really related to the talent rebuild that we've had in 2015 and the greater access we've had to clients with that, as well as some of the successes we've had in the industrial space and the currency that gives us to go call on the next client.

As you know, every piece of business you do in this business allows you to lever it to the next one. And as we see momentum across all our businesses, but certainly as we speak to industrial, it just gives you a stronger calling card to go get the next one. And that's a lot of what you are seeing here as well is (inaudible) talent.

Got it. Thanks, Tracy. That's helpful. In terms of -- obviously, you guys are paring through. Is there anything you are looking at -- and this is more to try to quell fears -- is just the macro overall in terms of forward conversations with clients as they're planning, has there been any shift in terms of longer-term strategic or just anything that we can point to to soothe investors a little bit from just a overall macro perspective?

The way I characterize that is, every client we speak to, in some form is wrestling with two dimensions to their business. One is, how do they strengthen the core in a marketplace, which as you point out, is volatile, and at the same time, how do they embrace disruptive change?

There are some clients in some sectors where that moves forward with much greater clarity than others. We are all, like you, looking at the opening of 2016 and seeing the volatility, whether it be how it emanates from Asia, from the energy markets, consequent [knock-on] effects in Financial Services, et cetera. We find in our client dialogue that while everyone is focused on it, no one is frozen by it.

That may -- does that evolve? We will see. But I'd that every -- certainly, myself in meetings with clients, as well as meetings with our consultants, we are trying to get a barometer on what you are asking every single day, and it would be very difficult for us to give a broader trend line than what I just described.

That's helpful. Rich, you mentioned some professional services fees that impacted EPS. How much did that impact the earnings in quarter? And can you just give us a little update on what those were?

Yes, I answered this a few minutes ago, but it was some legal fees and some consulting fees that are IT related, as well as some acquisition-related costs. Obviously, when you do a transaction, you run up a little bit of legal fees there as well as and so forth, and valuation fees. So it was a couple million dollars. It's -- on a nonrecurring basis.

Got it. And then my last question. To the extent you can you give us a range, any sense of where the tax rate should be for 2016? I know there has been a lot of volatility.

As I said in my remarks, we have quarter-to-quarter volatility in our tax rate. Over the years, we've had a lot of volatility on an annual basis. I feel a lot more comfortable about where our overall tax structure is and where our position is.

As we have a healthy year across the globe, we tend to have a lower effective tax rate. Some of our jurisdictions are very small in scale, and certainly, their results result can influence whether or not there's things like valuation allowances or short-term deductibility for book tax rate, and that's why we get such volatility, as well as trying to estimate where our income will come from.

That said, we've had the lowest effective tax rate we've had since 2010 in 2015. Our tax rate for our current business should hover in that low-to-mid-40s range on a normalized year, and that's where we shoot for right now as we think about our planning.

But it will vary quarter to quarter -- there's no question -- based upon the actual results. So it' just the nature of how our business is right now and because of the scale of our business.

That is helpful. Thank you very much.

You're welcome.

Tim McHugh, William Blair.

Most of my questions have been asked, but maybe follow-up on a few of them in a little different way. You've been asked about margins a few different ways, given the professional fees, the guarantees, and so forth. [Overall], if given -- I know you don't give full-year guidance -- but just directionally, do you still expect margin improvement? And is 2015 representative of the baseline of what you would expect, or was that lower, higher than what we should think about going forward?

Good morning, Tim. This is Rich. I'll take a stab at it first. I think 2015, at least as the business is constructed today, is a lot closer to where we thought it would be from the standpoint of just the composition of our business.

What will drive margin growth in the future is the degree that we scale the businesses like Culture Shaping and Leadership Consulting. Those are higher-profit margin businesses by construct. And it is our intent to grow those both organically and inorganically as opportunity arises. And to the degree that they became a larger factor in our overall business mix, I think we would have the potential for margin growth.

On the Search side, we're actually, on an operating basis, doing well I think. We've done a lot to improve the expense ratios. I think our people, as we indicated, because of the comp expense, because they are productive. I think we have done a lot to improve our overall operating ratio, and at the same time, pay very competitive pay for the services of our people.

But at the end of the day, we need to grow the businesses outside of Search to complement Search and also drive a slightly higher mix to the profit margin. And that would be the key to growing the margin.

So absent a lot of growth, I would want to keep the margins at least around where we are today. I would see that as a good result. But at the same time, our intent is to try and grow those businesses over time.

Let me ask you, on the hiring plan, adding less people, hiring not quite as aggressively as last year, is that a reflection of you just see room for productivity? Is it a reflection of uncertainty about the market environment and not wanting to hire too aggressively ahead of that? Or which end of the spectrum is it more a reflection of as we think about --

Two comments. First of all, back on your margin comment, the way I'd characterized 2015, 2015 was a good year for Search. A very good year for Heidrick Search in terms of -- you look at our US business, you can see what we're doing there. And we're looking to that as we look globally, and we are saying to our colleagues around the globe, that's what we're looking for. Whether or not that leads to margin improvement, I will leave it where Rich did.

On the question on hiring, I think it's a combination of really two things. Number one, we had extraordinary event last year with CTPartners. We took full advantage of that. We do not see that opportunity in 2016 on that type of scale.

We are out there engaged with talent. We're going to hire people. We're going to hire quality people. We're going to hire as many quality people as we can attract.

But we are not going to chase them, perhaps, with the same vigor that we did in the last couple of years because we have now reached a critical mass where, the second point is, we want that critical mass to perform. As Rich said, we have people who came on in 2015 who were terrific. Have a hit their full stride yet? Not yet. And they would say that as well.

So there is a little bit of consolidation going on here with the talent that we have acquired -- consolidation in the sense of just putting them in position in the market to be even more effective. So I don't think it is a grand statement on our part with respect to hiring about what's going to happen to the economy, as much as it is we think we're -- we've done a lot in the last couple of years. We want to absorb that well.

Yes. Okay. That's helpful. And then the last question, if I look at confirmation trends, you were up year over year throughout most of 2015. And it looks like early 2016 is slightly below the prior year. Is that just Asia and the Financial Services comments you made, or is it -- are you seeing broader than just those environment -- or those subsets of the (multiple speakers) --

I would say the primary contributor is Asia, relative to the early trends that we show on the slide, and the Financial Services comment is relevant as well because that's where we hear the most talk and concern relative to -- and again, one month doesn't make a big trend for the year. But it certainly -- again, we always listen to what's happening in the marketplace, what's happening to our competitors, et cetera. And I'd say that's probably the biggest influence.

Again, having said all that, as we've looked at what we've factored in, we're still comfortable with the range that we're forecasting. I think our comparisons year over year look a little stronger, obviously, because of the way we started out last year. And the key is, can we sustain the momentum through the whole year? And that's where the comparisons will get tougher just because of the way we finished 2015.

Okay great. Thank you.

(Operator Instructions)

Kevin Steinke.

Just one quick follow-up. Did you give any information on Decision Strategies International, what revenue contribution you would expect for them? Or would you just say it's immaterial?

It is not immaterial, but we have not given any specifics yet about the size and scope of the business. But as we comment further throughout the year, I think you'll see more information about the overall size and scale of our Leadership Consulting business as we go into 2016.

All right. And I guess we should think about that adding gross five to the headcount in the first quarter. Is that the way to think about it?

Yes.

Okay, thanks.

I just would say that I think the broader theme on DSI is -- what you are seeing there with DSI, as you saw with Co Company, is a very targeted purpose around building out our Leadership Consulting business, for one huge primary reason, our clients want it. They want to know more, not only about who we think is best on Search, but how we make them succeed in their positions. And at its core, that is a big part of what Leadership Consulting is about.

So DSI, Co Company, added to Leadership Consulting, under new leadership, is about delivering that service with more scale, with more efficiency, and with more consistency around the world in terms of what we're engaging the clients on. That's the materiality point beyond any numbers.

Kevin, just one clarification. I want to make sure you understand relative to the thing you asked me about the headcount. Members of the headcount for Decision Strategies is Leadership Consulting at Search. So as we think about that and talk about that in the future, that's a different type of headcount, and it's a different type of business model than traditional Search. So I'd be careful how you use that in that regard.

Okay. Sure. As you are reporting it now, though --

That's correct.

You got it right now.

Okay. Thanks.

Thank you.

There are no other questions, so I'd like to turn it back for any additional or closing remarks.

Thank you all for listening, and thank you for your questions. Have a good day.

Thank you very much. That does conclude our conference for today. I would like to thank everyone for your participation.