Q4 2021 Korn Ferry Earnings Call
[music].
Okay.
Ladies and gentlemen, thank you for standing by welcome to the Korn Ferry fourth quarter fiscal year 2021 conference call. At this time all participants are in listen only mode. Following the prepared remarks, we will conduct a question and answer session as Rick.
Minder. This conference is being recorded for replay purposes.
We have also made available at the Investor Relations section of our website at Korn Ferry Dot 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 Vernon, 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 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 a reasonable.
We'll 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 and in the periodic and other reports filed.
By the company with the S E C, including the Companys soon to be filed annual report for fiscal year 2021.
Also some other comments today may reference non-GAAP financial measures such as.
Constant currency amounts EBITDA and adjusted EBITDA.
Additional information concerning these measures, including reconciliations to the most direct comparable GAAP financial measure.
Is contained in the financial presentation and earnings release relating to this call.
Of which are posted in the Investor Relations section section of the company's website at Www Dot Korn Ferry dotcom.
With that I'll turn the call over to Mr. Bernstein. Please go ahead Mr partisan.
Okay. Thank you Brad.
Good morning, good afternoon to everyone. Thank you for joining us.
What a difference a year makes.
For a loss.
Oral was was rather dark I think for for all of us.
May with George Floyd Tragedy was was hope Wilson.
Boy I'll tell you. This this.
The company has rebounded tremendously and in particular our colleagues.
Have shown incredible resilience over the past year.
I'm proud of our colleagues I'm proud of our company what we've accomplished.
Our performance you know amid the continuing echo a change in this post pandemic world.
We are the worlds premier organizational consultancy Theres no question about that it's definitely working we're meeting the key objectives that we discussed last quarter, which included diversifying diversifying our offerings capitalizing on our leadership in relevant.
<unk> driving an integrated go to market strategy advancing our position as a premier career destination.
And pursuing transformational opportunities at the intersection of talent and strategy and all of this is translating to what I believe is outstanding performance during the quarter we generated.
$555 million in fee revenue was an all time high that was up 26% year over year. Our profitability was strong we had an adjusted EBITDA margin of a little over 20 per son, and adjusted EPS of $1.21, we've clearly accelerated through the turn.
And it's a testament for the pivot, we made and the agility of our colleagues over this past year.
The diversity and relevance of our offerings and our ability to deliver our consulting services.
Virtual world have helped clients achieve organizational opportunities.
And our company deliver strong financial results.
In this new world, there's tangible opportunity for corn for this.
Senator are the center of gravity for today's workforce is shifting from a place of work to a location for collaboration it's no longer about the where it's all about the why and how work gets done differently. Almost every company on the planet is re imagining.
I will have to continue to re imagine its business from a strategy towards people to its culture quite simply companies are rethinking their organizational structure roles and responsibilities how they compensate how they motivate how they engage how they develop their work force let alone.
Don.
Type of agile talent, they hire and how they hire about talent and theyre going to need to lead differently.
Gone are the days of vertical leadership that focuses on driving our results up the chain.
Today companies need more horizontal leadership, that's all about leading a cross.
Enterprise and these changes align with Korn ferry's businesses, whether it's M&A services change management virtual sales effectiveness.
Or customer experience services Korn ferry is poised to seize this opportunity.
We've also used this time of change as an opportunity to re imagine our own business.
In a post pandemic world and beyond we're delivering an integrated value change day.
Digital enabled and delivered.
To deliver this at scale, we're bringing everything together in a digital framework all of this makes our world class IP, even more relevant and unique to fulfill our vision and position our company for long term success, we remain relentlessly focused on meeting the evolving needs of our clients.
Number 1 we're driving an integrated solutions based go to market approach for our marquee and regional accounts that not only facilitates growth and enduring partnerships, but it's also key to more scalable and durable revenues, we have about 350 marquee and regional global accounts.
And they continue to demonstrate the power of this strategy the accounts they generated about $640 million in fee revenue during the year and a sustainable utilize our all of our global capabilities even.
During challenging economic periods.
Today, the fight for talent is more profound than ever the pandemic shakeout is driving a robust market for our talent acquisition expertise capabilities and approach and we're helping companies find the right talent fitting the right knee from senior level executives.
Board members to professional level talent.
Looking at our digital and consulting businesses, we've been actively marrying our capabilities with today's megatrends.
The result is larger projects with greater sustainability and more durable revenue right now, we're seeing higher high areas of demand in DNI and organizational transformation as well as core our core solutions, such as assessment pay in governance and leadership in professional.
Development, we indeed have a lot of opportunity in front of us we've become a much different company with a broader and deeper mix of business.
Importantly, we're translating the value, we're creating for our clients into returns for our shareholders.
As part of our balanced capital allocation framework.
<unk> to announce that our board has approved a 20% increase.
Quarterly dividend for <unk>.
<unk> per share.
Looking to the fiscal year ahead, I truly feel we have the right strategy with the right people at the right time to help our clients drive performance in this new world with that.
I'll turn the call over to our C O Bob Rozek and Gregg Cabo Chuck is also on the call as well Bob it's over to you Greg.
Thanks, Gary.
Good afternoon, or good morning, depending on where you are sitting our fourth quarter results continue to demonstrate the relevance and importance of our human capital solutions in the rapidly evolving business environment that we find ourselves in.
It also validates our strategy and highlights the strength and durability of our business model by all measures the for.
Florida was the strongest quarter in our history with record revenue and profitability are new business in the fourth quarter was also a record and it actually accelerated throughout the quarter, leaving us well positioned.
For growth in fiscal 'twenty 2.
Now before I jump into the actual results our results for the quarter I wanted to talk about a couple of proof points that we have shared with you in the past they really continue to demonstrate the success of our strategy first.
First our overall business has demonstrated more resilience than at any other time in our history and just by way of example.
Just 3 quarters from our Covid recession trough.
We've achieved new all time highs in new business revenue and profitability.
In contrast, coming out of the great recession, approximately 10 years ago. It took over 12 quarters for fee revenue to rebound past the prior pre recession high.
Second our marquee and regional account program that Gary talked about really continues to add value, providing a steady strong growing stream of fee revenue for our firm for all of fiscal year 'twenty 135, 3% of our consolidated fee revenue was generated from these accounts.
Further our year over year fee revenue on marquee and regional accounts was essentially flat while the rest of the company was down about 9%.
For new business, our marquee and regional accounts were actually up 11% year over year, while the rest of the company was flat.
And finally, our success driving cross line of business referrals continues to grow just over 3 years ago Cross line of business fee revenue referrals were approximately 15%.
Today fee revenue from cross line of business referrals stands at almost 27% for all of fiscal 'twenty, 1 and almost 29% for the fourth quarter.
Now, let's turn to some important highlights of our fourth quarter.
As Gary mentioned fee revenue in the fourth quarter was up $115 million year over year and $80 million sequentially, reaching an all time high of 555 million group.
Growth continued to be broad based with fee revenue improving sequentially for the third consecutive quarter in each of our lines of business.
Recent growth trends for our flagship talent acquisition businesses have been particularly strong.
Consolidated fee revenue growth in the fourth quarter measured year over year was up 26% with executive search being up 20% <unk> and pro search up 46% and consulting up 27%, all reaching new all time quarterly fee revenue highs.
New business growth in the fourth quarter was also very strong with all business lines generating new business at levels higher than before the pandemic.
Additionally earnings and profitability were at record levels in the fourth quarter, adjusted EBITDA grew $16 million or 17% sequentially to $113 million with an adjusted EBITDA margin of over 20% for the second consecutive quarter.
Our earnings and profitability continue to benefit from both higher consultant and execution staff productivity and lower G&A spend driven in part by virtual delivery processes.
Our adjusted fully diluted earnings per share also reached a record level in the fourth quarter, improving to $1.21, which was up 26 or 27% sequentially and up 61.
Our 102% year over year now it's.
To note that the fourth quarter expenses included $13.5 million of non reoccurring expense accruals net is roughly 2.5 percentage points of margin related to our business recovery plan as we decided to reimburse employees for the remaining portion of salary.
These that were foregone during the year.
Now turning to new business the months of March and April were the 2 best months of new business ever on a consolidated basis, New business awards, excluding <unk> were up 48% year over year and up 16% sequentially.
Measured on a sequential basis, new business growth in the fourth quarter also showed broad based improvement led by our talent acquisition businesses with executive search up 29%.
<unk> and professional search up 18% in.
In addition, our digital business was up 8% and consulting was up 5%.
<unk> New business was also strong in the fourth quarter.
With an additional $115 million of new contracts.
Our cash balance also improved.
We ended the fourth quarter cash and marketable securities totaled $1.1 billion now excluding amounts reserved for deferred compensation arrangements and.
And for accrued bonuses, our investable cash balance at the end of the fourth quarter was approximately $642 million and thats up $108 million sequentially and up $110 million year over year now.
<unk> continues to be our priority to invest back into our business to.
To maximize future growth.
Now this includes the hiring of additional fee earners over the last 3 quarters combined across all of our business lines. We have hired approximately 160, new consultants fee earners and that includes about 86 in the fourth quarter with the rest coming from quarters, 2 and 3.
Additionally, as Gary mentioned consistent with our balanced capital allocation framework. Our board has approved a 20% increase in our quarterly dividend to <unk> 12 per share and that's going to be payable on July 30, <unk> to shareholders of record on July 6.2021.
With that I'll turn the call over to Greg to review, our operating segments in more detail Greg.
Thanks, Bob.
Starting with KF digital global fee revenue for KF digital was $85 million in the fourth quarter, which was up 16% year over year and up 6% sequentially.
The subscription and licensing component of KF digital fee revenue continues to improve.
In the fourth quarter subscription and license fee revenue was $24 million, which was up over 14% year over year.
Global New business for KF digital in the fourth quarter reached $108 million for second consecutive quarter of new business over $100 million.
Additionally for all of fiscal 'twenty, 1 new business tied to subscription and license.
Services improved approximately 72%.
Earnings and profitability also improved for KF digital in the fourth quarter with adjusted EBITDA of $27.9 million and a 34, 7% adjusted EBITDA margin.
Now turning to consulting.
In the fourth quarter consulting generated $153.6 million of fee revenue, which was up approximately $32.6 million or 27% year over year and up approximately $17.3 million or 13% sequentially.
Fee revenue growth growth was broad based across all solution areas and strongest regionally in North America.
Consulting new business also improved in the fourth quarter growing approximately 53% year over year and 5% sequentially.
Additionally, new business tied to large engagements those over $500000 in value.
It was up approximately 56% in the fourth quarter net of approximately 31% for all of fiscal 'twenty 1.
Regionally new business growth was also broad based and remains strongest in North America.
Adjusted EBITDA for consulting in the fourth quarter was up $16.1 million or 145% year over year with an adjusted EBITDA margin of 17, 7%.
RPM professional search global fee revenue improved to $123 million in the fourth quarter, which was up 46% year over year and up 26% sequentially.
Both our <unk> and professional search benefited from the post recession surge in demand for skilled professional labor.
<unk> revenue grew approximately 58% year over year, and 34% sequentially, while professional search fee revenue was up approximately 27% year over year and up 17% sequentially.
With regards to new business.
In the fourth quarter professional search was up 17% sequentially and <unk> was awarded $115 million of new contracts, consisting of $23 million of renewals and extensions and $92 million of new logo work.
Adjusted EBITDA for RPM professional search surge to approximately $30 million in the fourth quarter, which was up approximately 70, $17.2 million or 136% year over year, and $10.3 million or 53% sequentially.
Adjusted EBITDA margin for RPM professional search was 24, 9%.
In the fourth quarter.
Finally in the fourth quarter global fee revenue for our executive search exceeded $200 million.
For the first time in company history.
Global Executive search fee revenue was up approximately 20% year over year and up approximately 19% sequentially in the fourth quarter.
Growth was also broad based and led by North America, which grew 28% year over year and 23% sequentially.
Sequentially fee revenue in EMEA, and APAC was up approximately 15% and 9% respectively.
The total number of dedicated executive search consultants worldwide at the end of the fourth quarter was 524, which was down 32 year over year and up 2 sequentially.
Annualized fee revenue production per consultant in the fourth quarter improved to a record $154 million and the number of new search assignments opened worldwide in the fourth quarter was up 39% year over year and 32% sequentially to 1712.
In the fourth quarter Global Executive search adjusted EBITDA grew to approximately $49.8 million, which was up 5% year over year.
And up 19, 5% sequentially.
Adjusted EBITDA margin was approximately 25%.
Now I'll turn the call back over to Bob to discuss our outlook for the first quarter of fiscal 'twenty 2 great. Thanks, Greg.
The acceleration of new business in the months exiting the fourth quarter and entering the first quarter of fiscal 'twenty 2 has positioned us very well for further growth our combined total new business in the months of March April and May was easily the highest total for any 3 month period in company history.
Additionally, strong new business activity has been broad based with all of our lines of business, taking advantage of both the market strengthening and the acceleration of demand for our unique combination of service offerings.
For the last couple of quarters demand across all of our lines of business has been strongest in North America, but I will say during the fourth quarter. We did begin to see signs of acceleration in international markets as well.
Now if recent new business activity continues and normal seasonal patterns hold we expect that new business in the first quarter will remain strong we saw that in may and so for our new business month to date in June is in line with our expectations.
Recognizing normal seasonal patterns and assuming no new major pandemic related lockdowns or changes in worldwide economic conditions financial markets Foreign exchange rates, we expect our consolidated fee revenue in the first quarter of fiscal 'twenty 2 to range from <unk>.
$535 million to $555 million and our.
Our consolidated diluted earnings per share to range from $1.4 to $1.14.
As we close out the fiscal year, we are very encouraged by the momentum in our business. This is momentum that we believe is reflective not only of the macro conditions, but of the intentional steps we have taken to build this business and extend our comprehensive offerings to our clients.
To enhance our financial profile and really to position Korn ferry for long term success.
Through the power of our offerings, we look forward to building on these results for quarters and years to come.
With that we'd be glad to answer any questions that you may have.
Okay.
Okay.
If you wish to ask a question. Please press 1 then zero on your telephone keypad you may withdraw your question at any time by repeating the <unk> zero command for using a speakerphone. Please pick up your handset before pressing the numbers and once again if you have a question at this time please press 1 zero.
And 1 moment please for our first question.
Our first question comes from the line of George Tong with Goldman Sachs. Please go ahead.
Hi, Thanks, good morning.
Discussed new business trends in March and April and also exiting the quarter can you elaborate on how new business performed in May and the first cash in June in your various lines of business.
Yes.
Yeah, I made the comment George that in the month of.
May and June we saw very strong new business and it's really across all of our all of our lines of business in June to date.
We expect that to continue June today, it's in line with our expectations again strong across all lines of business.
Got it that's helpful and then.
Touched a little bit on cross selling and business referrals across the business certainly making strong momentum there how much further opportunity do you think there is for additional cross pollination and cross selling among the various segments.
Well I think its substantial I mean, when you look overall the encouraging thing is that.
You look at the company's top line and almost 30% is from inside sales, which which tells you the strategy is working.
And it's increased steadily.
Over the last 2 to 3 years quarter on quarter. So you look at it overall and you say, 29% and I think we've got substantial headroom the thing that was.
Actually the number may sound low, but the thing that was most encouraging to me this last quarter.
For the referrals into executive search and even though the number is 12% that may sound low.
That's up substantially.
From a couple of years ago, when it was like 3 or 4.5 per song. So that's that's an extra call. It 50.
$50 million $60 million of top line.
So the company strategy is to be the premier organizational consultancy.
But for US we have this intangible asset, which is our executive search business and that allows us to take the relationships that we have at the top of the house and drive deeper impact with our with our clients.
I think there is significant room to grow and in the <unk> business. This last quarter. It was 50% and so I look overall and so we've got plenty of headroom.
Got it very helpful. Thank you.
And our next question comes from the line of Tim Mulrooney with William Blair. Please go ahead.
Good morning.
Hey, Tim.
A few questions here so in your executive search business consultant productivity crossed the $1.5 million March annualized in.
In the fourth quarter I went back in our model quite a ways and couldn't find another period, where productivity was so high.
Is that a clear signal that you need to accelerate hiring in the coming quarters or.
The higher level of productivity expected a step up if you will following the cost actions that you took at the end of last year.
Well, we certainly as Bob talked about we've been very aggressive in the marketplace in terms of bringing in talent across the entire platform and.
And as Bob alluded to we've brought in over 160.
New partners and principals and into the flow and we're going to continue to aggressively look for talent across the entire platform and that includes executive search so you're absolutely right. This was.
The all time high for productivity per consultant.
Executive search business I still think Theres more room to go there.
But you know talent is the name of the game and for end of the game for clients and it's an amyloid game for us.
And Tim I would say.
To what Gary talked about.
You should expect the productivity.
We continue to.
At that levels for 1 of the things we're doing is much more proactively managing the work for us. So if you look at for example in the deck. We posted you look at the consultants in it a few hundred consultants in exec search it's up too, but that's after taking out of 11 to 12.
Positions for people who weren't performing.
Performing at the top of their game. So we'll continue to do that more proactively.
Okay. Okay. That's helpful. So I mean.
To summarize I mean.
You're hiring more people, but perhaps productivity kind of stabilizes at a higher level than what we've seen in the past that's fair.
That's fair.
Switching gears here on the <unk> engagements.
Builds were up quite a bit in the fourth quarter up 35% is what it is.
Is what we're seeing typical for this point in the cycle or do you think the pandemic.
Has accelerated demand for RPM services in a material way as companies emerging from the pandemic rethink their not only their physical footprint, but also perhaps their overall organizational structure.
Well, let me make a couple of comments Bob you can add to it I mean, I think overall the <unk> business.
Is outstanding for US I mean, if you look over quarter on quarter over the last several years.
And it's no it's not short of in process.
It's outstanding and.
Overall, if you look at the way the business operating here in the cycle and Bob Bob talked about it.
What we saw was exactly the thesis that we've been talking about where.
Search was the most cyclical.
Consulting was less cyclical than search and our Poe was less cyclical than consulting and digital was less cyclical than RPI. So.
Clearly the <unk> business.
Begins and ends with quality with talented people and the other thing is is embedding our IP.
Into our <unk> engagements and whether that success profiles of talent architecture.
I think that's also proven to be a winning formula So I looked at the <unk> business and say, yes, there are clear.
Clearly, some puts and takes quarter on quarter, but but.
Trend trajectory is breathtaking overtime.
Yes.
To that Gary is Tim if you look at what the <unk> business did.
On a year over year basis actually grew 7% last year when you think about the.
The timeframe that we went through and what the world looks like.
<unk> point is just an incredible business.
Right, Yes, yes.
That's a great point to growing on top of growth even in a tough environment.
That's really helpful.
If I could squeeze 1 more in I wanted to ask about your digital business, because new business and digital up 44%.
In the fourth quarter is as promising.
Can you talk about which of your digital offerings at this point in the cycle are really gaining traction and helping to drive that strong new business growth as it is a learning and development assessment succession, now really picking up steam and any color here would be helpful.
Well, Bob you can add to this.
In terms of the long game there is some really cool things, we're doing around AI and success profiles.
That are linked to our assessment and succession business, so that will play out over over several quarters.
The other big transformation, that's happening underneath that business.
A big part of the business is around development every year, we develop about 1 million executives.
And the the the transformation that's happening from physical to virtual is also something that's very significant.
And we're seeing right now.
The sessions.
Down about 20% or so.
So the high.
And so we pivoted that business in the World has pivoted to 2 online learning and that's something we're going to continue to do and then the final piece is Bob and Gregg talked about is the movement of the business towards subscription and licensing and so in this last.
Quarter about a third.
The new business was subscription based and.
The the good news is thats more sustaining.
Repeatable loyal clients of scale, but it does take longer.
To recognize the revenue.
So it's more durable it's more sustainable but the tail is substantially different and that's a big big change in the business.
From say 3 years ago.
Yes, Tim.
<unk> just to add to it curious that if you look at the level of <unk>.
Our revenues are.
The subscription licenses comprised its both for fiscal 'twenty, 1 it's about 31% for new new business.
Subscription and license comprises about 36% of the total for the year. So you can see.
How that's going to continue to add a couple of areas, where if you look at it from a revenue perspective, Tim where we saw better.
Better growth was in the assessment and succession.
Area was up about almost 18%.
Year over year, and then in leadership development.
It was up this is a non services in the fourth quarter was up about 29% year over year.
Great.
Got it congrats on a nice quarter, thanks for taking my questions.
Thanks.
And our next question comes from the line of Marc Riddick with Sidoti. Please go ahead.
Hi, good morning.
Hey, Mark.
So there's a lot we can talk about in the quarter and certainly allowed us things are going very well I wanted to specifically talk about the within the consulting space, There's a pretty significant pick up in bill rate.
Year over year I was wondering if you could sort of dissect that a little bit and sort of talk a little bit about maybe what youre seeing there that led to such a meaningful jump there and then after that for fall.
Well.
Every every business in the world.
As re imagining how they get things done and that's at the forefront of our consulting business. So whether it's our org strategy or assessment succession.
Later ship professional development or our rewards business, our comp and benefits.
<unk>.
We are benefiting from the Mega trend, that's happening which is change the actual of change here in the post pandemic world.
And then there is other factors too whether it's <unk>.
S G.
Which is driving consulting engagements and that that could even include executive pay tied to ESG goals.
Our diversity equity and inclusion businesses has been phenomenal. It continues to be so I can I can't say enough good things about our consulting business and I think the other thing is pivoting towards larger engagements.
Years ago, we were we were really anchored around smaller.
Smaller shorter assignments and we purposely we've talked about this for I bet. It's been 3 years now a consistent strategy of migrating the business.
Towards more impactful engagements, whether that's organizational transformation upscaling talent.
Our our consulting business is just phenomenal and what we've achieved.
Coming out of this dark period in human history.
Yes, Mark I would add net.
It is particularly interesting we talk about large engagements over 500000, but if you look at the engagements below that level over the course of fiscal 'twenty 1.
Q1, they were.
Smaller engagement engagements were down 27% Q2 down 9 Q3 down 3 this is a new business and then in Q4 was actually up over 40%. So we're starting to see that portion of the business rebound and when you look at the bill rate its a function of the revenue.
Divided by the hours work and so with the spike up in revenue and Thats whats driving our bill rate up.
Okay, that's very encouraging and then I wanted to share.
Shifting gears.
The commentary you made around the pick up what we have seen the strength.
In North America kind of leading it and there's a commentary would pick up and what we're seeing international just wonder if you could delve a little bit deeper into that as to maybe some other areas that we picked up more recently and then may be some other either geographies or even maybe even client types perhaps.
That may still be sort of on the cusp of accelerating in a way that you've seen with the rest of your client base. Thank you.
Well the the.
The industrial business has been historically the biggest part of our portfolio.
26, 28% historically, maybe even as high as 30.
And so that that part of the business saw growth, which is very very encouraging but it's still got.
A long ways to go so that provides further upside obviously energy continues to go through all sorts of transformation and change.
So that's really really good news for us when you look at on a regional basis as Bob talked about we have seen.
An uptick in both EMEA and Asia.
That gives us hope for the future as well although.
Look in parts of the world.
It is just it's heartbreaking to see what's happening and when you think about.
In South America for example, and you look at the numbers of the Covid numbers and the death, it's just.
It's a tragedy it's heartbreaking.
Yes.
Our business.
Our colleagues have shown just incredible resilience in India.
As an example.
Trailing for months, new business, it's up 36%, Brazil was up 93% in the face of heartache.
So.
Net.
It gives you I think a lot of promise in both for future can hold.
No that certainly makes a losses. So I appreciate your commentary thank you.
And we do have a question for the line of Tobey Sommer with <unk> Securities. Please go ahead.
Thanks, but love to get your perspective on the long term EBITDA margin opportunity at the company.
You've had a couple of.
Tremendous quarters here, even with some nonrecurring expenses as the 17%, 18% still the right number long term or.
Is there a kind of a 17 to 18 plus that youre thinking about [laughter]. That's a good question.
I think the world is in.
A couple of year.
Transition area falls.
And you know.
It's really hard to say, where we're at is getting and I would say that.
It's basically and I've said this for a long time that 50% of whatever you were doing.
Is probably going to be replace with something else. So how youre entertained how you consume how you work is just it's changing dramatically and you see it today and all the debate about.
Working from home and to get going into the office I mean, I think it's going to take a couple of years for this to settle in to what this decade really looks like but I I personally believe it's probably going to be something like 50% that people are really going to focus on accomplishment over activity.
And this has proven.
The world can get things done differently. That's the definition of culture, how an organization gets things done so.
<unk> card in that really.
For me is around.
What does what.
I'd say that yes.
And.
What is going to be the view around all sorts of different things getting on airplanes and meeting people in person going to conferences that that's the big wildcard around quote the plus and so yes, we've put out we raised the low.
Long term target of ours.
Firm up to 17, and 17% to 18% and I would probably yes, I would probably put a plus on that for now.
But.
I think in the fall, we're going to learn a lot.
But I would I'd, probably put a plus on that.
At least at this moment in time.
Thank you.
To ask a question about what you feel like the right kind of.
Balance sheet is for the firm longer term.
I realize you increase the dividend today, but whether it's 17 to 18 or 17 to 18 plus.
Over time on average.
Very healthy margin that will generate a lot of cash.
Should the company operate with net debt on a sustained basis and if so what level.
Well I'll, let Bob can talk about the net debt level. The thing that we look at is the return on capital and if you take the last couple of quarters in your day annualized it's probably.
At least 15% and that's going to go higher probably.
This next.
For quarters, assuming the world doesn't change I mean are.
Our strategy has been very disciplined around M&A.
And that is our first and foremost.
Priority is to use the capital that we have to create the premier organizational consultancy and to do that we have to continue to invest.
Not only in our digital capabilities and our solutions organically, but we also have to do that inorganic inorganically as well.
And.
We've done 13 acquisitions.
I think we're incredibly disciplined in how we do that.
But you know your.
The sentiment behind the question.
We have a very robust balance sheet.
That gives us tremendous strength and flexibility.
And we want to continue to be balanced when it comes to capital.
In terms of our shareholders our colleagues.
And investing in the business.
Yes.
Go ahead.
Just add to that a couple of thoughts 1 is I think youll see us starting to ramp up.
Our investment back into into the digital business.
Last year, we obviously go through the pain that we cut back we spent roughly $30 million on.
And PPD last year and this year, we'll see that number jumped back up to.
What I would call more historical levels around the $45 million plus or minus level.
In terms of net debt.
We operate fairly conservatively I don't see us being operating on long term basis, and a net debt position, we actually look at it a little bit differently in terms of.
Where we're comfortable operating in.
2 times leverage or below.
We've said in the past we would go up.
3.3 and a quarter if the right acquisition came along but our previous position would be to pay that down as quickly as possible to get below gift blow back the 2 times leverage.
Great.
I can appreciate the returns they have improved.
Managing that balance sheet is another lever I guess you get the pulse could I ask you.
Your perspective on a couple of.
Market related things that we're hearing about.
Retirements being prevalent in maybe what.
On a on an ongoing structural basis remote works work means in terms of unlocking more sort of national recruiting 2 occupations and job levels without really wasn't.
Part of the landscape previously.
Yes, it's incredible.
Big reset.
And it was.
20 years ago. This whole thing around the war for talent I mean, it's here, it's absolutely here and you don't you don't really.
Read much about the you know the baby boomers, but it's here and this has been the big reset and we've seen just tremendous.
Mobility, we've had we've seen executives who have side.
This is I'm going to go off and do something else what other.
Thats charitable work, whether it's retirement.
You've got career nomads now that that whole trend has been greatly accelerated.
<unk>.
I would have thought 2 years ago, you wouldn't have hired anybody virtually now we're doing it every single day.
And so there is tremendous.
It's really really fluid a.
The job market I don't know if ive seen a better job market and all of my years in business. I mean, this is unbelievable with the flexibility around geography.
It's breathtaking.
Gary can I follow up 1 last question and I'll get back in the queue.
Is there a <unk>.
Manifestation within sort of the key metrics driving your recruiting businesses.
Wage inflation comp.
Effectively price on some of your businesses might be driven higher by the fact that.
Somebody in des Moines doesn't necessarily have to live in the morning other companies headquartered there.
Well I think there will be I think.
That's not an if but when I mean, there is there is no question about that given.
How the Punch Bowl Spike I mean, there is that's that's really clear.
We haven't seen if your question is.
Our companies paying loss to be in Kansas.
Versus New York City.
Sure there is a cost of living element, we havent seen companies make dramatic changes there.
The market is really hot and there is a war for talent right now and it's all of these factors coming together.
There's 9 million job openings, probably 9 million people unemployed he's got the baby boomers, you've got career nomads, you've got the stimulus you've got the flexibility of work.
All of those things.
For hitting the labor market at the same time.
Thank you very much.
And we do have a question for the line of Mark Marcon with Baird. Please go ahead.
Hey.
Good morning, I'm wondering if you can talk a little bit about your last comment Gary you mentioned hay.
You haven't seen job market like this.
Some people might react to that and say well this is the peak.
But if we take a look at the baby boomers and where they were at.
In terms of retirement cycles, and kind of the fluidity I'm wondering if you can just comment with regards to.
You know the sustainability of these high levels of demand and what you think executive comp inflation rates are going to be and how you think about the productivity within.
Within the executive search consultant force and then I've got some other questions with regards to <unk>.
Consulting and digital.
I think.
Looking out.
We do believe barring some.
Some unforeseen events such as the Delta area.
I do believe.
This is going to continue.
I don't see this lessening.
Over the next quarter 2 quarters 3 quarters.
Im not going to say, it's a peak or a valley.
But I certainly don't foresee.
Any any let up.
You're absolutely right about the baby boomers the data supports that.
And I wouldn't be shocked if there was wage inflation.
Looking at the year.
It's hard to see that there would not be.
The only.
The only I guess argument or theory against.
Would be the flexibility.
Knowledge workers have today, and how what's the economic price about flexibility because there is an economic price to that flexibility.
There is no question about it and then Toby kind of alluded to it we haven't.
Maybe thats playing out now and Thats why youre not seeing it but.
I do think when you look at the at the search business, which is 36% of the company today.
I wouldn't be surprised.
If there would be wage pick up.
In that.
For sure.
Right and then with regards to this that that flexibility I mean wasn't it.
Very early stages in terms of determining when you tayo companies I mean, when do they how are they thinking about it because I think the most thoughtful companies are actually.
In a wait and see mode in terms of you need to see.
How this is going to work out which means it could end up playing out over several years now yeah. Yeah. Yeah, I think it's playing out over 2 years from now I do believe that's correct.
But ultimately there is an economic trade off of flexibility versus location and I. Just don't know as you said I don't know how much that's going to factor into the calculus, but it will it makes sense that it does but youre right companies are not.
Pulling that card today, we're not pulling that card today, because there there's such a shortage of skills when I look at some of our clients and what they're doing around workforce transformation.
And the types of up skilling engagements we have.
It's big it's definitely it's definitely big so I really think that.
We're in for a kind of a 2 year transition period, along a number of dimensions on what work row it looks like.
Alright, and can you talk a little bit about on the consulting side, both on traditional consulting as well as digital.
Miller Heyman, you bought that right prior to the pandemic.
So you haven't seen the full benefit but it would seem like now.
Given that everybody is finally, returning theres a lot of people who are entering the workforce that don't have a lot of training a lot of formal training and you're just talking about the evolution of that solution.
The different ways that you're you're marketing it and what you think of as kind of the opportunity set for Korn ferry outside of the traditional.
Leadership consulting assessment and into some areas that are not considered as traditional for Korn ferry.
Well, we call that yes, we have a major push underway we've had it now.
For the last several months around accelerated revenue growth.
And it is a solution anchored around customer experience as well as <unk>.
Sales effectiveness and we're in the very early days.
Taking that out to market and so.
You'll probably see it on our website, we're taking it to our marquee and regional accounts right now we've got many many people in the company.
Organized around it.
And so it seems like it should be low hanging fruit.
As companies are really re imagining what that customer experience should be.
And how our clients interact with their customers.
So we do think that is a opportunity for us.
It is 1 of the gems.
And our last acquisition.
The ASP in companies, which included Miller Heiman, not only did we pick up as you alluded to the professional development and all of that but we picked up.
Real capabilities around customer experience. That's the thing that we've done is we've tied together with our success profiles.
Round, what customer facing people look like in the post pandemic world. So, yes, we're making a big a big push a big big push around that.
Okay Mark.
I would just add to that this is a great example of what we refer to as our integrated solutions. So as you think about the accelerated revenue growth from call. It Arg.
<unk> from every single core solution area that we have and obviously you could cobble together a solution are architected solution different.
For each client because they have a different use case, but this is an absolutely fantastic demonstration of our integrated.
Integrated solutions and even what's interesting to me on this 1 at EBIT runs too.
Process. So as you think about the sales process and we now have.
Content and IP around how to improve your to Gary's point, the sales effectiveness or the sales process as well so.
Very very good example of an integrated solution.
That's great and then.
From a capital allocation perspective, I mean, you've alluded to.
Central for acquisitions on and.
And also building that out.
Firm organically you also ended up increasing the dividend here.
I'm just wondering to what extent can we do.
Both on a continued basis, so continue to return even more cash to shareholders either through the dividend.
Buybacks.
In addition to.
Pursuing M&A.
Especially with the strength of the balance sheet as it currently exists.
Yeah, I think there is that opportunity to do for.
Both Mark and I think both you and Toby is kind of inferred that which which we would agree with so we do think that there is not kind of opportunity.
And on the M&A front, we're just gonna we've been fairly systematic in how we do it in disciplined and we're going to continue to do that.
Alright, Thank you very much.
And it appears there are no further questions. Mr. Dennison. Please go ahead.
Good day, Okay, well I want to thank our shareholders and our constituencies here, who have listen but you know.
Clearly most important to our colleagues and for.
The resilience and then there was 1 word and that resilience and.
For their resiliency over over this last year and I think also the consistency of our actions that we've taken whether it was over a year ago with the George Floyd tragedy.
Our voice around day Eni.
Our initiatives such as leadership you for Humana to humanity.
Helping you know 1 million professionals of color over the next few years, it's been consistency and resiliency. So thank you very much and we look forward to talking to you next time bye bye.
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Alright, alright.
Alright.
Alright.
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