Q1 2022 Korn Ferry Earnings Call
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Ladies and gentlemen, thank you for standing by and welcome to the Korn Ferry first quarter fiscal year 'twenty 'twenty two conference call.
At this time all participants are in a listen only mode. Following the prepared remarks, we will conduct a question and answer session.
As a reminder, this conference call is being recorded for replay purposes.
We have also made available in the Investor Relations section of our webcast at Korn Ferry Dot Com a copy of the financial presentation that will be reviewed.
Be reviewing with you today.
Before I turn the call over to your host Mr. Gary Bernsen, Let me first read a cautionary statement to investors.
Certain statements made in the call today, such as those relating to future performance plans and goals constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
Although the company believes the expectations reflected in such forward looking statements are based on reasonable assumptions investors are cautioned not to place undue reliance on such statements.
Actual results in future periods may differ materially from those currently expected or desired because it's 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 for the company with the SEC, including the company's annual report for fiscal year 2021 and in the company's soon to be filed quarterly report.
For the quarter ended July 31.2021.
Also some other comments today may reference non-GAAP financial measures.
Such as constant currency amounts EBITDA and adjusted EBITDA.
Additionally, information concerning these measures, including reconciliations to the most directly comparable GAAP financial measures is contained in the financial presentation and earnings release relating to this call both of which are posted in the Investor relations sections of the company's website at Korn Ferry dotcom.
With that I'll turn the call over to Mr. Bernstein. Please go ahead Mr. Martin.
Okay. Thank you Cynthia and good morning, and thank you everybody for joining us.
I guess I'd first say that it's pretty clear the diversity and the relevancy of our offerings as well as the outstanding effort from our colleagues that has resulted in another great quarter, our strategy and our efforts are clearly yielding results as we delivered a 70% increase in fee revenue with <unk>.
Really strong profitability EPS of $38.0, and an adjusted EBITDA margin of 27%.
And these results are the continuation of our momentum over recent quarters, nor performance speaks to our agility and importantly to the purposeful decisions and deliberate actions we've taken.
Not only over the last few quarters, but over the last several years and now they've come together in a critical mass of opportunity as a result.
Today's Korn ferry is poised to seek the opportunities of tomorrow and those opportunities begin with a world of work that's in a massive state of transition and maybe always will be.
Companies re imagining their businesses from strategy to people to culture.
Career, Nomad aging demographics, a real war for talent work from anywhere anytime and last but not least the digitization of everything visa.
These are the features of our new landscape of work and we don't see that changing anytime soon and you know in response companies are rethinking their org structures their roles responsibilities, how they compensate engaged motivated and upskill their workforce.
As well as the type of agile talent, they hire and how they hire that talent and theyre, all going to need to lead differently.
As I said this new world is creating opportunities for Korn ferry.
The Mega changes, but I described aligned very nicely with our businesses today wherever and whenever leadership meets talent Korn ferry is out that cross section.
Enabling agility in a world in transition and driving performance for our clients.
To position our company for long term success, we remain relentlessly focused on this dynamic world of work are scaled capabilities include Org strategy leadership in professional development assessment and succession.
And rewards and talent acquisition and of course, the judgment and expertise go from decades of experience and insight into the questions companies are grappling with across industries, we're going to continue to drive an integrated go to market strategy through our marquee and regional accounts, which represent about 35.
5% of our portfolio.
And this facilitates not only growth and enduring partnerships.
But also as cater more scalable and durable revenue was in the quarter about 30% of our revenue was driven by cross referrals and all time high.
Which I think demonstrates the effectiveness of our go to market strategy.
The fight for talent is absolutely more profound than we've ever seen it.
This new World is currently driving a robust market for talent acquisition expertise from executive search to pro search to our P. O. We're helping companies find the right talent fitting the right knee.
Looking at our digital and consulting businesses.
Been actively marrying our capabilities with today's mega trends, the resolve as larger projects with greater sustainability and more durable revenue in areas, such as DNI and organizational transformation as well as core solutions, such as assessment pay and govern.
And leadership and professional development.
Looking 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 and our results are clearly affirming this belief.
With that I'm joined by Greg Tivo, Chuck and Bob Rozek, and Bob I will turn it over to you.
Great. Thanks, Gary and good afternoon, or good morning, depending on where you are calling in from.
Our financial results in the first quarter were outstanding and they continue to push to new highs our unique mix of organizational consulting solutions continue to grow in relevance and it gives us a greater share of strengthening global markets clients are embracing our solutions to help them navigate today's unprecedented.
And rapidly changing work and social environment, and Thats, driving our fee revenue and profitability to new Heights now.
Now, let me touch on a couple of highlights from the first quarter.
As Gary mentioned fee revenue revenue in the first quarter was up $241 million or 70% year over year, and $30 million or 5% sequentially and thats, reaching an all time high of $585 million now thats quite an accomplishment heating consecutive.
And only the third and then fourth quarter removed from the trough consolidated fee revenue growth in the first quarter measured year over year was up 81% in exec search, 103% in <unk> and pro search 50% in <unk>.
Salting and 44% in digital.
Also our new business growth in the first quarter was very strong.
Our results continue to demonstrate the success of our go to market strategy revenue generated from our marquee and regional accounts continues to steadily grow.
In the first quarter revenue from our marquee and regional accounts was up 70% year over year, and 4% sequentially and as Gary mentioned in the first quarter over 35% of our consolidated fee revenue was generated from these accounts.
In addition cross line of business referrals continue to grow in the first quarter about 30% of fee revenue was generated from cross line of business referrals, which is up from 25, 5%.
And 28, 5% in the first and fourth quarters of fiscal 'twenty one respectively.
Now earnings and profitability also reached new highs in the first quarter <unk>.
Adjusted EBITDA grew $111 million year over year, and eight 5 million or seven 5% sequentially to $121 million with an adjusted EBITDA margin of 27% now thats, our third consecutive quarter with an adjusted EBITDA.
Margin over 20%.
Our earnings and profitability continue to benefit from higher consulting and execution staff productivity and lower G&A spend driven by virtual delivery processes and reduced levels of related business development spend.
Fully diluted earnings per share also reached a record level in the first quarter improving to $38.0, which was up from $57.0 compared to adjusted fully diluted earnings per share in the first quarter of fiscal 'twenty, one and up 16 or 13%.
Sequentially I would like to point out that in the first quarter, our fully diluted earnings per share benefited by 7% to eight.
From a lower tax rate of 23, 8% now currently we don't believe that this rate is sustainable and for all of fiscal 'twenty. Two we're projecting an effective tax rate in the range of 26% to 27%.
Now turning to new business, which also grew to record levels by accelerating each consecutive month of the quarter.
We're pleased to share that our new business generation in each of the last six months is in our top 10 ever with three of the months occupying spots one two and three now thats a clear demonstration of the relevance of our solutions in the world today now more specifically on a.
Holiday basis, New business awards, excluding <unk> were up 59% year over year and up approximately 2% sequentially.
New business growth was strongest for professional search which was up 14% from the fourth quarter of fiscal 'twenty, one <unk> new business had another strong quarter in the first quarter with $113 million of total contract awards are investable.
Cash balance also improved at the end of the first quarter cash and marketable securities totaled $904 million now when you exclude amounts reserved for deferred comp arrangements and for accrued bonuses.
It was under $500000 in value grew sequentially potentially signaling a rebound in demand and spending by our small smaller regional clients, who tend to buy focus point solutions.
Regionally new business growth was broad based in the first quarter with both EMEA and APAC, having the best quarter of new business in over two years.
Adjusted EBITDA for consulting in the first quarter was $34.0 million with an adjusted EBITDA margin of 18, 1%.
Growth for <unk> and professional search continued to accelerate in the first quarter globally fee revenue was $142.0 million.
Which was up 103% year over year, and approximately $19 million or 16% sequentially.
Both RFP owned professional search continued to take advantage of the surge in demand for skilled professional labor.
<unk> revenue grew approximately 98% year over year, and 11% sequentially, while professional search fee revenue was up approximately 112% year over year and up 24% sequentially.
New business wins for both <unk> and professional search were also extremely strong in the first quarter professional search new business was up 14% sequentially and <unk> was awarded $113 million of new contracts, consisting of $45 million of renewals and extensions and.
$68 million of new logo work.
Adjusted EBITDA for RPM and professional search continued to scale in the first quarter improving to $34 million with an adjusted EBITDA margin of 24, 4%.
Finally in the first quarter global fee revenue for our executive search reached a new all time high of $217 million, which was up 81% year over year and 8% sequentially.
Growth was also broad based and led by North America, which grew 100% year over year and over 6% sequentially. Our international regions continue to accelerate sequentially fee revenue in EMEA and APAC were up approximately 4% and 22% respectively.
We continue to aggressively invest in it.
Expanding our network of consultants in the first quarter the.
The total number of dedicated executive search consultants worldwide.
At the end of the first quarter was 565 up 55 year over year and up 41 sequentially, including 22 colleagues who are recently promoted.
Annualized fee revenue production per consultant in the first quarter improved to a record $6.0 $9 million.
And the number of new search assignments opened worldwide in the first quarter was up 57% year over year and 2% sequentially to 1745.
In the first quarter Global executive search adjusted EBITDA grew to approximately $67.0 million, which was up $58.0 million year over year and up $18.0 million or 23, 5% sequentially adjusted EBITDA margin in the first quarter.
<unk> was 28, 4%.
Now going to turn the call back over to Bob to discuss our outlook for the second quarter of fiscal 'twenty two great. Thanks, Greg.
As I mentioned new business in the first quarter grew to a new all time high. So we're really starting the second quarter with a strong backlog of work now August is historically, a seasonal month influenced by summer vacations.
But new business for August was up approximately 41% year over year and was in line with our expectations now if monthly trends in each of our lines of business are consistent with historical patterns and market conditions remained strong we expect demand to continue to accelerate with new business up.
In September, peaking at a quarter high in October.
Additionally, as previously discussed we're going to continue to make near term investments in consultants.
And execution staff to fuel future growth and we do expect employee productivity to remain strong in G&A spend to remain at or near current levels in the second quarter, keeping both earnings and profitability strong now.
Now assuming no major delta variant related lockdowns or changes in worldwide economic conditions financial markets, where foreign exchange rates, we expect our consolidated fee revenue in the second quarter of fiscal 'twenty two to range from 585 million to 600.
$15 million and our consolidated diluted earnings per share to range from $31.0 to $45.0
So as we've begun our new fiscal year, we continue on a path of strong financial performance, leaving no doubt about our strategy or the durability of our business model today.
Today, we stand alone in the industry of one going to market with unique end to end organizational consulting solutions that continue to grow in relevance.
Robust new business generation over the past six months is a true barometer of marketplace recognition.
Korn ferry has never been better positioned to serve all of its constituencies.
<unk> clients candidates and shareholders for years to come with that we would be glad to answer any questions. You may have.
And ladies and gentlemen, if you wish to ask a question. Please press one and then zero on your Touchtone phone you will hear a tone, indicating that <unk> been placed in Q U can remove yourself from queue by pressing the same one zero command once again, it's one zero for any questions or comments.
Our first question will come from the line of George Tong with Goldman Sachs. Your line is.
Hi, Thanks, good morning.
So you delivered strong quarter over quarter growth in all of your business line.
Consulting being the exception and we saw a little bit of a quarter over quarter moderation in revenue trend there and also consulting new business growth was strong in the double digits, but did decelerate from the prior quarter. So I just wanted to see if there were any notable trends that you would call out in the consulting business that may be a little bit different from the rest of the business that youre seeing.
No I wouldn't say, so I mean, one of the.
Good problems to have his capacity.
And we are working very hard on ensuring.
That we have the appropriate level of capacity not only for years to come but over over the next few quarters. So it's a bit of a balance and then the second thing is to make sure that we're continuously repositioning solutions.
Trying to anticipate what's on the horizon over the next few quarter as one example, maybe.
ESG, where we have a brand new.
Offering that we're taking the market right now and Youll see more of that in the next few weeks. So it's really those two things.
Our rate per hour was I think very strong.
And our utilization was very good.
And our D. Eni work continues to flourish.
And George is the other thing I would say that we saw in consulting was we saw the smaller engagements actually start to accelerate.
We have been talking over time about the large engagements in that.
Where we're seeing the real growth for.
Kind of a first time, we saw the small engagements also accelerating in terms of the growth so that I think.
Thats good news going forward as you think about the.
Smaller engagements, especially internationally we.
We feel very positive about the growth potential there.
Got it very helpful. And then on large agency delivered very strong flow through in fiscal <unk> EBITDA margins. As you look ahead, how is your outlook for margins changed over the next one to two years previously you had said 17% to 18%.
With 18% plus achievable.
How has that changed and have you been outperforming your expectations with respect to profitability.
Bob do you want to handle that.
Yes, I think I think George we.
We have been exceeding our expectations in terms of the profitability.
As our new business continues with real strength.
As Gary mentioned, we're kind of chasing.
Capacity to deliver.
And so at some point the cost base from.
Compensation perspective.
We will catch up.
To some extent in.
That will put some downward pressure, we're still working through some of the real estate.
Its pretty complicated when you think about the.
The number of offices, we have in Europe.
In different cities across the World you have to negotiate with landlords you have to think about sub.
Sublet opportunities and so on.
But we still expect to get savings over time on the real estate and then I would expect the business development.
Travel.
Expenses are still at depressed levels I would expect them to come back.
Somewhere and nowhere near where we were but maybe to a more moderate level.
And I think we still stick to the certain longer term, 17%, 18%, 18% plus.
Opportunities as we continue to ramp the organization.
Got it very helpful. Thank you.
Thank you.
Our next question comes from the line of Tim Mulrooney with William Blair.
Your line is open.
Hey, this is Sam on for Tim Thanks for taking our questions here.
Your guidance for the first quarter was for revenue of 535 million to $555 million and you beat that estimate by about 7% here.
I guess, I'm wondering which pieces of the business exceeding your internal expectations and kind of which pieces of business were more or less in line with their own projections.
Well I would say that in general the businesses across the board.
Exceeded.
Our expectations.
We were very worried.
About the wave of the virus that we just it looks like we've made it through at least this delta there yet and so that was clearly our mines.
And I think the other thing is the <unk>.
And the professional search businesses.
Those are those are outstanding outstanding businesses, Rps has demonstrated a multi year multi quarter track record.
Delivering high quality high organic growth.
And that certainly.
Exceeded our expectations in the professional search area is.
Is one where.
That's a $20 billion $30 billion market.
And Thats one that.
Korn ferry is going to become an increasing relevant clone.
Great. That's helpful color, maybe pivoting a little bit here.
With more than $600 million of investable cash I was kind of hoping you can provide maybe an update on your capital allocation priorities.
Fiscal 2022 here.
Outside of the small repurchases.
The dividend how would you characterize your appetite and the pipeline for M&A.
Well I would say number one that we have a very balanced and systematic approach to capital deployment and so that's a combination.
Number one investing in the business.
And number two.
Balancing that desire.
With shareholder returns.
And part of that game plan is clearly.
Organic growth.
And I would say that the pipeline is good.
We don't feel compelled by any.
Sense of timing that we have to do something.
But I believe we're at the beginning of a journey here.
Years and years ago, I said this will be a multi hundred million dollar organization.
Then it was multibillion I mean, we're really just at the beginning and M&A is going to play a very important role in that.
Great. Thanks for thanks for the answers there.
Thank you. Our next question comes from the line of Mark Marcon with Baird and your line is open.
Hello, everybody and congratulations on a great quarter wondering if you can talk a little bit about the opportunity in professional search it is a huge market and I'm. Just wondering what are you seeing in terms of your capacity.
How many how are you thinking about additions over the course of this year too.
To the staff, there and where are you getting the folks from.
Well Youre right.
It's clearly a large addressable market for us.
And an adjacent market to that may even be staffing.
So we have ramped up and we continue to ramp up very aggressively.
The number of consultants in that in that business and we've.
January.
We have probably ramped up.
Revenue generating capacity by about 50% and we're going to we're going to absolutely continue to do that the other thing though is that it's got to be more than just bodies and what our RPM businesses.
Hold us.
Is that the combination of IP with incredible talent.
Can create a very nice organic growth story. So so the second piece is.
Making sure that we're incorporating our IP.
In into the offering.
And the.
Where the consultants are coming from.
It is a lot of what I would call mostly.
Smaller very specialized.
Recruiting firms.
There could be some that are larger.
But the final piece is that M&A has to play a role in that and.
You can't just do it a body of the time with IP alone that's great, but theyre also has to be an inorganic.
Strategy and so we're really pursuing.
Now all of those three avenues.
Avenues.
Right I mean, how would you anticipate ramping the capacity over.
The next six to 12 months ago.
I would continue at this pace there is mark you see it but.
It's unlike anything I've ever seen that the mega trends the changes that are happening right now.
Baby Boomers to career nomads to Upskilling talent technology, and Digitization is just massive massive change and.
And the desire from from clients to.
To hire people that have those type of technical technology digital skills. This.
This is something that I just haven't seen it.
Combined with the backdrop.
Of this massive transition and transformation around the world of work and.
I really believe this is going to continue for the next couple of years.
We're not only companies, making changes, but also people, making changes life choices of what they want to do or where they want to live it's a pretty I mean, it's obviously a hard time for many people, but it's also a very exciting time.
What percentage of the of the positions that you're you're filling R. R.
Our available are now work from home basis at this point, whether its in professional or executive search.
Quantify that yes.
Yes.
It's a substantial substantial amount, it's more than it's definitely more than 50% for sure.
And I think at the end of the day when you fast forward two years.
I think that.
That's where the environment is going to be clearly hybrid it's gonna be flexibility.
Obviously, theres some positions where.
That won't be the case, but it's a substantial amount.
And that should actually increase your competitive advantage, particularly relative to.
More regional firms given your your wide database now.
So I would think so I mean, I would I would absolutely think so.
And it's a.
Change is really good for our consulting business.
And now we are in the middle of a tsunami of change.
Great.
Just talk a little bit about what youre seeing on the.
On the consulting and the digital side, particularly as it relates to.
Sales training and to what extent that may have picked up.
Yes, it did tick up and.
We've made a big push there.
We made an acquisition of a couple of years ago that was principally anchored.
Around well two things project management, the ability to train people to manage.
Projects, but also around sales training and.
We've definitely seen a pickup in this quarter.
And as Bob talked about and Greg in terms of the.
Uptick in subscription sales.
A lot of that was actually driven.
By the sales training capability so organizations are now.
They've come up for air and they're looking around okay. How do they how do they go to market.
What is the customer journey look like and so I would I would continue to believe that.
A good part of our professional and leadership development.
I'll be around accelerated revenue growth or more simply.
Around customer experience and sales training.
Great and then one last one if I could just squeeze in Gary while we have you as you've been through many cycles.
Obviously, there is some discussion about.
Is this as good as it gets things, peaking.
How much of the activity that you're seeing is basically just a surge to make up for COVID-19.
Versus some of those bigger longer term trends.
Whether it's selling to marquee accounts cross selling.
The baby Boomers.
Retiring.
The work from home options, how would you characterize that.
Yeah.
If you would have asked me you know five months ago six months ago, I, probably would have said that.
50%.
Yes.
Yeah.
You could call it pent up demand or you could call it companies that maybe cut too much.
I wouldn't say that today I would say that the environment of change as it is I just haven't seen anything like this.
And.
Whether that's the the career nomads, whether it's the digitization of everything.
<unk>.
I think we're in for a couple of year just massive.
Mountains of transformation and change so I believe that the mega trends.
Or really.
It's really the big part of the narrative today, whereas.
Five six months ago, I would've said, it's maybe half the narrative.
That's very helpful. Thank you.
Okay.
Thank you.
Our next question will come from the line of.
Marc Riddick with Sidoti and your line is open.
Hi, good morning.
Hey, Mark good morning.
So I was wondering if you could follow up a little bit on and I really appreciate all the commentary and color that you've already given I was wondering if we could spend a little bit of time on the progress that you've seen.
With broad based recovery coming from smaller clients and wonder if you could address that a little bit maybe.
If you're are you getting a sense that those that have sort of picked up a little bit more lately.
Maybe what's been driving that are there particular industry verticals that we should be thinking about that have now kind of picked up their activity that maybe lagged others and how we should think about that difference that bifurcated.
Activity level that you are seeing kick in now.
Well, let me Bob you can add to my commentary here.
I think on a on a <unk>.
Broad stroke.
Our desire.
Would be to put a and <unk>.
Outside emphasis on.
Larger engagements.
For a whole set of reasons.
And coupled with that.
Our marquee and regional accounts, so that is still.
Our strategic desire.
That's not to say that we wouldn't pursue.
Smaller engagements say less than.
500000, or so because we clearly would.
But our desire is to definitely have more impactful.
Multi regional.
Engagements because that's clearly.
We have a global platform wins.
IP that cuts across the world.
I would say on an industry basis.
And this may be intuitive, but what we have seen over the last.
Few months is clearly an uptick in consumer.
And you would probably guess given how we.
Came out of out of the first wave.
That's whether that's travel and hospitality, whether it's a fashion, whether it's retail we've definitely seen that and then secondly technology.
Kind of across the board. So that's I think that kind of sets the landscape and maybe Bob you could comment further on the on the smaller engagements sure. So.
If you if you look at the engagements under half a million dollars, we basically break them up into three buckets less than a 100.100 to $302.0 to 500, and we actually saw.
In total for that those three categories.
So 50% growth year over year in each category was roughly in line with.
With that growth what we're seeing is mark Arian talks about.
The.
Filling up the jar with big rocks, but you still need the sand and the sand is what he refers to as a smaller engagements what we're seeing.
Particularly overseas in Europe, and Asia Pac is where the smaller engagements.
Picking up.
And as I think about the business historically, and we had strength in those regions.
In country.
Dealing with some of the smaller clients and that was the spending that had really been impacted.
From the from the pandemic the hardest and now we're starting to see that.
Rebound, which we think is a good signal again, we still have as Gary said, our emphasis is on engagements above $5 million and we saw strong continued.
The growth in those engagements, but this is the first quarter, we really saw the small stuff start to bounce back.
So I would say it's more.
Regional basis, if you will.
Great and then my next question then I will I will preface this by saying I admit this is a bit of a squishy question, but I just wanted to get your thoughts on it.
If you go back a few years ago to win.
You made a commentary in the investment you've made the decision to brand everything Korn Ferry you made the decision to step up your branding efforts.
Pre pandemic.
You made the decision to sort of move forward with it with the Korn ferry brand across the board.
You made the decision to J D.
And what have you all of those things. So I was wondering if you got a little bit of time, maybe on what your thoughts are there as to the effectiveness I know I've covered advertising before so I know, it's always difficult to ask somebody what the ROIC.
During exercise, but I was wondering if you could spend a little bit of time on sort of where you are today versus when you made those initial decisions and how you think about it.
Well I would say and in professional services there is no substitute.
For knowledge know, how and insight and that's the business that we're in and so I think coupled with those branding decisions that the very important.
We have been incredibly consistent and purposeful.
Not over weeks not over months not over quarters, but over years.
We believe this is a multi multibillion dollar opportunity.
To create an organization that sits at the intersection of talent strategy and an organization. So ultimately it's knowledge and its insight and its IP and that's what the firm is based on so I would say that is number one having said that.
As I look back clearly that decision.
Around branding.
And around thought leadership and all the things that we're doing I think it's been an absolute game changer for Korn ferry.
<unk> believe that we have elevated the brand of Korn ferry.
More in the last two years than we've done in the last 52 years in our history in business and that's not just a statement that's backed up by our data.
That we track and whether that's social media or whatever.
The data would tend to back that out now if we continue which we will win.
With our balanced approach to growth around organic and inorganic.
They are there you know there will be times, where.
You make an investment and you.
Run that company with that brand.
For a certain amount of time and I wouldn't be surprised if korn ferry does that in the future, but I I think that the.
The investments we've made the thought leadership, we've done the social media presence.
All of that has been an absolute game changer for Korn ferry as well as the consistency and the voice that we've taken in the marketplace around different types of issues whether that is.
Gender.
Whether it is around race.
Korn ferry.
Thank has been.
Yeah.
A very very strong voice in the marketplace and today. If you just look out now over the next few months and quarters.
She is going to continue to be.
A major issue for organizations and that's why we've been working very very hard.
Over the last several months to make sure that we can put together.
An integrated solution for companies that will grapple with this issue.
As well as the other issue around horizontal leadership the days of vertical leadership I think are long gone, particularly in this world of work today, where you know its highbred its work from anywhere anytime.
Hey, Matt.
I would I would add Gary gave kind of an outside in perspective, but inside out I see just a huge difference in the organization.
Interact with people across the company.
All lines have <unk>.
Fully been broken down I think there is.
Much much more collab.
Collaboration amongst the different lines of business and so on and I think the folks internally.
Present themselves as one Korn ferry versus where we were four or five years ago. So I think.
Absolutely.
But on in terms of how we show up in the outside world, but I think.
So internally I see just a massive difference in how people interact and engage today.
Excellent. Thank you very much.
Thank you. Our next question comes from the line of Tobey Sommer with choice.
<unk> Your line is open.
Thank you I had a question about <unk>.
And I guess <unk>, if you consider that part of the same theme.
What percentage of sales is generated from that currently in and could you talk about the opportunity and what it may be in the future and sort of how your current offerings map against that opportunity or maybe need to be refined to fully capitalized.
Well the.
I would characterize those businesses as being.
Being nine digit.
In total.
And so.
Whether that would be you know.
You know eight 910% of the company, depending on what you count in there.
So it's certainly not.
And overwhelming share of the portfolio today.
But the the.
The ESG.
Opportunity the da Eni it is not.
It's not an isolated question and it ties to <unk>.
An approach to enterprise leadership.
That is number one it's more inclusive leadership, which we have digital offerings for that.
It applies to them to the total enterprise.
It's not just.
Vertical leadership anymore its horizontal so those opportunities are.
Not just for example around paying governance, which we have a very very nice business there, but they also speak to <unk>.
Organizational strategy.
And organizational transformation and the type of success profiles that you need.
You are fit for purpose, whether you then does the compensation compensation.
System, right reward and reinforced that fit for purpose. So.
It's not necessarily an isolated question around ESG and DNI, but the way that we are looking at it is more around horizontal leadership.
Enterprise wide leadership, so I I think that we've spent quite a bit of time over the last several months, making sure that we.
Bring the different parts of the organization together, where we can have an offering that is very very integrated how big that opportunity is Toby Idaho I can't speak to that.
But I don't I don't think this is a fab and I do think it plays into the Mega trend that we're seeing that fortunately or unfortunately.
This virus.
Has has created and prompted them.
Just a tremendous amount of change.
Hey, Tobey its Bob one of the things that Gary mentioned earlier, we're going to be rolling out.
A new sort of ESG solution and as part of that rollout.
When we're ready to go Prime which is in the next couple of days, we have a slide that actually takes.
And it's a little bit broader than ESG. It takes.
ESG workforce transformation and so on and it lines up our solution sets under nine different categories from board capability and governance to embedding ESG and the operating model.
<unk> goals and reinforcement mechanisms and so on and so that's something that we.
We will share with you as soon as we are again ready for primetime over the next couple of days, but it gives you a real sense for our solution sets and how they line up in the again, it's not just the ESG, but.
The broader mega trends that Gary referred to.
Thanks, I appreciate that.
If it is eight eight or so percent today and I told you I thought it could double in four years would that give you pause or is that within the realm of possibility.
Well I think the thing that we're very careful about is whiplash leadership and you know it's.
It's.
This is a time of tremendous transition.
And we're not going to just go from from happy to glad so it's.
It's hard to make any kind of.
No.
Declaration.
Our statements today, because the world is in transition, but you know if you if you told me that.
I think that may be on the high side, but you know.
It really is it in the realm of possibility.
It could be in the realm of possibility.
Part of that is dependent on the waves of this virus and the political climate in.
In the world, but Theres no question.
We're going through a seismic change in many dimensions right now.
Okay.
My other questions have been hit I, just wanted to touch on.
Gary capital deployment.
To your balance.
Having flexibility.
Which you have ample liquidity net cash position now.
And you're I'm sure.
Long term goal of driving returns higher when you when you leave that stranded capital there yeah yeah.
Work at odds with that longer term goal, how do you balance that out and are there any thresholds of liquidity that you kind of draw a line on it and say we won't go above there because that's just too inefficient.
Well I can let Bob speak.
Speak to the metrics I would say that number one.
Actions speak louder than words, and so I think if you are a shareholder and Korn ferry and you believe in the strategy that this we are creating a company.
That's at the intersection of talent.
In organization and strategy number one and number two then you'd have to say, okay. Do you believe and the leadership team.
And I think as part of that you would you would look at the track record and you would say okay. These.
<unk> has this company done what it has said consistently over time and I think the answer would be a resounding of course, I'm biased, but it would be a resounding, yes to that question.
Clearly, we've got a a good problem on our hands.
You pointed out very subtly and we're very well aware of that and but the last thing we're going to do is to rush into something.
That in five years could be very very harmful for the brand of Korn ferry and so that is the thing we're not going to do.
We do like having that flexibility, but there does come a point.
We're as you say it's inefficient.
And Bob maybe you can speak to how we think about the operating boundaries and shareholder boundaries.
Yeah. So so.
Tobey.
<unk>.
Look at the organization.
You know how much cash we're carrying I think we I wouldn't say, we have a specific number that we won't go above.
And we talked a lot about our balanced approach.
Towards capital allocation as we see the cash the investable cash balances growing and again some of it depends on.
Where in the world those cash sits because some of it isn't accessible to us easily.
But really our team we've got the $220 million I spoke about sitting in the U S.
And we will look at the different opportunities that exist for us to deploy that cash whether it's looking at investing more into the digital business or hiring more fee earners.
Or what we did at the end of the year last year as we increased our dividend.
This quarter, our buybacks weren't as substantial as they had been in the past, but we really look at all the levers and depending on where we stood at the time and trying to achieve.
A return greater than our cost of capital for shareholders.
We will make decisions along the way.
Each of those vectors.
To either pull the lever.
As Gary said were we.
We will sit tight if we don't if we don't have an M&A opportunity and we will look more towards shareholder returns at that point.
Okay will be Washington for that thanks.
Thank you and we will take the final question from Tim Mulrooney with William.
William Blair.
And your line is open.
Hey, guys. Thanks for letting us hop in the queue here again.
Quick one around marquee accounts since that's been a big topic of discussion.
You've mentioned over the last few quarters here that marquee accounts outperforms. The rest of your portfolio I guess I'm wondering if that dynamic occurred in previous recoveries or if this is really GB extra focus youre, giving to these accounts now.
Well, Bob that you can maybe add add to this I would say that yes.
Over the last.
A few quarters they out that portfolio has definitely.
Outperformed I mean, the reality is when you go back to the to the the last major.
Recession, which was the great recession at that point our.
Our account strategy was nowhere near.
What it is today, so it's really not.
It's really not comparable.
And so I can't really answer that question, then and it's not only.
The marquee and regional accounts are absolutely an important part of the Korn Ferry story, but the other thing we do look at.
Is the cross referrals.
And that's not going to go up every quarter, that's absolutely not going to happen.
But when you it is something we pay attention to when we look we look at both of those and those are you know that.
That's not just a <unk>, we actually reward our colleagues.
Cross referrals so.
We tend to look at those.
Together and I think when you look at them together over many months Mueller.
A multi quarter basis.
Would say, okay, well this thing it is working.
But it's hard to compare because they just wasn't.
It wasn't in its maturity.
<unk> 13 years ago, and we're still we still are at the very very beginning.
Even with the account strategy when it comes to our what we would call a regional accounts.
Yes, Gary the only I would add you just you just mentioned the word that I was going to say I think it's really just the maturity of the program and you think about.
The number of account leaders, we have on hand, you think about the organization's recognition.
The program you think about the cross line of business referrals that that.
You mentioned, it's really just the maturation of that program and as Gary said I would say the <unk>.
The marquee accounts are further along.
That spectrum the regional accounts are much more mature if you will they have been in existence for two or three years now.
And so we expect the.
Performance on the regional accounts to over time to catch up in and mirror, what we're seeing on the marquee accounts, but it's definitely the.
Has anything to do with the recovery I think it's just the program maturing itself.
Bring it I appreciate the color there guys.
Thank you Mr. Burton said I'd like to turn it back over to you for any closing comments.
Well, thank you everybody for joining us and recognizing that.
The world and in many respects is.
Still going through hardship.
And.
Our hearts go out to those.
That.
Still our experience in this and to some extent or another.
We all are but with that also.
With crisis comes it comes opportunity.
And those tend to come in in times of Great change and.
That is the period that we're in and we are very very.
Hopeful and about the Mega trends that are playing out so well.
Want to thank our colleagues again for their resiliency.
For the outstanding effort and for our shareholders for listening. Thank you very much and we'll talk to you next time.
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