Q2 2024 Korn Ferry Earnings Call
Yeah.
Speaker 1: Ladies and gentlemen, thank you for standing by and welcome to the Corn Ferry second quarter fiscal year 2024 conference call. At this time all
Ladies and gentlemen, thank you for standing by and welcome to the Korn Ferry second quarter fiscal year 'twenty 'twenty four 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.
Speaker 1: Following the prepared bar marks, we will conduct a question and answer session. As a reminder, this conference call is being recorded for re-
Speaker 1: We have also made available in the investor relations section of our website at cornfairy.com, a copy of the financial presentation that we will be reviewing with you today. Before I turn the call over to your host, Ms. Gary Bernison.
Also made available in 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 Bergersen, Let me first read a cautionary statement to investors certain statements made in the call today, such as those related to future performance plans and goals constitute forward looking statements within the meaning of private Securities Litigation Reform Act of 1995, although the company believes the expectations reflected in such for.
Speaker 1: Certain statements made in the call today, such as those related to future performance, plans and goals, constitute forward looking statements within the meeting of 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 the future periods may differ materially.
Looking statements are based on reasonable assumptions investors are cautioned not to place undue reliance on such statements actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties, which are beyond the company's control additional information concerning such risks and uncertainties can.
Speaker 1: or desired because of a number of risks and uncertainties, which are beyond the...
Speaker 1: Additional information concerning such risks and uncertainties can be found in the release relating to this presentation and in the periodic
[noise] be found in the release relating to this presentation and in the periodic and other reports filed by the company of the S. E C, including the company's annual report for fiscal year 2023, and in the company's soon to be filed quarterly report for the quarter ended October 31 2023.
Speaker 1: including the company's annual report for fiscal year 2023 and then the company's soon to be filed, quarterly report for the quarter ended after...
Speaker 1: Also, some of the comments today may reference non-GAAP financial measures such as a constant currency amount.
Also some of the comments today may reference non-GAAP financial measures, such as constant currency amounts EBITDA and adjusted EBITDA.
Speaker 1: Additional information concerning those measures, including reciduations to the most 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 section of the company's website at www.cornvery.com. For more information, visit www.cornvery.com.
Information concerning those measures, including reconciliations to the most direct 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 section of the company's website at Www Dot Korn ferry Dot com.
Speaker 1: With that, I'll turn the call over to Mr. Bernsen. Please go ahead, Mr.
With that I'll turn the call over to Mr. Bernstein. Please go ahead Mr Bernstein.
Speaker 2: Okay, good afternoon everybody and thank you for joining us in season's greetings. The team's gonna get into this in more detail, but there's no doubt that the strategy is working.
Okay. Good afternoon, everybody and thank you for joining us and season's greetings to know the team is going to get into this in more detail, but there is no doubt that the strategy is working.
Speaker 2: Despite a softer labor market, our results demonstrate the resiliency of our business.
Despite a softer labor market our results demonstrate the resiliency of our business through a marquee and regional account strategy multiple talent product offerings.
Speaker 2: Through a marquee and reach our account strategy, multiple talent, product offerings.
Speaker 2: and cross-referring those solutions to our clients. We generated 704 million in fee revenue in the quarter.
And cross referring those solutions to our clients, we generated $704 million in fee revenue in the quarter.
Speaker 2: which is down about 3% year over year. Despite a persistent and even economic environment, earnings and profitability helped steady sequential.
Which was down about 3% year over year.
Despite a persistent uneven economic environment earnings and profitability held steady sequentially as we delivered a 14% adjusted EBITDA margin and also we announced this morning.
Speaker 2: as we delivered a 14% adjusted EBITDA margin. And also, we announced this morning, reflecting that we've got a much different company today and the confidence that we have in our organization. We increased our dividend by 83%.
Reflecting that we've got a much different company today and the confidence that we have in our organization, we increased our dividend by 83%.
Speaker 2: I'm proud of our phone and of our colleagues. We continue to develop increasingly relevant solutions in a rapidly changing world. In particular, our consulting and digital businesses now generate almost 40% of our top line. And in fact, digital achieved an all-time record revenue
I'm proud of our phone and of our colleagues we continue to develop increasingly relevant solutions in a rapidly changing world.
In particular, our consulting and digital businesses now generate almost 40%.
Of our top line and in fact digital achieved an all time record revenue.
Speaker 2: at constant currency during the quarter. You know, to put all this in perspective, I wanna take a step back for a moment. I'm going to take a step back for a moment.
Constant currency during the quarter.
To put all this in perspective I wanted to take a step back for a moment.
Speaker 2: When I started with our firm, we were a couple hundred million dollars.
When I started with our firm we were a couple of hundred million dollars company today, our firm generates several billion dollars in revenue.
Speaker 2: Today our firm generates several billion dollars in revenue.
Speaker 2: In fact, our top line today is about 40% higher than pre-pandemic levels.
In fact, our top line today is about 40% higher than pre pandemic levels.
Speaker 2: And now we're at the threshold of even greater opportunity. More importantly, we have the possibility of accelerating the trajectory of thousands of organizations.
And now we're at that threshold of even greater opportunity more importantly, we have the possibility of accelerating the trajectory of thousands of organizations at the same time, we have to acknowledge that most of most of the business World is.
Speaker 2: At the same time, we have to acknowledge that most of the business world is in the midst of a multi-quarter cyclical reset. As become clear that the economic environment will continue to be challenging in a month ahead, countries have been transitioning from almost three decades of cheap money to substantially higher interest.
In the midst of a multi quarter cyclical reset is.
Become clear that the economic environment will continue to be challenging in the months and months ahead countries had been transitioning from almost three decades of cheap money to substantially higher interest rates.
Speaker 2: This reset will require companies and our clients to not only adapt, but adjust, optimize, and innovate, which creates opportunity for corn fairy. We have a proven track record of accelerating through many.
This reset will require companies and our clients to not only adapt but adjust optimize and innovate which creates opportunity for Korn ferry, we have a proven track rubber driven proven track record of accelerating.
Through many economic terms.
Speaker 2: The crucial aspect is breaking before the turn and accelerating through it. In times like these, that's how great companies make their best moves. And Corn Ferry is a great company.
The crucial aspect is breaking before the turn and accelerating through it in times like these that is how great companies to make their best moves and Korn Ferry is a great company.
Speaker 2: Our vision to become the premier organizational
Our vision to become the Premier organizational consulting firm is working and our diversification strategy continues to positively influence our performance. We have a household brand operating in every major geographic region of the world with World Class IP and talent.
Speaker 2: every major geographic region of the world with world-class IP and talent.
Speaker 2: unparalleled client access and a pristine balance with substantial financial must...
Unparalleled client access and a pristine balance sheet with substantial financial muscle, we power through cycles and are poised to seize opportunity.
Speaker 2: with a three point strategy. Number one, optimize, number two, innovate, and number three, consult it.
With a three point strategy number one optimize number to innovate.
And number three consolidated.
Speaker 2: I'll now turn the call over to Bob who will cover all of this in more detail. Bob.
I will now turn the call over to Bob who will cover all of this in more detail Bob.
Speaker 3: Great, thanks, Gary. And good afternoon or good morning. Similar to Gary, I'm very pleased with our performance this quarter, you know, clearly demonstrate that our broader diversification strategy and investment thesis continues to play out. Our consulting and digital businesses both grew year over year, and our recently acquired interim businesses were more durable than our permanent placement talent acquisition solution.
Thanks, Gary and good afternoon, and good morning.
Similar to Gary I am very pleased with our performance this quarter clearly demonstrates that our broader diversification strategy and investment thesis continues to play out our consulting and digital businesses. Both grew year over year and our recently acquired interim businesses were more durable than our permanent placement talent.
Acquisition solutions.
Speaker 3: Now this intentional diversification into strategically aligned capabilities provide additional cross-line to business referral opportunities and more relevant scalable solutions for our marquee in regional account.
Now this is intentional diversification into strategically aligned capabilities provides additional cross line of business referral opportunities.
And more relevant scalable solutions for our marquee and regional accounts.
Speaker 3: It also contributes to not only more durable fee revenues, but to increased earnings stability, as shown in the company's sequentially stable adjusted EBITDA, despite an increasingly complex and uncertain macroeconomic backdrop.
It also contributes to not only more durable fee revenues, but to increased earnings stability as shown in the company's sequentially stable adjusted EBITDA.
Despite an increasingly complex and uncertain macroeconomic backdrop.
Speaker 3: I'm also pleased with our cost management. As the company's adjusted EBITDA margin mark the second consecutive quarter of continued sequential improvement.
I'm also pleased with our cost management is the company's adjusted EBITDA margin marked the second consecutive quarter of continued sequential improvement. Additionally.
Speaker 3: Additionally, at the end of the second quarter, we took actions to right size our workforce capacity to better align it with current business realities as well as to take advantage of productivity gains we're realizing in this new world of work.
Additionally, at the end of the second quarter, we took actions to right size, our workforce capacity to better align it with current business realities as well as to take advantage of productivity gains that we're realizing in this new world of work.
Speaker 3: These actions will help us to continue with our adjusted EBITDA margin improvement by driving approximately $110 to $120 million in overall annual cost save.
These actions will help us to continue with our adjusted EBITDA margin improvement by driving approximately $110 million to $120 million.
Overall annual cost saves.
Speaker 3: Finally, and going back to the point Gary ended with.
Finally going back to the point Gary ended with.
Speaker 3: We do plan to continue to seize opportunities in the current environment with our three point strategy. He said optimize, innovate, and consolidate. Let's start with optimize first.
We do plan to continue to seize opportunities in the current environment with our three point strategy. He said optimize innovating consolidate let's start with optimize first.
Speaker 3: We're going to continue to drive productivity by leveraging our cost base. In fact, if you take Q2 of FY24 and compare that to Q3 of FY20, and that was the quarter right before the pandemic, our fee revenue per employee is up 23%. And if you were to pro forma a full quarter of the impact from our recent restructure reactions, it would actually be up 33%.
We're going to continue to drive productivity by leveraging our cost base. In fact, if you take Q2 of FY 'twenty four and compare that to Q3 of FY 'twenty and that was the quarter right before right before the pandemic.
Fee revenue per employee is up 23%.
And if you were to pro forma full quarter of the impact from our recent restructuring actions it would actually be up 33%.
Speaker 3: And let me turn to innovate. We will continue to build modes around our solutions and services using our proprietary data content and IP, which truly differentiates us from our competitors, who generally have to rely on third-party data and insight.
Now, let me turn to innovate we will continue to build moats around our solutions and services using our proprietary data content and IP was truly differentiates us from our competitors, who generally have to rely on third party data and insights.
Speaker 3: We are also actively embedding AI into our existing solutions and services to drive greater delivery efficiencies along with greater client impact.
We are also actively embedding AI into our existing solutions and services to drive greater delivery efficiencies along with greater client impact.
Speaker 3: Last, we will continue with our investments to monetize our data content and IP through our digital business.
Lastly, we'll continue with our investments to monetize their data content and IP through our digital business.
Speaker 3: Now I'll touch upon consolidate, where our efforts are going to be focused on continuing our investment in strategically aligned, less cyclical, faster growing, and larger addressable markets.
Now I'll touch upon consolidate where our efforts are going to be focused on continuing our investment in strategically aligned less cyclical faster growing and larger addressable markets.
Speaker 3: With all of our recently acquired interim businesses now being fully integrated and the increasing relevance of our services and solutions in the world today, we will continue to leverage our existing client relationships and our colleagues across all lines of business will drive top-line fee revenue synergies through expanded client penetration.
With all of our recently acquired interim businesses now being fully integrated and the increasing relevance of our services and solutions in the world today, we will continue to leverage our existing client relationships.
And our colleagues across all lines of business will drive topline fee revenue synergies through expanded client penetration.
Speaker 3: Lastly, we will continue to expand our leadership and professional development business by replicating our success in delivering leadership coaching at scale at an increasing number of clients and leveraging this success into a broader leadership development outsourcing offer.
Lastly, we will continue to expand our leadership and professional development business by replicating our success in delivering leadership coaching at scale in an increasing number of clients and leveraging this success into a broader leadership development outsourcing offering.
Speaker 3: Now let me turn the call over to Greg who will take you through some overall company financial highlight.
Now, let me turn the call over to Greg who will take you through some overall company financial highlight.
Speaker 4: Okay, thanks Bob. In the second quarter, global free revenue was $704 million, which was above the high end of our guidance range and down 3% year over year, or 5% down 5% at constant current.
Okay. Thanks, Bob.
In the second quarter global fee revenue was $704 million.
Which was above the high end of our guidance range and down 3% year over year or down 5% at constant currency.
Speaker 4: By line of business, consulting and digital, which combined were approximately 40% of consolidated revenue, continue to be stable, each growing approximately 3% in the second quarter.
By line of business consulting and digital which combined were approximately 40% of consolidated revenue continued to be stable each growing approximately 3% in the second quarter.
Speaker 4: For talent acquisition, permanent placement fee revenue continue to moderate from post-pandemic highs with executive search, RPO, and professional search down 7%, down 18%, and down 29% respectively.
More talent acquisition permanent placement fee revenue continued to moderate from post pandemic highs with executive search RPI, <unk> and professional search down, 7% down, 18% and down 29% respectively.
Speaker 4: V revenue in the second quarter for interim services was also more stable, down sequentially approximately $2 million or 2%.
Fee revenue in the second quarter for interim services was also more stable down sequentially, approximately $2 million or 2%.
Speaker 4: Consolidated new business in the second quarter, excluding RPO, was down 3% year over year at actual FX rate.
Consolidated new business in the second quarter, excluding <unk> was down 3% year over year at actual FX rates.
Speaker 4: and down 4% at constant currents.
And down.
<unk>, 4% at constant currency.
Speaker 4: Consulting new business in the second quarter was strong, up 10% year over year driven by Amia, which was up 34%.
Consulting new business in the second quarter was strong up 10% year over year, driven by EMEA, which was up 34%.
Speaker 4: Digital new business was up sequentially in the second quarter, but down 15% measured year over year, due primarily to a strong fiscal Q2, which included several large contract wins.
Digital new business was up sequentially in the second quarter, but down 15% measured year over year due primarily to our strong fiscal Q2, which included several large contract wins.
Speaker 4: Similarly, RPO had a strong quarter with new business at $141 million. New business in the second quarter for executive search was down 10% year over year.
Similarly, <unk> had a strong quarter with new business.
$141 million new business in the second quarter for executive search was down 10% year over year.
Speaker 4: And for professional surgeon interim was up 1% year-over-year.
For professional search and interim was up 1% year over year.
Speaker 4: In line with guidance, second quarter earnings and profitability remains sequentially stable.
In line with guidance second quarter earnings and profitability remains sequentially stable adjusted.
Speaker 4: adjusted EBITDA in the second quarter was $99 million and despite moderating fee revenue, strong cost control drove adjusted EBITDA margin to 14% up 30 basis points sequentially.
EBITDA in the second quarter was $99 million and despite moderating fee revenue strong cost control drove adjusted EBITDA margin to 14% up 30 basis points sequentially.
Speaker 4: Finally, our adjusted fully diluted earnings per share in the second quarter were 97 cents.
Finally, our adjusted fully diluted earnings per share in the second quarter were 97.
Speaker 4: down 46 cents or 32% year over year.
Down 46.
Or 32% year over year.
Speaker 4: Adjusted fully diluted earnings per share excludes $70 million or $1.1 per share of restructuring charges related to the re-alignment of our workforce and integration and acquisition costs associated with our recent acquisition.
Adjusted fully diluted earnings per share excludes $70 million or $1 <unk> per share of restructuring charges related to the realignment of our workforce in integration and acquisition costs associated with our recent acquisition.
Speaker 4: Gap diluted loss per share in the second quarter was minus four cents.
GAAP diluted loss per share in the second quarter was minus four.
Speaker 4: Our investable cash position at the end of the second quarter remains strong at $464 million.
Our investable cash position at the end of the second quarter remained strong at $464 million.
Speaker 4: Through the end of the second quarter, we deployed $65 million of cash using $28 million for share repurchases and dividends, $28 million for capital expenditures, and $9 million for debt service.
Through the end of the second quarter, we deployed $65 million of cash using $28 million for share repurchases and dividends $28 million for capital expenditures and $9 million for debt service.
Speaker 4: Now turn the call over to Tiffany to review our operating segments and more details.
Now I'll turn the call over to Tiffany to review, our operating segments in more detail.
Speaker 5: Thanks Greg. Starting with Chaos Digital, global fee revenue in the second quarter was 97 million, which was up 3% year-over-year and up 1% at constant current.
Thanks, Greg.
<unk> with KF digital global fee revenue in the second quarter was $97 million, which was up 3% year over year and up 1% at constant currency.
Digital subscription and license fee revenue in the second quarter with $32 million, which was approximately 33% of fee revenue for the quarter and up 12% versus Q2 of last year.
Speaker 5: The strategy of multi-year subscriptions has created some resiliency in digital revenue as this quarter marked the near all time high in fee revenue for the second.
The strategy of multiyear subscriptions has created some resiliency and digital's revenue at this quarter Mark the near all time high and fee revenue for the segment.
Speaker 5: Global new business for digital was 95 million, with 34 million or 36% of the total tide to subscription and license sale.
The level of new business for digital was $95 million with $34 million or 36% at the total tied to subscription and license sales.
Speaker 5: Although the quarterly timing of larger, new business projects is different than last year, the overall pipeline for digital remains strong as we head into the back half of our fiscal year.
Although the quarterly timing of larger new business project is different than last year. The overall pipeline for digital remained strong.
Ed into the back half of our fiscal year.
Speaker 5: for consulting, fee revenue in the second quarter was 178 million, which was approximately 3% year-over-year and a 1% at constant current.
Our consulting fee revenue in the second quarter was $178 million, which was up approximately 3% year over year and up 1% at constant currency.
Speaker 5: The revenue growth was strongest in organizational strategy, which increased 19% year over year, and in assessment and succession, which grew 7% year over year.
Fee revenue growth was strongest in Oregon, <unk> strategy, which increased 19% year over year, and an assessment and succession, which grew 7% year over year.
Speaker 5: The average hourly bill rate continues to climb, now at $413 an hour, which is up over $42 an hour from just one year ago. Additionally, global new business for consulting in the second quarter was up 10% year-over-year, with continued double-digit growth in AMIA, resulting from large organizational strategy wins in the UK and Middle East.
The average hourly bill rate continues to climb now at $413, an hour, which is up over $42 an hour from just one year ago.
Additionally, global new business for consulting in the second quarter was up 10% year over year with continued double digit growth in EMEA, resulting from large organizational strategy wins in the UK and middle East.
Total fee revenue and professional search an interim in the second quarter with $138 million up $3 6 million or 3% versus Q2, FY2023.
Breaking down the quarter year over year fee revenue growth was mostly driven by the interim business, which offset moderation in a permanent placement question of this segment.
Interim services fee revenue grew to $82 million up from $55 million in the same quarter of the prior year driven in part by the most recent acquisition.
Average interim hourly bill rate has increased to an average of $126 per hour up from 107, one year ago.
Permanent placement fee revenue declined by $23 million to $56 million year over year down, 29% at actual and down 30% at constant currency.
Speaker 5: Professional search and interim new business increased 1% in the quarter compared to last year driven by growth in Amia and aided by the most recent acquisition. Moving on.
Professional search and interim new business increased 1% in the quarter compared to last year driven by growth in EMEA and aided by the most recent acquisition.
Moving on to recruitment process outsourcing new.
Speaker 5: New business for the second quarter was 141 million, comprised of 53 million of new locals, logos, and 88 million of renewals. And total revenue under contract at the end of the quarter was approximately 681 million.
New business for the second quarter was $141 million comprised of $53 million of new logo logos and $88 million of renewals and total revenue under contract at the end of the quarter with approximately $681 million.
Speaker 5: The revenue totaled 88 million, which was down 20 million, or 18% year-over-year, and down approximately 20% at constant current.
<unk> revenue totaled $88 million, which was down $20 million or 18% year over year and down approximately 20% at constant currency <unk>.
Speaker 5: C-revenue is impacted by a moderation and hiring volume in the existing base of con.
Fee revenue is impacted by a moderation in hiring volume in the existing base of contract.
Speaker 5: We see this flow down as transitory and believe RPO was well positioned to benefit when hiring returns to more normalized levels in the base.
We see this slowdown as transitory and believe <unk> is well positioned to benefit when hiring returns to more normalized levels in the base.
Speaker 5: and the larger, more recent wins begin converting to revenue at their full contract balance.
And the larger more recent wins begin converting to revenue at their full contract value.
Speaker 5: Although the quarterly new business can be choppy at times, the pipeline remains strong, as RPO continues to win new business with a differentiated service offering in the market.
Although the quarterly new business can be choppy at times. The pipeline remains strong as <unk> continues to win new business with a differentiated service offering in the marketplace.
Speaker 5: Finally, global sea revenue for executive search in the second quarter was $203 million. And as expected, experienced a Euro-reared decline of 9% at constant current.
Finally global fee revenue for executive search in the second quarter was $203 million and as expected experienced a year over year decline of 9% at constant currency.
Speaker 5: compared to the accelerated growth rates during the pandemic recovery last.
Compared to the accelerated growth rate during the pandemic recovery last year.
Speaker 5: Demand continued to moderate across most regions with the exception of Latin America.
Demand continued to moderate across most regions with the exception of Latin America.
Speaker 5: Global new business in the second quarter for executive search was down 10% year over year and down approximately 11% at constant current.
Global knee business in the second quarter for executive search was down 10% year over year and down approximately 11% at constant currency.
Speaker 3: I will now turn the call back over to Bob to discuss our outlook for the third quarter of fiscal 24. Great. Thanks, Tiffany. New-Hembreed New Business came in line with our expectations and the normal seasonal patterns. And, assuming no new major pandemic-related lockdowns are further changes in worldwide geopolitical conditions, economic conditions, financial markets, and foreign exchange rates.
I will now turn the call back over to Bob to discuss our outlook for the third quarter of fiscal 'twenty four great. Thanks Stephanie.
<unk> new business came in line with our expectations and the normal seasonal patterns and assuming no new major pandemic related lockdowns of further changes in worldwide geopolitical conditions economic conditions.
<unk> markets and foreign exchange rates.
Speaker 3: We expect fee revenue in the third quarter of fiscal 24 to range from $645 million to $665 million. Our adjusted EBITDA margin to improve to approximately 15% and our consolidated adjusted deluded earnings per share to range from 96 cents to $1.2.
We expect fee revenue in the third quarter of fiscal 2004 to range from 645 million to $665 million, our adjusted EBITDA margin to improve to approximately 15%.
Our consolidated adjusted diluted earnings per share to range from 96 to $1 two.
Finally, we expect our GAAP diluted earnings per share in the third quarter to range from 87 to <unk> 95.
Speaker 3: Now when closing, as I look across the organization, we're extremely well positioned in terms of what the world is looking for.
Now in closing as I look across the organization, we're extremely well positioned in terms of what the world is looking for everything.
Everything today is about talent was a war for talent companies are looking for better talent different talent talent with ice.
Skills and so on the.
The collection of our IP data and content woven through our core integrated solutions really creates a unique and symbiotic ecosystem of service offerings that touch every aspect of an employee's engagement with his or her employer. We're the only company in the world that has this collection of IP data content and assets.
Speaker 3: It really gives us a great platform to help our clients synchronize their strategy and talent to drive superior performance, talk or change, coming out stronger. And...
It really gives us a great platform to help our clients synchronize their strategy and talent to drive superior performance Cocker change coming out stronger on the other side.
Speaker 3: Would that we would be glad to answer any questions you may have?
With that we would be glad to answer any questions you may have.
Speaker 1: Ladies and gentlemen, if you wish to ask a question, please press 1-0 in your telephone keypad. You may withdraw your question at any time, but you're printing the 1-0 command. If you're using a speaker phone, please pick up the hamptit before pressing the numbers. Once again, if you have a question, you may press 1-1.
Okay.
Ladies and gentlemen, if you wish to ask a question. Please press one net zero on your telephone keypad you may withdraw your question at any time by repeating the ones Youre command, if you're using a speakerphone. Please pick up the handset before pressing the numbers. Once again, if you have a question you May press one zero at this time.
One moment please for the first question.
The first question comes from George Tong with Goldman Sachs. Please go ahead.
Speaker 6: Hi, thanks good morning. New business XRPO in Pledge Hill had declined in the quarter, but looks like November is following normal seasonal patterns. Can you talk a little bit more about new business trends that you saw by month during an existing quarter? And if November trends suggest that we've essentially formed the bottom in terms of new business.
Alright, Thanks, good morning, new business ex <unk> and what it declined in the quarter, but looked like November following normal seasonal patterns. When you talk a little bit more about new business trends that you saw by month during exiting the quarter.
November trends suggest that essentially formed the bottom in terms of new business.
Speaker 2: The new business trends over the last five months have been pretty clever. We're working on some of the new events that are going on point,
Yes.
The new business trends over the last five months have been pretty flat.
Speaker 2: That's that's number one. And it does appear that search has stabilized, particularly taking a look at even the last four quarters.
That's number one.
And it does appear that searches.
Stabilized, particularly.
Taking a look at even the last four quarters.
Speaker 2: October was substantially better than September , which we would expect. And November came in, which is, November is a seasonal month. And it came in exactly where we thought. So it's been fairly stable, pretty consistent.
October was substantially better than September, which we would.
Expect.
November came in which is in November is a seasonal month.
And it came in exactly where we thought so it's been fairly fairly stable pretty consistent.
In terms of terms.
Speaker 6: Got it. That's helpful. You additionally talked about increasing cross referrals among large marquee and regional counseling. You provide some metrics on the extent of cross-selling and where you're seeing the most amount of cross-selling which which division.
Got it that's helpful.
When we talked about increasing cross referrals, among large marquee and regional accounts.
Provide some metrics on the extent of cross selling and where you're seeing the boats about cross selling which which divisions.
Speaker 2: Well, the cross-selling, you know, look, the Marquian regional accounts is the anchor of our strategy. It sits 38% of our top line, and in fact, it's quarter, it was 38% of new business.
Well the the cross selling.
Look the marquee and regional accounts is the anchor of our strategy.
38% of our topline and in fact this quarter it was 38% of new business.
Speaker 2: And if you look, you know, overall across your furls right now, I think your today or something around 25% of the company's top line.
And if you walk.
Overall cross referrals right now I think year to date or something around 25% of the company's topline.
Speaker 2: And in some businesses, the percentage is higher and some it's lower. When we look at RPO, it's tended to be a very high percentage, substantially higher than 25%. We've certainly been very, very thrilled by saying
And in some.
Businesses the percentage is higher in some it's lower when you look at RPM.
<unk> tended to be a very high percentage substantially higher than the 25% we've certainly been.
Very very thrilled by saying.
Speaker 4: but a lot of course also do our computeraring business. And we didn't have...
Level of cross referrals into our business and we didn't have.
Speaker 2: pretty years ago. And then that keeps us to the very first. So you know, parts of the business, it's prior in some lower, and you know, that's the April or a strategy. They have multiple panels for each that have regions that are talking costs.
Three years ago.
Ed.
Q2 to bear fruit.
So there are parts of the business, it's higher and some lower than that.
Our strategy is to have multiple offerings that reasons theyre talking to clients.
Speaker 2: and the drive deeper impact and change the trajectory of literally thousands of organizations.
And to drive deeper impact and change the trajectory of literally thousands of thousands of organizations.
Very helpful. Thank you.
Speaker 1: Next question comes from line of Mark Markholm with Beard. Please go ahead.
Next question comes from the line of Mark Mark home with Baird. Please go ahead.
Speaker 7: Hey, good morning or good afternoon, depending on where you are. Head several.
Hey, good morning, or good afternoon, depending on where you are.
Had several questions one.
Speaker 7: You know, Gary, you started out by basically talking about, you know, Hey, we've got this big reset in terms of getting ready for, you know, changes in rate.
Yeah.
You started out by basically talking about Hey, we've got this big reset in terms of getting ready for.
Changes in rates.
Speaker 7: From your conversations and with your top consultants and the feedback that they're giving you, you know, how are they viewing this reset? Like how long do they think it's going to take?
From your conversations with your top consultants in the feedback that Theyre, giving you.
How how are they viewing this reset like how long debates think it's going to take.
Speaker 7: How is that impacting talent plans?
How how is that impacting talent plans.
Speaker 7: What are you just seeing from that perspective? Because things have been stable for the last five.
What are you seeing from that perspective, because things have been stable for the last five years.
Speaker 7: you know, months and in addition to that, we are seeing, you know, some chatter about Goldilocks and maybe a soft landing instead of an expected recession. So I'm just wondering how that all melts.
Months. In addition to that we are seeing some chatter about goldilocks it maybe a soft landing instead of a expected recession. So.
Wondering how that all melds together.
Speaker 2: Well, you know, in my conversations with clients and in our consultants, it varies, you know, it varies depending on where you are.
Well the you know in.
In my conversations with clients and our consultants it varies it varies depending on where you are there is there is parts of the world that are that are investing heavily and there's others that are not my look you step back and this is my read of things is that number one there's no question the labor market.
Speaker 2: There's parts of the world that are investing heavily and there's others that are not. My, you know, look, you step back and this is my read of things, is that, number one, there's no question the labor market is softer. I mean, you know, a couple of years ago, the United States was producing.
Is softer I mean, a couple of years ago, the United States was producing.
600000 jobs a month last year was 400000. This year, it's 200000 and October is probably like 100000, So theres no question that.
Speaker 2: and October is probably like 100,000, so there's no question.
Speaker 2: that coming off this incredible surge after the pandemic, that the labor market has...
Good.
Coming off this this incredible surge after the pandemic that the labor market has moderated.
Speaker 2: I would expect deflation. I think that is going to happen. Corn and wheat prices are back to pre-pendemic levels. You look at companies' results over the past few quarters, and there's a consistent pain. Volume down prices up.
I would expect deflation.
I think that is going to happen in corn and wheat prices are back to pre pandemic levels.
You look at company's results over the past few quarters and there is a consistent theme.
<unk> down prices up.
Speaker 2: package shrinking uh... i i would expect that there to be deflationary pressures broadly broadly speaking
Package shrinking.
I would expect that there to be deflationary pressures broadly broadly speaking.
Speaker 2: And I'm certainly not an economist.
And I'm certainly not an economists.
Speaker 2: But I would think that central banks are going to hold pretty firm in where the rates are for the next several months.
But I would think the central banks are going to hold pretty firm and where the rates are for the next several months.
Speaker 2: and you know, mid to late 24, maybe there's some relief in that. But I think that, you know, this environment has taken companies time to adapt and adjust. And I think that's what you're saying with a higher cost of carry. But it's just, it's clear to me that prices have to come down, you know, overall.
And mid to late 'twenty four may be there is there is some relief in that but I think that.
This environment has taken companies time to adapt and adjust and I think thats, what youre, saying.
With a higher cost of carry but it's just it's clear to me that prices have to come down.
Overall.
Speaker 7: I appreciate the perspective with regards to capital allocation. So, you know, congrats on increasing the dividend. I know that that's been a point of discussion with the board for quite some time. Can you talk a little bit about the dynamics that led to such a strong increase in terms of the dividend and just, you know, what how...
Great I appreciate the perspective with regards to capital allocation. So.
Interest on increasing the dividend I know that that's been a point of discussion with the board for quite some time can you talk a little bit about the dynamics that led to such a.
A strong increase in terms of the dividend and just.
How.
Speaker 4: both the top management as well as the board, what changed in terms of the thinking and how should we interpret that with regards to further investments in terms of areas like interim or professional search.
Both the top management as well as the board what what changed in terms of the thinking and how should how should we interpret that with regards to.
Further investments in terms of areas like.
Interim or professional search.
Speaker 2: Confidence confidence confidence. I mean that's the answer we have a completely different company today than we did several years ago
Confidence confidence confidence I mean, thats the answer we have a completely different company today than we did several years ago, and we have confidence in our ability to generate sustainable profits. It is not by any stretch of imagination deviation from our strategy. We have a multibillion dollar opportunity ahead of us.
Speaker 2: And we have confidence in our ability to generate sustainable profits. It is not by any stretch of the imagination, deviation from our strategy. We have a multi-billion dollar opportunity ahead of us. We're going to continue to make investments, to do acquisitions, but it reflects confidence in what the business is today. And you can see it in the results. I mean, you can see a soft labor market. And clearly, the firm recruiting side of the business.
To continue to to make investments to do acquisitions, but it reflects confidence in what the business is today and you can see it in the results I mean, you can see a soft labor market.
And clearly the Perm recruiting.
Recruiting side of the business.
Speaker 2: would have been flow with that. But you look at the other parts and it's buoyant. It's substantially lifted the firm's results. So it's all around competence.
Would ebb and flow with that but if you look at the other other parts and it's buoy.
It's substantially lifted the firms the firm's results. So it's all around it's all around confidence and.
Speaker 2: You know, you look at our growth rate over 20 years. It's probably about 14 percent. I think last 10 years, it's 12 percent.
You look at our growth rate over 20 years, it's probably about 14% I think last 10 years, it's 12% 40% of that has been M&A, 60% has been organic.
Speaker 2: 40% of that has been M&A, 60% has been organic.
Speaker 2: We're continuing to think that will be the playbook going forward. It could change if there's a big opportunity that comes our way.
We're continuing to to think that will be the playbook going forward. It could change if there is a big opportunity that comes our way.
Speaker 2: And that's one of the reasons why we took the actions we did, unfortunately, is to make sure that we're breaking and that we can make investments and deliver returns to shareholders. So we think that a balanced approach is the best way. Number one is to invest in the business as we've done. But we also have to be mindful of returning cash to shareholders, either through dividends or stock by that.
And that's one of the reasons why we took the actions. We did unfortunately is to make sure that we're breaking and that we can make investments and deliver returns to shareholders. So we think that our balanced approach is the best way.
Number one is to invest in the business as we've done but we also have to be mindful of returning cash to shareholders either through dividends or stock buybacks.
Speaker 7: really appreciate that. I'm sure those shareholders do as well. With regards to the
Really appreciate that.
I'm sure the shareholders do as well with regards to the.
Speaker 7: But for guards to just the, you know, the separation and the restructuring that's occurring, what sections are being impacted the most from that perspective in terms of, when we take a look at the overall head count reduction and that 110 to $120 million in terms of cost reductions, which divisions are being impacted the most there?
With regards to just the.
The separation and restructuring.
Thats occurring.
Each sections are being impacted the most from that perspective in terms of when we take a look at the overall head count reduction in that $110 million to $120 million in terms of cost reductions, which which divisions are being impacted the most there.
Speaker 2: It was fairly broad-based and it kind of follows the trend in new business. Look, this is something that...
It was it was fairly broad based and it's kind of follows the trend in new business look this is something that.
Speaker 2: You know, I just absolutely it's gut wrench.
I just absolutely it's gut wrenching.
Speaker 2: And it's a decision that was not taken lightly, but months about it, tried a lot of different things. And it's something that just weighs heavily on the even, even to,
And.
It's a decision.
Not taken lightly.
Thought months about it tried a lot of different things and it's something that just weighs heavily on the even even today.
Speaker 2: But the reality is the great companies make their best moves and in times that aren't as rosy. And to do that, you have to make sure that you have financial freedom and flexibility to keep making investments. And that was the decision that I took. And unfortunately,
But the reality is the great companies make their best moves and times that arent as rosy and to do that you have to make sure that you have financial freedom and flexibility to keep making investments and now with the decision.
And unfortunately.
Speaker 2: And the impact is about 8% of the organization.
Any impact it was about 8% of the organization.
Speaker 2: And it pretty much followed the trends that you see in your business for the most part. Both geographically, by industry and by social.
And is it pretty much followed the trends that you that you see in new business for the most part both geographically by industry and by solution.
Speaker 3: In markets, the broad base outcome really relates not only to the fact that we're getting taking out excess capacity, but remember we also are taking advantage of some of the productivity gains that we're getting in the world of work today. And that's what gave us the opportunity to be more broad-based versus more surgical.
Hey, Mark its Bob.
The broad based.
Outcome really relates not only to effect that we're getting.
Out excess capacity.
But remember we also are taking advantage of some of the productivity gains that we're getting in the world of worsening.
But the opportunity to be more broad based this versus more surgical.
Okay.
Speaker 7: I've got lots of other questions, but I'll jump back in the game.
I've got lots of other questions, but ill jump back in the queue.
Okay.
Yes.
Speaker 1: And our next question comes from line of, tell me summer with true securities, please go ahead.
And our next question comes from the line of Tobey Sommer with Trust Securities. Please go ahead.
Speaker 2: Capital intensity over the last few years, CapEx has gone from like 31 million in fiscal 21, and it looks like we're on a run rate for over 80 this year. Could you talk about that, what your goals are for what it will achieve, and if there's a potential for it to normalize down as a percentage of sales and or operating cash flow.
Our capital intensity over.
Over the last few years Capex has gone from like $31 million.
In fiscal 'twenty, one it looks like we're on a run rate for over 80 this year could.
Could you talk about that.
What your goals are for <unk>.
What it will achieve and if theres a potential for it to normalize down.
Yeah.
As a percentage of sales <unk> operating cash flow.
Speaker 4: So, it'll be the first part of your question that was cut off. Could you? Yeah, absolutely. So, I wanted to ask.
So it will be the first part of your question was cut off.
Could you.
Yes, absolutely so I wanted to ask about capital intensity and.
Speaker 2: in recent years and year-to-date CAPEX has gone up significantly. It's more than doubled in sort of three and a half years. So I want to know what the goals are, what you're achieving and what you're achieving in the future, and whether that could normalize down as a percentage of sales and operating capacity.
In recent years and year to date Capex has gone up significantly it's more than doubled in sort of three and a half years.
So I want to know what the goals are what youre, achieving <unk> achieved in the future and whether that could normalize down as a percentage of sales and operating cash.
Speaker 2: Yeah, well, look, it's number one, it's around the IP and embedding the IP and everything that we do.
Well look at it.
Number one it's around the IP and embedding the IP and everything that we do.
Speaker 2: And, you know, with all the conversations around AI, it first starts with data and proprietary data. And that we have that. I mean, we develop, you know, over a million professionals a year. We've done a hundred million assessments. So the CAPEX and the investment there is a really around data and IP and how we blend together the entire platform.
And.
With all the conversations around AI.
It first starts with data and proprietary data.
And that we have that we developed over 1 million professionals a year, we've done a $100 million assessments. So the capex and the investment there is a really are around data and IP and how we blend together the entire platform.
Speaker 2: And, you know, for example, in both, you know, consulting and digital. We break those segments out separately, but in fact, they very much go hand in hand, in that consulting uses the IP as a firm in many of its engagements. So, I think that's fundamental to the company's future, is around proprietary IP data knowledge.
And.
For example, in both consulting and digital.
We break those segments out separately, but in fact, they very much go hand in hand in that consulting users VIP of the firm.
Many of its engagement so I.
I think that's fundamental.
To the company's future is around proprietary IP data and knowledge.
Speaker 2: particularly with these conversations around AI. I don't think it will be as quite as high as 80, but I do think that there's a level that we're going to want to maintain to see the opportunities going forward.
Particularly with these conversations around AI.
I don't think it will be as quite as high as 80.
But I do think that there is a level.
That we're going to want to maintain to seize the opportunities going forward.
Speaker 2: And so when we look at this, we, you know, our track record and we've got 20 years.
And so when we look at this we.
Our track record and we've got 20 years.
Speaker 2: You look, it's been fairly balanced in terms of our strategy. We say what we mean, we do what we...
You look it has been.
Fairly balanced in terms of our strategy, we say, what we mean, we do what we say.
Speaker 2: And I would expect that it's going to continue to be balanced. Would that moderate somewhat this year? I think it probably will in the back half of the year. But we have to invest in the monetization and the integration of our IP into the solutions that we offer, including insert.
And I would I would expect that it's going to continue to be balanced with that moderate somewhat this year I think it probably will in the back half of the year.
But we have to we have to invest in the <unk>.
Monetization and the integration of our IP into the solutions that we offer including in search.
Speaker 3: I appreciate that. I think your, so I think the number you mentioned to 80 million is high. You should be thinking this year cat-backs is probably 60 million plus minus.
We appreciate that I think there'll be I think your the number you mentioned the $80 million is high you should be thinking this year capex is probably $60 million plus minus.
Speaker 2: Okay, so does the edge down from last fiscal year? Yeah, that's the... There was... Yeah.
Okay. So it does edged down from last fiscal year.
Yes.
I'm sorry go ahead.
Speaker 2: I appreciate that, that detail. How do we assess the effectiveness of those investments? Because they're multi-year in nature and it's a process. Is it...
I appreciate that.
Detail.
How do we.
Yes, the effectiveness of those investments because they're multi year in nature and it's a process is it more rapid.
Speaker 8: more rapid growth in the licensing piece within digital is it also a boost in the medium-term growth rate of consulting, like sort of from where we sit outside the company, how do we assess efficacy of those in the...
Growth in the licensing piece within digital is it a also a boost in the medium term growth rate of consulting sort of from where we sit outside the company how do we assess the efficacy of those investments well I think the first thing.
Speaker 2: Well, I think the first thing is, number one, you know, this is, you know, is the whole bigger than the sum of the parts. And so, you know, how does the firm perform overall? When you start to peel back, I think you first have to look at consulting and digital together. And, you know, what are those solutions doing relative to any kind of market expectation? Could or nourish the technical conduct of companies,
<unk> is number one this is this is.
Is the whole bigger than the sum of the parts and so how does the firm performed overall when you start to Peel back I think you first have to look at consulting and digital together.
And.
What are those solutions doing.
Relative to any kind of market expectations and so today that that business is a $1 billion 1 billion too.
Speaker 2: And so, you know, today that business is a billion, one billion, two. And as we talked about, look at the consulting growth rate. I mean, you know, the new business in October was up like 10%. And the wins that we're getting are complex engagements, bigger sizes, look at the rate per hour. The rate per hour on our consulting business has gone from like 300 bucks.
And as we talked about look at the consulting growth rate I mean, the new business in October was up by 10%.
And the wins that we're getting are complex engagements bigger sizes look at the rate per hour the rate per hour on our consulting business has gone from like 300 Bucks to 413 in the matter of two two and a half years Thats a direct result of the investments we've made the strategy around the market.
Speaker 2: to 413 in the matter of two to and a half years. That's a direct result of the investment we've made, the strategy around the marquee and regional accounts, the strategy around going to bigger engagements. So I think that's something you can look at. The RPO business.
Ian regional accounts the strategy around going to.
Bigger engagements. So I think thats something you can look at the <unk> business.
Speaker 2: The success in the RPO business is because of the account strategy, because of the talent that we have. But the big part is around the IP and the technology that will bring to clients. Now, this is a pretty tough...
The success in the RPM businesses because of the account strategy because of the talent that we have but the big part is around the IP and the technology that will bring the clients now this is a pretty tough comp.
Speaker 2: compare with what we're saying and what others are saying in the RPO industry with what I've called previously labor hoarding It's difficult to to really you know to assess it in this particular cycle, but I think you can look at that and again just look back over You know many years I can remember ten years ago that business was fifty million dollars today in run rates You know more like you know three twenty three fifty something like that
Per.
With what we're seeing and what others are seeing in the <unk> industry with what I've called previously labor boarding.
It's difficult to to really to assess it in this particular cycle, but I think you can look at that and again just look back over.
Many years I can remember 10 years ago that business was $50 million today and run rates.
More like $323 50, or something like that.
Speaker 2: You know, I think you would look at that as well.
I think you would look at that is as well.
Speaker 3: And Toby, the other thing you have to think about too with the total capital spend is a portion of that goes to infrastructure, right? Whether we're updating systems or strengthening the foundation to keep the bad guys out, probably 15 to 20% of what we spend is infrastructure spending.
And Tobey the other thing you have to think about too with the total capital spend as a portion of that goes to infrastructure right, whether we're updating systems or strengthening the foundation to keep the keep the bad guys out.
Probably 50% to 20% of what we spend is as infrastructure spending.
Sure.
Speaker 8: Gary, how do we think about, and how do you think about the internal recruiting capability?
Gary.
How do we think about and how do you think about the internal recruiting capability.
Speaker 8: that your customers have retained during this uncertain economic period of the last seven or eight quarters.
That your customers have retained during this uncertain economic period over the last seven or eight quarters.
Speaker 8: And what does it mean to the ability of the company to...
And.
What does it mean to.
The ability of the company too.
Speaker 8: sort of grow as perhaps marginal demand increases, how much will be retained internally at the customer's versus represent, you know, a dividend self-demand to a quote that.
Sort of grow.
As perhaps marginal demand increases how much will be retained internally at the customers versus.
Represent.
Given itself as demands corporate.
Speaker 2: Well, I think ultimately depends on the quality and the knowledge that we bring.
Well I think ultimately depends on on the quality.
And the knowledge.
That we bring.
Speaker 2: Clearly, we have seen companies retain a larger share of areas of shared services that I wouldn't have guessed. I mean, there's no question about it. But you look at the business today, and for example, the search businesses essentially, where it was pre-pandemic levels.
Clearly.
We have seen companies retain a larger share.
Of.
Areas of shared services.
I wouldn't have guessed I mean, there's no question about it.
But you look at the business today and for example, the search businesses essentially.
Where it was pre pandemic levels.
Speaker 2: And so do I think that that's going to have a negative impact?
And so do I think that that's going to have a negative impact.
Speaker 2: when it's a little funnier. No, I don't think it's gonna have a material negative impact because I've got a lot of confidence and I think the data shows that the IP and the insight that we bring is pretty special in the marketplace. So I wouldn't expect that to have a big negative overhang.
When it's a little Sunnier no I don't think its going to have a material negative impact because I've I've got a lot of confidence and I think the data the data shows.
The IP and the insight that we bring.
<unk> is pretty special in the marketplace.
Wouldn't expect that to have a.
A big negative overhang.
Speaker 2: on what we view around recruiting in the labor market.
On what we do around.
Accruing in the labor market.
Speaker 8: If I could have seen one last one, I wanna react to something you said earlier. You said perhaps general deflation.
If I could sneak one last one and we'll react to something you said earlier, you said, perhaps general deflation.
Speaker 8: How could that manifest itself in wages, in how does that representation wages?
How could that manifest itself.
And wages and how does that representation in wages.
Speaker 7: impact your growth in a year or two. Thanks.
Impact your growth in a year or two.
Well.
Sure.
Speaker 8: you know, there's going to continue to be some wage pressure, but you've seen that really moderate. Big.
There is going to continue.
I think there is going to.
Continue to be some wage pressure, but you've seen that really moderate big time.
Speaker 2: over the last few months. I mean, the quit rate has gone down substantially. And that's what happens in cycles. It goes from an employer market to an employee market and back and forth.
Over the last few months I mean, the quit rate has gone down substantially.
And that's what happens in cycles, you know it goes from.
An employer market to an employee market and back and forth.
Speaker 2: But I do think overall that that deflationary impact will ultimately result in central banks.
But I do think overall that deflationary impact will ultimately result in central banks.
Speaker 2: revisiting the levels of rates. And I think that could create freedom for companies.
Revisiting.
The levels of rates and I think that could create freedom for companies.
Speaker 8: in terms of in terms of investment. So I would do that.
In terms of in terms of investments so I would view that.
Speaker 8: as a good thing. I mean, it's clear what the central banks and its unprecedented move that they've made over many months here. It has had a big, big impact on the economy. There's just no question about it. In the United States going from 600,000 jobs a month to now, you know, this month probably 100,000. I mean, that's incredible. That's unbelievable.
As a good thing I mean, it's clear what the central banks in this unprecedented move that they've made over many months here. It is had a big big impact on the economy Theres just no no question about it.
In the United States going from 600000 jobs, a month to now this month, probably a 100000.
That's incredible.
Unbelievable.
Speaker 2: So it's had its impact. And I have to believe that at, you know, say five, six months down the road, there has to be a relic at that. Thank you for being so generous. My question.
So its had its impact.
And I have to believe.
Say five six months down the road there has to be.
We look at that.
Yes.
Thank you for being so generous with my questions.
Okay.
Next question comes from the line of Trevor Romeo.
Please begin.
Speaker 4: Hi, thanks so much for taking the questions. First one's just on the Revenue Guidance. I just wondered if you could talk about your expectations for each set.
Hi, Thanks, so much for taking the questions first one just on the revenue guidance I was just wondering if you could talk about your expectations for each segment and in total.
It's maybe a mid to high single digit decline sequentially that is embedded kind of on a on a consolidated basis. I was wondering if you could kind of talk about the various factors for each of the businesses.
The.
First overall when we historically.
Look.
At our results you would tend to think that the third quarter based on historical averages.
Would be down about 5% from the second quarter.
And.
Basically.
Our guide is in line with that.
And I would expect.
The results in the third quarter are going to mirror, what we've talked about here in terms of new business trends. So I would probably expect the search business to be down.
10% or so.
I would expect the consulting business to be strong.
Strong in a relative term in this kind of economy.
For sure.
And so that's that's how I would think about it on the interim side.
I would expect that the the technology area would improve slightly over over what it's been.
So that's kind of broad based how I would look at the components of the business on.
On a geographic basis I would expect.
EMEA to continue to perform well and again.
Relative to the economy that we're dealing with but.
That could be moderate growth it could be flat.
Asia his store historically in Asia over the last several quarters has been off China has been a drag on our results.
To the tune of about $50 million a year the good news in the last.
Two three months as we've seen some improvement in <unk>.
Asia, which would be great for us we have a great team. There. So that's that's how I would.
Think about it the <unk> business.
Level of new business.
New wins this quarter was its about 100, almost 150 to 141.
So $600 million Thats kind of what it was excluding.
Excluding last year after the after.
After the pandemic it was kind of $600 million a year. So that's how I tend to think about it.
Okay. Thanks, Gary that's helpful.
On the leadership development outsourcing or the coaching at scale business, you've been talking more about lately.
Kind of wondering if you could talk about how you've progressed towards that opportunity the past several months and how significant that could be to the company in the future.
Well it comes back to Toby is caution around around investment in capital I mean part of that investment in capital.
Is around some of our training businesses and we have to continue to invest in that so.
That that training businesses roughly call it 10% of the overall company's revenue flooding.
An enormous market.
It's probably $100 billion, it's massive in terms of the market opportunity there.
We continue to win mandates of not just teams, but thousands of people within an organization.
Particularly at a time like this when companies have to really adapt and adjust and innovate and optimize and think about AI and think about their talent strategies.
So it does present, an incredible opportunity for us, but the key is around the IP.
And we have to make sure that we're making the investments.
To enable the development to create real.
Learning journey.
For for companies and their employees.
And Trevor this is Bob the one thing we are seeing right now and the leadership development outsourcing.
To stand that up as clients are coming to us now.
We have a leadership development outsourcing diagnostic so we're helping clients to understand.
Most clients, they're spending so dispersed across the organization.
In these times, we were trying to optimize costs.
Turning to get mandates around cost optimization of their <unk>.
We ship development spend through our diagnostic tool.
Great. Thanks, and then if I could maybe sneak one more in just to follow up on the restructuring.
The.
The annual cost savings I think it's about 4% of the current revenue run rate.
Simplistically would you expect that to have about a 4% positive impact on margins on an ongoing basis or would there be some offsets there and then on kind of the phasing or the timing.
Will all of that benefit be captured by the end of Q3 or would there be some lagging impacts beyond that thanks.
Ill jump on them when Gary So I'll answer the second part first.
The majority of the saves.
We'd expect to see in Q3, there are some situations in foreign countries, where for example people are in garden leave and so on and so getting the costs out of the business takes a bit longer but I would say for the for the most part we'll realize those savings.
In the third quarter.
You heard Gary talk about sort of breaking before the turn and then accelerating through it.
Part of the.
The reason why we took the actions is to give us the ability to make investments.
As we go through this cycle.
So the 400 basis points that you are referring to.
You should be thinking about this business.
From a I would say for the near term kind of a 14, 5% to 15, 5% margin adjusted EBITDA margin.
And then obviously once the fog lifts and where it gets back to more normal environment, we would expect to be in the kind of the 16% to 18% range that we previously talked about.
Yeah.
Okay understood. Thank you very much.
And our next question comes from the line of Josh Chan with UBS. Please go ahead.
Hi, good morning, Thanks for taking my questions. So just one question on the guidance.
You mentioned that in the third quarter, you would expect about 15% EBITDA margin, which is obviously higher than what you did in Q2. So I was just wondering.
What businesses do you expect to see that most of that sequential margin improvement.
We want to see it in all of them.
Before the pandemic.
We were.
Kind of consistently running at 14%, 15% EBITDA margin.
Then we entered into a brand new market around interim services and when you pro forma that out and look at the history the immediate history before the pandemic.
That kind of 14 and a half.
15 historical number translates to about.
12, and a half 13%.
Something like that.
And so what we're guiding to here.
As you know.
15%. So so we would think.
On an apples to apples basis this would be too.
<unk> 300 basis points higher.
Then pre pandemic and with the investments that we have made over the years as Bob talked about in terms of productivity improvements using AI and the like.
We better see.
That kind of profit.
Increase so that's how we're thinking about it.
Okay. That's helpful. Thank you.
And then just a last follow up I guess on the on the restructuring and just.
Could you guys just went through the thought process and timing behind that because it didn't seem like any business took a leg down in the quarter really.
So is it more of a catch up and an acknowledgment that the recovery may take a little bit of time or I guess, what was the thought process behind doing that now.
Well.
It's never a great process.
And it was.
For me personally in many many months in the making and.
We we tried a lot of different things, but at the end of the day.
And you look at the firms history.
And we have a clear and demonstrated track record of.
Powering through cycles, and if you look we have a history of.
Taking actions.
Fortunately the auctions.
Earlier than later and we do that so that when there is volatility and dislocation we can take advantage of that.
And.
That was the reason.
And it's one it's just something that I hate to deal.
<unk> weighs on my heart, but.
We have to make sure that we have the financial freedom to be able to invest because this is a multibillion dollar opportunity from where we are today.
Great.
Great color there and good luck in the second half of the year.
And the next question comes from the line of Mark Mccollum.
Baird. Please go ahead.
Thanks for taking my follow ups, Gary wanted you to expand if possible on on your last comments.
With regards to the rationale for doing it.
I think you've always been very clear and its very thoughtful.
In terms of the.
The reduction in it seems like everybody, who is with the firm and coming through this on the other side is going to benefit from it but I'm wondering if you can.
Describe like what how morale is how how is retention with regards to the consultants that you want to keep them.
To what extent too to do all the consultants appreciate the necessity of doing what you did.
Well.
That's a loaded question.
You know its or just based on data.
Our turnover is really low relative to our professional services firm and it was it was low actually even during the great resignation relatively speaking.
And so that's when you actually look at the data.
And that is the fact is that the turnover.
It has been.
Very very reasonable levels.
These these decisions are not easy ones.
And at.
At the end of the day.
We have a multibillion dollar opportunity ahead of us to be able to seize that opportunity. We have to have the financial flexibility to make investments to do M&A to reward our talent.
To invest in data and AI and the things that we've talked about and at the same time return capital to shareholders and again on an apples to apples basis.
With the investments that we've made I think we should be more profitable than.
And then we were and before the pandemic, we were running apples to apples kind of 12 and a half 13 adjusting for the interim mix and with the investments that we've made you have to see a return on those investments and our profitability level at now the guide at 15%.
Reflects a step up in profitability.
The pre pandemic levels and I think that is absolutely warranted given the investments that we've made in the business.
Great.
<unk> business.
Despite the economic softness has been growing.
<unk>.
Modest two 9% year over year growth, but strong.
Sequential growth can you talk a little bit about the areas that youre seeing the greatest success in the digital business and then you also earlier referenced bigger projects on the consulting side and I'm wondering if you can talk a little bit about that and just how should we think about the lumpiness with regards to new business trends as it.
<unk> to digital yes, youre going to continue to see Lumpiness in digital we've got some very tough compares.
You could land multimillion dollar engagements that hit in a quarter and thats.
That's actually what Youre, what youre seeing so there is going to be some lumpiness I mean, that's why we've tried to move this towards.
You know a software as a service business and as Tiffany said, it's about a third 36% something like that.
Of our new business is around licensing we made that move a few years ago.
We're going to continue on that I do think you you really do need to look at the consulting and digital businesses together to get a true picture.
And the digital business feeds a lot of other things I mean, the digital.
Part of that is feeding our our professional development business. So.
Just look at that on a stand alone basis.
It was my decision to break that out several years ago. I mean, you do really need to look at it.
As an integrated whole theres really four things on the digital business.
We're focused on right now.
One is around rewards to is around sales and service stories around assessments and floors around renewals.
And then if I added a fifth there would be around developing an ecosystem channel partners.
Yeah.
Okay, but those are the areas.
We have comp data.
Millions of people.
<unk> landscape around.
<unk> thousand companies.
<unk>.
That should be able to.
Monetize even further the sales and service we made an investment right before the pandemic.
A company called Miller Heiman.
Got incredible IP, there and we've got to make sure that that's being digitized and brought into to today's reality assessments as a linchpin of the company. We've done a $100 million assessments, we've got to make sure that we are digitizing that embedding AI into it.
We have to focus on on renewals.
Part of that surround.
Activating and enabling our learning content for sure.
Hey, Mark it's Bob the other thing that you.
You should think about with the new business and digital is as we start to sign up more longer term engagements.
You're signing up in the past you do one year than another year than other years. So each sequential year you'd have the same renewal happening, whereas now if we sign up a three year deal you don't get the renewal in year, two and year three so youre seeing some of that influence the.
New business in digital as well.
Which is a good thing that'd be one if we wanted to get this out for long term subscriptions.
And can you talk about like on the digital side with your largest client there.
Hows that progressing what are you hearing.
I'll reference hirple or are they going to be.
Well I look at just the again I'm going to look at the consulting and digital business together I mean.
You look at the shift Thats been made.
Those businesses over several years.
And you are clearly clearly seeing a move towards more scaled assignments theres no question about it and a lot of those.
Our around organizational strategy, which is our own companies rethinking their organization setting up a new organization.
<unk> optimizing innovating.
And the success of that is due not only to the talented people that we have but the IP that we have to.
And that's really that's really bearing out.
And Mark when you think about our largest clients you should be thinking about it more from a.
The one Korn ferry integrated approach, where the real power of the firm comes in.
We've got multiple lines of business into a client so rather than looking at a large client relative to digital or IPO. It's really the whole suite of services that we offer is what creates the largest accounts that we have.
Yes.
<unk> about that one contract that you know what I'm talking about in terms of.
How well that's going.
So just was curious there with regards to China.
Yeah.
You did mention it's been soft in a big drag, but Gary you mentioned that starting to pick up a little bit or stabilized can you expand on that.
Well, we've seen a little bit of green shoots.
Over the last couple of months.
And.
I am not going to sit here and say that.
Two months make a trend but.
You know that's you.
That's $50 million in terms of going back to pre pandemic off the company's top line, it's not insignificant.
Terms of the impact that its had so I'm not going to sit here and say that two months make a trend, but it has worked out or the last couple of months.
Great to hear thank you very much.
And it appears Theres no further questions Mr. Benson.
Okay. Thank everybody.
This time of year.
Where there's a lot of reflection.
And a lot of thankfulness, despite what's happening in the world today.
I. Thank you all for listening, taking an interest and we'll speak to you next time. Thank you everybody.
Ladies and.
Gentlemen, this conference call will be available for replay one weeks starting for one week starting today at three PM Eastern time running through the day September 30.
I'm sorry.
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Yeah.
Yeah.
Yeah.