Q2 2025 Korn Ferry Earnings Call
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Thank you.
Speaker Change: Ladies and gentlemen, thank you for standing by and welcome to the Korn Ferry second quarter fiscal year 2025 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.
Speaker Change: As a reminder, this conference call is being recorded for replay purposes.
Speaker Change: We have also made available in the investor relations section of our website at Cornferry.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 Burnison, let me first read a cautionary statement to investors.
Speaker Change: 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.
Speaker Change: Actual results in future periods may differ materially from those currently expected or desired because of the number of risks and uncertainties which are beyond the company's control.
Speaker Change: relating to this presentation and in the periodic and other reports filed by the company with the SEC, including the company's annual report for fiscal year 2024, and in the company's soon-to-be-filed quarterly report for the quarter ended October 31, 2024.
Speaker Change: Also, some of the comments today may reference non-GAAP financial measures.
such as constant currency amounts, EBITDA, and adjusted EBITDA.
Speaker Change: Both of which are posted in the investor relations section of the company's website at www.cornferry.com. With that, I'll turn the call over to Mr. Burnison. Please go ahead, Mr. Burnison.
Mr. Burnison: Okay, thank you, Leia. Good afternoon, everybody. Thank you for joining us.
Mr. Burnison: Season's Greetings. The team's going to get into the results in more detail, but...
Overall, I would say our execution has been outstanding.
Mr. Burnison: earnings and profitability increased year over year, and sequentially the margin over, the EBITDA margin over 17% is our 6th consecutive quarter.
Mr. Burnison: business, digital new business trends improving, and steady performance in consulting. And we also continue to invest.
Mr. Burnison: For example, over the last several quarters, we've made significant investments.
to productize RIP and proprietary data assets.
including the 100 million assessments we have, 10,000 success profiles.
Mr. Burnison: rewards data on 28 million people covering 30,000 organizations, and all of that enables our clients to maximize their talent.
in Organizational Performance at Scale.
And part of that investment was reimagining.
Mr. Burnison: and developing a new HR integrated software platform, the Korn Ferry Talent Suite, which we launched in the quarter, and reflects our commitment to invest in and expand our highly differentiated IP and products.
Mr. Burnison: The talent suite brings together all of our talent management capabilities, our assessment data, development data, reward solutions.
Mr. Burnison: allowing our clients to license our decades of expertise, proprietary insights, and data-driven intelligence.
via subscription agreements to power their decisions.
The move is pivotal for all parts of our organization.
a connected approach with stronger market presence.
Mr. Burnison: and actually more impactful solutions. And we also made an investment in the quarter that I'm really excited about, Trilogy International, which substantially expands our interim professional offerings to EMEA and North America.
Mr. Burnison: With its digital and technology focus, Trilogy operates at the forefront of change in a large, addressable market for us.
Mr. Burnison: We're also continuing to focus on our Marquee and Regional Accounts Strategy that represents 38% of our portfolio and almost all of our Marquee clients use at least three of our
Mr. Burnison: while we also attract and develop additional talent required to actualize our strategy. And, you know, finally, for any organization,
Mr. Burnison: The journey begins with the why, and for Korn Theory, the why is to enable people and organizations to be more than.
Mr. Burnison: I'm joined today by Tiffany, Greg, and Bob, and I'll have them get into a little bit more detail here, then we'd be happy to obviously take your questions. Bob, over to you.
Great. Thanks, Gary. Good afternoon and good morning.
Bob: As Gary said, we're pleased with our results for the second quarter of FY25.
Bob: You know, we continue to carefully guide our business through this period of uncertainty.
Bob: managing what we can control in delivering improvements in profitability for now six consecutive quarters. In short, we've continued to successfully execute our strategic plan, capitalizing on our unique solution sets.
Bob: while focusing on cost discipline and operating productivity, which has positioned our business with much greater capacity for investment and growth going forward.
Bob: As I said, our adjusted EBITDA margin has now increased for six consecutive quarters and is up 340 basis points year-over-year.
Bob: As bill rates have remained strong and employee productivity continues to improve.
Bob: Our interim bill rates grew year over year by 11%, and our consulting bill rate was steady at almost $420 an hour. Our overall productivity, as measured by fee revenue per employee, is now 35% higher than pre-pandemic levels.
Bob: Our top-line growth trends continue to show early signs of improvement, with second quarter consolidated fee revenue of about $674 million, with all lines of business showing sequential growth or stability.
Bob: Consolidated new business growth also improved in the second quarter and was down less than 1% year-over-year but up 3% sequentially.
Bob: New business for executive search and digital were strong in the second quarter, up 4% and 11% year over year respectively.
Bob: We also continue to effectively deploy capital, and that includes the return of capital to shareholders.
Bob: It's a priority for us. In the second quarter, we repurchased $33 million of stock.
or about 456,000 shares.
Bob: And in addition, we paid a quarterly dividend of $0.37 per share. Now, we remain confident that we can maintain our current level of profitability while investing in both consultant additions as well as the capital investments targeted at capturing future growth that Gary referred to.
Bob: Now, let me return the call back over to Greg, who can take us through some of the overall company financial highlights. Okay. Thanks, Bob. Consolidated fee revenue in the second quarter of fiscal 25 was down 4% year-over-year, but flat sequentially, stabilizing at $674 million.
Greg: By line of business, consulting fee revenue was down 6% year-over-year and flat sequentially, while digital was down 4% year-over-year, but up 5% sequentially, driven in part by strong new business in the second quarter.
Greg: Our permanent placement talent acquisition solutions continue to show signs of stability in the second quarter.
Greg: Executive search fee revenue grew 1% year-over-year, RPO fee revenue was essentially flat year-over-year, while permanent placement professional search stabilized at down 6% year-over-year and was essentially sequentially flat.
Greg: Market demand for professional interim services remained challenging in the second quarter in line with overall industry trends. Interim fee revenue in the second quarter was down approximately 17% year-over-year but flapped sequentially.
Greg: Consolidated new business growth trends improved in the second quarter. Excluding RPO, new business in the second quarter was down only 1% year-over-year compared to down 3% year-over-year in the first quarter of fiscal 25.
Greg: New business growth was mixed by line of business and strongest for digital and executive search, which were up year over year by 11% and 4% respectively.
Greg: Like fee revenue, year-over-year new business growth trends in the second quarter for permanent placement professional search were better than for interim solutions with both stable measured sequentially.
Greg: New business in the second quarter for RPO was strong with 101 million dollars of new awards which includes 41 million dollars of renewals and extensions and 60 million dollars of new logo assignments.
Greg: Earnings and profitability continue to grow in the second quarter, driven by both greater consultant and execution staff productivity and disciplined cost management across all lines of business.
Greg: Consolidated adjusted EBITDA in the second quarter grew 18 million dollars or 19 percent year-over-year with adjusted EBITDA margin improving for the sixth consecutive quarter to 17.4 percent.
Greg: Adjusted fully diluted earnings per share in the second quarter were $1.21, up 24 cents or 25% year over year.
Greg: Fully diluted earnings per share measured by GAAP were $1.14 in the second quarter.
Greg: Our investable cash position at the end of the second quarter was $537 million, which was up $73 million, or 16% year-over-year.
Greg: Through the end of the second quarter of fiscal 25, we deployed $129 million of cash, investing $25 million in capital expenditures, using $9 million for debt service, and returning $95 million to shareholders.
Greg: $39 million in dividends and $56 million repurchasing approximately 808,000 shares.
Speaker Change: That'll turn the call back over to Tiffany to review our operating segments in more detail. Thanks Gregg.
Tiffany: Starting with KF Digital, fee revenue in the second quarter was $93 million, which was down 4% year over year, but up 5% sequentially.
Tiffany: Digital subscription and license fee revenue was $35 million in the second quarter, which was up 7% year-over-year and accounted for approximately 38% of fee revenue for the quarter.
Tiffany: New business for KF Digital was strong at $105 million, which was up 11% year-over-year with $45 million, or about 43%, coming from subscription and licenses.
Tiffany: The overall pipeline for digital remains healthy as we head into the second half of the fiscal year.
Tiffany: Digital's adjusted EBITDA margin was also strong in the quarter, growing to 31.4%, driven by sequential fee revenue growth and disciplined cost management.
for consulting.
Fee revenue in the second quarter was $167 million.
which was down 6% year-over-year and flat sequentially.
Tiffany: primarily due to a growing mix of longer, larger, $1 million plus contracts in our backlog and the overall slower delivery of backlog assignments driven by our clients.
Tiffany: Consulting's average bill rate was $419 per hour in the second quarter, which was up 1% year-over-year. Adjusted EBITDA margin remained sequentially stable for consulting and increased 120 basis points year-over-year to 17.5%.
Tiffany: driven by higher bill rates, greater consultant and execution staff productivity, and disciplined cost management.
Tiffany: Total fee revenue for professional search and interim in the second quarter was $121 million, down $17 million or 12% year-over-year, and flat quarter sequential.
Tiffany: Fee Revenue Trends for Permanent Placement Professional Search continued to stabilize in the second quarter, with fee revenue contracting 5% year-over-year, but flat sequentially.
Tiffany: Consultant productivity in the second quarter for professional search also increased to 690,000 annualized.
Tiffany: and with up 21% measured year-over-year. Interim fee revenue was $68 million for the second quarter, which was down 14% $14 million or 17% year-over-year in line with the broader industry, but essentially flat sequentially.
Tiffany: Despite the industry's slowdown in demand, Interim's average bill rate increased to $140 per hour, which is up 11% from one year ago, and is reflective of the added value of being part of the broader corn ferry ecosystem.
Tiffany: Adjusted EBITDA margin for professional search and interim improved both sequentially and year-over-year to 22.5 percent in the second quarter, driven primarily by discipline cost management.
Moving on to Recruitment Process Outsourcing.
Tiffany: Fee revenue in the second quarter for RPO remained stable at $88 million, which was flat year-over-year and quarter sequential.
Tiffany: Total revenue under contract at the end of the second quarter was $659 million, with approximately $296 million, or 45%, to be recognized within the next four quarters.
Tiffany: In the second quarter, we saw a return to historical experience with 60% of the $101 million in new business coming in the form of new clients.
Tiffany: The adjusted EBITDA margin for RPO improved, again, to 14.7% in the second quarter, driven by both greater execution staff productivity and discipline cost management.
Tiffany: Finally, global fee revenue in the second quarter for executive search was $206 million, up 2% year-over-year and essentially flat quarter sequential. The number of new executive search assignments increased 2% year-over-year and by 1% sequentially.
Tiffany: to 1567, while consultant productivity remains steady at 1.5 million per consultant annualized.
Tiffany: Adjusted EBITDA and Adjusted EBITDA Margin were both up materially, up 29% and 27% respectively, year over year.
Tiffany: I will now turn the call back over to Bob to discuss our outlook for the third quarter of fiscal 25. Great, thanks, Tiffany. Over the last several quarters, our new business trends have been a little choppy month to month within a quarter.
Speaker Change: but we have seen the overall quarterly trend stabilizing. Exiting the second quarter and entering the third, new business was up 1% year-over-year in October. In November, despite having fewer billing days, was essentially in line with expectations.
Speaker Change: December is the most seasonally weak month of our fiscal year and this year given that the year-end holidays are all in the middle of the week
Speaker Change: Our guidance reflects fewer working days for our consultants and clients than you would see with normal seasonality.
Speaker Change: Assuming no further changes in worldwide geopolitical conditions, economic conditions, financial markets, and foreign exchange rates, we expect fee revenue in the third quarter of fiscal 25 to range from $635 million to $665 million.
Speaker Change: Our adjusted EBITDA margin to remain approximately 16.5% to 17.3%, and our consolidated adjusted diluted earnings per share to range from $1.06 to $1.18.
Speaker Change: Finally, we expect our gap-diluted earnings per share in the first quarter to range from $1.02 to $1.16.
Speaker Change: In closing, we're tremendously proud of what we've accomplished for the first half of Fiscal 25.
Speaker Change: While we have the U.S. presidential election behind us, there are still many contingencies in the current operating environment.
a unique portfolio of human capital solutions.
Speaker Change: built on our unique science-backed services and solutions, makes us the leading organizational consultancy, helping companies navigate the war.
Speaker Change: for the best fit for purpose and fit for organization talent, positioning us for continued success going forward.
Speaker Change: And I'll conclude with my normal remarks, as I always say, we're at the beginning of what is going to be a very long ballgame and I truly believe our best is yet to come.
Speaker Change: With that, we would be glad to answer any questions you may have.
Speaker Change: Ladies and gentlemen, if you would like to ask a question, you may press 1 then 0 on your telephone keypad. You will hear acknowledgement that your line has been placed in queue. One moment please for the first question.
Speaker Change: And we go to Trevor Romeo with William Blair. Please go ahead.
The End
Speaker Change: Hi team, this is Melissa McMahon on for Trevor Romeo today. Thanks so much for taking my questions. Now, I know that you typically see a seasonal decline in the third quarter, but it'd be great to get any more color on your expectations for revenue trends by segment that you're including in guidance for the third quarter, and additionally just how much revenue you are assuming in guidance from the trilogy acquisition. Thanks.
Speaker Change: Well, as we get into larger addressable markets, particularly consulting and interim, I do think you're going to see, you know, the seasonality, the cyclicality.
deepened for sure.
Speaker Change: which probably translates into, you know, $30 million, $40 million revenue impact in the quarter. So that's reflected in our guidance. And when you look at the last couple years,
Speaker Change: Between the second and the third quarter, you would see that we would be down 5 or 6 percent. And that's clearly what we're reflecting in the guidance, and it reflects...
Speaker Change: the additional days we think we're going to lose in the quarter, particularly in the interim and consulting businesses. In terms of Trilogy, we think that it'll contribute in this quarter
Speaker Change: Maybe, you know, $14, $15 million U.S., something like that, for the quarter. And we're really excited about that, and we'll see what it brings for the year.
Speaker Change: Great, I really appreciate that color and then maybe just to piggyback off of that it'd be great if you could talk about the trilogy acquisition and the opportunities that you see for interim business in Europe and just kind of what gave you the confidence to invest more in interim when you're still seeing a bit of a challenging revenue trend in that area.
Speaker Change: Yeah, for sure. Well, at some point, that's going to turn. I mean, this has been a very unusual cycle. I mean, we're, the temp penetration...
Thank you. Bye-bye.
Speaker Change: has been declining for, you could call it, 32 months. I mean, it's something that we haven't seen in history. And it's been a cycle where it's been slow to fire, slow to hire.
Speaker Change: and companies have cut back on temporary workers for a long, long time. Ordinarily, you'd have seen a recession. But, you know, this labor market has been quite unusual over the last two years.
Having said that, I don't think there's a structural change.
Speaker Change: and it is a large addressable market and we've shown that it is highly synergistic to the Kornferry brand and and what we can do with it and for us
Speaker Change: It's about, you know, continued earnings trajectory, and this is a large addressable market, and we really didn't have
a presence in EMEA to speak of.
Speaker Change: trilogy gives us a foundation to tap which is arguably the largest.
piece of that interim market in EMEA.
We've been looking for...
Speaker Change: You know, two to three years around a partner that we could use in EMEA.
Speaker Change: and we found one and I'm really happy with the caliber of people we have and what we can do with that business in the long term.
Speaker Change: And Gary, this is Bob. The only thing I would add to that is that we're, you know, we're focused on executing our strategy and we're going to do that through, you know, good times, bad times, however the cycles are. So I don't think you would see us, you know, stop or start what we're doing in terms of strategy execution, you know, given the cycles that we're in. We're just continuing to drive what we deeply believe in.
Great, thank you both so much.
Speaker Change: Sorry, I think I was on mute here. This is Jasper Bibon for Tobii. Thanks for taking our question.
Speaker Change: The Working Dayhead, when you talked about the Trilogy contribution, it seems like revenue is going to be effectively sequentially flat or maybe down a few million sequentially on a comparable basis than the Guide. Is that correct?
a fair representation of what you're seeing next couple months.
Speaker Change: Yeah, I really think the way Thanksgiving fell, like it fell at the end of November. It usually does, and it falls in the third week. You've got the Chinese New Year. It's going to impact us, and it's going to impact our consulting and interim business. The thing that I would point out, though, that I think is a green shoot is the RPO business.
Speaker Change: And as Tiffany said, in the quarter, the flash number of new business was similar to what we've seen, but we did see a shift to more new logos, and it was about...
60% or so, and in November...
Speaker Change: It was actually even better. We saw like $70 million of new business in November in RPO and all of that essentially was new logos. So that's an interesting green shoot as we head into calendar 25.
Speaker Change: Right, that makes sense. And then could you maybe refresh us on the correlation between M&A and some of your demand streams and how do you think things picking up on that front in 25 would potentially benefit your business?
Speaker Change: If you look back historically at what we've done, we've got a 20-year track record here. We would say that there's a good piece of it that is inorganic.
Speaker Change: You know, we would tend to think going forward that, you know, 40% or so is going to come from, you know, inorganic.
Speaker Change: We'll see what that M&A market looks like in 2025. We're very systematic.
Speaker Change: You know, we want to make sure that there's a culture fit and that the organization is synergistic with the brand.
Speaker Change: and we continue to carefully evaluate investment opportunities. I don't think there's going to be any dramatic shift there, but we do have a very, very robust capital base that we can tap into.
Got it. Thanks for speaking the questions.
Speaker Change: Next we go to George Tong with Goldman Sachs. Please go ahead.
George Tong: Hi, thanks. Good morning. I wanted to dive a little bit into the digital business. On a constant currency basis, revenues in the quarter fell 5% year-over-year. I believe this is the first quarter we saw a year-over-year decline in a while, like over a year or so. Can you talk a little bit about some of the trends you are seeing on the demand side, what could be driving that inflection to a year-over-year decline, and when you might expect that decline to?
inflect to positive growth.
Well, the new business was very strong, so number one.
George Tong: You know, I would point to that. It was up, you know, 11% or so.
George Tong: In the quarter, the impact on revenue is because of our move towards subscription agreements. And I think in the quarter, the new business, it was something like 43% of that new business was subscription agreements.
George Tong: And, you know, when is that going to influx? I don't think it will influx just now.
and Paul. Thank you.
And that's going to enable our clients to seamlessly access.
George Tong: all of the different products that we have under there from KF-Assess, to KF-Listen, to KF-Sell.
George Tong: And the other thing that we're working on is to make sure that that is very easily integrated into a couple of the largest...
George Tong: HCM providers in the world. So we're continuing to work on that to make sure that it is easily integrated into HCM providers.
We're also looking at partnerships.
George Tong: We continue to work on that, and there's two of the largest in the world.
George Tong: that we're very active with, one on the go-to-market side and then one in terms of integrating our IP into what they're offering. So it won't happen this quarter.
George Tong: But I have like total confidence. We've got a new leadership team in place.
We've made significant investments, CapEx investments, into the technology platform.
George Tong: The new business was good in the quarter. We've got a tough compare.
George Tong: in the third quarter compared to a year ago. So I'm pretty bullish on that, but it's, you know, this is a marathon. It's not a race. But so far, you know, I feel very, very good about it.
George Tong: Hey George, this is Bob. If you remember when we were at your conference...
Speaker Change: was one of Matisse's growth levers that he talked about was the single sign-on platform and that's Gary's referring to and you know I think we're we're probably looking at that being completed somewhere in the next kind of up to 12 month period of time. It's a pretty big lift what he's what he's undertaking.
Speaker Change: But it is essential to do everything that Gary just laid out.
Speaker Change: 7% decline you saw on a constant currency basis year over year.
Speaker Change: Elaborate a little bit more about that. On that, when might you expect the sort of the larger contract impact to begin to taper away? And similar to the digital side, how would you characterize the demand environment for consulting?
Speaker Change: You know, growth has become elusive and everybody's kind of followed the same playbook.
Speaker Change: of cutting costs, right? I mean, the cost of living for all people in the United States has gone up 40%. And at the beginning, coming out of the pandemic, companies were raising prices, you know, shrinking packaging and
Speaker Change: have been, you know, brutal on the cost side, and that's...
for a couple years.
There has been a significant change.
Speaker Change: in the mix of our consulting business that was absolutely by design. I think it's still going to take a couple quarters for us to really get to some normalized level. But just to give you some numbers behind that, when you look at our backlog today for deals over a million dollars, that's 33% of the backlog. And when you look at the new business,
Speaker Change: in this last quarter compared to two years ago, new business for deals over a million dollars, that doubled. And so
Speaker Change: You know, that's been a big, big change in that consulting business. And the reality is that given the macro environment, that companies have been slower on drawing down commitments that they've made for obvious reasons. And the bigger engagements.
Speaker Change: you know, those definitely take longer to implement. So, you know, you're seeing that in the numbers for sure as well as the macro environment.
Speaker Change: Hey Gary, it's Bob. George, the one bit of color I would add to that is we're not we're not seeing clients cancel or what we would call breakage on those deals it's just a slower pace of consumption.
Got it. Very helpful caller. Thank you.
Speaker Change: Next, we go to the line of Josh Chan with UBS. Please go ahead.
Hi, thank you for taking questions.
Speaker Change: for a minute here. Do you think that the business is impacted by kind of a less labor turnover, meaning people are staying in their seats for longer and there's less...
Speaker Change: Perhaps need for some other services that you are offering or do you think that it's not as related to the labor turnover slowdown?
well
Speaker Change: Look, you know, this is a very unusual cycle, so you, you know, you dial the clock back.
you know, almost five years now and the world stopped.
labor market indications, as you know, there would have been...
so-called recession.
Bye now.
Speaker Change: to see the temp penetration rate fall for basically 32 quarters.
is pretty unusual.
Speaker Change: You know, to look at the U.S. and see how they've revised the labor numbers a couple different times, one time bringing it down by 800,000 jobs.
Speaker Change: You know, the U.S. is probably, I would think, is going to produce 100,000, 150,000 jobs.
Robert Rozek, Tiffany Louder, Gary Burnison
Peak 65 is hitting.
Speaker Change: where the number of people in the United States that are turning 65 is going to contribute to four or five million people leaving the workforce.
Speaker Change: So I think I think that's positive. It's been a look it's been two years of a very unusual environment.
Speaker Change: There is, on the part of our clients, some optimism, particularly in the United States, going into 2025.
Speaker Change: But, you know, you can just see it in every company's results.
The good news for us is when I look...
Speaker Change: the RPO business, that was green shoots that we've seen recently. And in the industrial business, which is a big part of Corn Ferry, it's almost 30%. You know, we've seen positive trends in the industrial sector for us, which is also good. I don't think there's any real structural changes.
Speaker Change: that would have a negative impact on our business. I think it's been more of the same.
Speaker Change: Yeah, thanks for that and it is definitely really unusual. I want to kind of follow up on the green shoot comment because
Speaker Change: I guess, what do you make of the green shoots happening in the RPO business first? Because normally you would think that maybe interim will see it first, but that's actually the most challenged business now. So how do you, what do you make of kind of everything being turned upside down a little bit?
Speaker Change: Yeah, well what we, you know, what we saw in the great resignation is, you know, the hardest, some of the hardest positions to fill were actually recruiters.
and so you saw a massive increase in hiring.
everywhere, and including in shared service.
you know, areas such as HR.
Speaker Change: And what happened was, I called it a couple years ago, labor hoarding.
Speaker Change: And that's exactly what happened was when there were less mandates to fill, something that I hadn't predicted was the outsourcing business. You would think in an environment like that where people are cost conscious, the outsourcing business would actually flourish. Well, it didn't.
Speaker Change: and companies took the reduced mandates and they filled it with, you know, internal HR staff.
Speaker Change: Well, you know, the reality is I think there's only so long you can do that, you know, in this slow to fire, slow to hire.
Speaker Change: environment. And so I think that's positive. I think in this quarter, the the temp market's not going to change, particularly given I what I think is three or four less business days. But at some point that is going to change. I don't I don't see
Speaker Change: structural change in the use of, you know, fractional executives, interim executives. I just don't, I don't, I don't see that.
Speaker Change: and Gary Zabavi. A little bit of color I would add to that. Josh, you've heard Gary talk in the past about investing into what we see as large opportunities in the healthcare market and that's what we're seeing in the month of November in RPO is expansion into that vertical.
Speaker Change: Thank you both for the color and good luck in the third quarter.
Speaker Change: And our final question comes from Mark Marcon with Baird. Please go ahead.
Mark Marcon: Good morning and happy holidays. Wondering if you can talk a little bit more about a couple of different dynamics. One.
Mark Marcon: of keeping the profitability up. I'm wondering if you can talk a little bit about some of the sources of the margin improvement, particularly in the areas where you've seen revenue declines. So, you know, if I take a look...
as an example at professional search and interim.
Speaker Change: I think it's you know, it's it's really a neat trick that you've been able to You know improve the profitability on an absolute basis
Speaker Change: front office functions or is it you know efficiency in terms of travel and real estate and things of that nature?
Speaker Change: Well, it's all of the above, but, you know, it's clearly, you know, the travel real estate. But we made a very conscious decision well over a year ago.
you know the environment as it's played out
Speaker Change: is exactly what I thought a year ago September, not a couple months ago, but 14, 15 months ago. And we made a decision that we would focus on profitability.
Speaker Change: And so we made some tough decisions a year ago, and we pivoted the portfolio.
Speaker Change: towards more profitable work, and you see it in the mix. You see it in the, for example, the rate per hour.
Speaker Change: on the interim side, you know, it's gone up to, you know, like 140 bucks an hour. Now, the trilogy will bring that down for sure given that a large part of that, almost all of it is in EMEA. So that will come down in the third quarter because of the different compensation levels.
Speaker Change: But candidly, it's because of decisions we've made and also trying to pivot those businesses really to penetrate our marquee and regional accounts. So it's been, you know, what you're seeing right now are decisions that we made 15.
months ago for sure. No question about it.
Speaker Change: And Mark, this is Bob. The other thing I would add to remember as we buy these businesses, you know, their EBITDA margins are kind of mid to high single-digit and again our company's been built.
Speaker Change: to be plug-and-play. And so as we integrate these businesses in, we're able to shed costs as well as, and that contributes, I mean it's not a huge driver, but it does contribute to our ability to create more earnings in that business.
Speaker Change: I was just wondering if it's related to, you know, primarily the things we talked about in terms of the...
Speaker Change: shedding some costs, particularly in terms of the back office functions, and to what extent it may end up being producers...
Speaker Change: that you decide to, you know, that aren't at the levels that you want them to be, or they're basically targeting, you know, areas that you don't, you're not as interested in.
Speaker Change: Yeah, yeah. Yeah, I would say two-thirds is, you know, two-thirds is like in the quarter we brought on across the entire platform almost 70.
Speaker Change: front office consultants across all of Korn Ferry. But when you look at the when you look at the consultant count and everything it'll appear like it's down or flat. So we're actively managing
Speaker Change: the business, actively managing the workforce. So, honestly, I think the real estate and the travel is a very, very, very, very small piece of it.
Speaker Change: and as Bob said the back office for sure in things that we integrate but that's also you know you're not talking about much money I think really two-thirds of it is around the people and the strategy and where we where we allocate those resources towards which clients
Speaker Change: We come out of the pandemic recovery, one of the things that we're doing a much better job at nowadays is rebalancing our workforce, making sure we've got resources where the client demand needs are, and that's been something we've been at for a number of years now, just proactively managing it, and you're seeing some of that in our increased productivity.
Speaker Change: Yeah, I mean it really stands out. I was also just wondering, and I'm not trying to, I mean...
Speaker Change: There's no way anybody's going to criticize, you know, the margin improvement. That's been spectacular. The one thing I was wondering about is, you know, are you seeing the same
Speaker Change: you know, whether it's Lucas or whichever, you know, or Patina, they're under the Corn Fairy brand.
Speaker Change: and therefore they can command a higher level of attention both in terms of clients as well as recruits or is that not as powerful?
Mark Marcon: No, it's very powerful, Mark. It's very powerful. And we're starting to see it even with our most recent investment that I'm really excited about with Trilogy. Absolutely. You're absolutely seeing that. And the level of...
Speaker Change: You know, I don't use the term cross-sales, but it's, you know, when I look at that cross-referrals, it's...
Speaker Change: I mean, you're talking hundreds of engagements that have resulted from the platform of Corn Fairy. In a market, let's face it, that staffing market is down, look at all the competitors, you pick it, but it could be anywhere down from 15 to 20 percent.
Speaker Change: And you look at the RPO market, and it's a market where you look at competitive landscape, that thing was down 20 to 30 percent.
Speaker Change: So, you know, it's been a really brutal environment for a couple years and, you know, we have to pivot towards growth. We have to pivot towards increasing earnings.
Speaker Change: And we see a larger addressable market that's synergistic. And when those colleagues join us, there is that lift that you're talking about. That is true.
Speaker Change: And Mark, just one more bit of color on that. I would focus on the hourly rate. I mean, that's driven by being part of our ecosystem. Right, that was $126 last year, $140 this year. No, I mean, that's really impressive. That part's really clear, and I've been...
Speaker Change: Gary and Bob, I think you know, it's like I cover all of these companies and I clearly see that and I've been living it.
Speaker Change: And this has clearly been a very different environment than during the last 30 years that I've covered this space. So everything that you've said for me. So, okay. And then on the consulting side, can you just talk a little bit about the...
Speaker Change: about the new business trends. Because I hear you when you talk about the larger engagements and those take longer to unfold. But if...
Speaker Change: How does that impact the new business trends in terms of the decline being a little bit greater on a constant currency basis? And are there any particular practices that you're seeing some softness in? Like, for example,
Speaker Change: If we take a look at the DEI practice, I would imagine that that's probably a little bit softer than it was previously. Anything that you can pinpoint to there? When would you expect to start seeing an inflection on the consulting side?
Speaker Change: I don't think it'll happen this next quarter, Mark. I think you're going to see, I think you'll see, you know.
a decline for sure, particularly given the seasonality.
Speaker Change: which I really do believe is three to four extra days.
you know, 20, the back half of 2020 and 2021.
Speaker Change: You're talking annually probably $50 million at least decline in that business. We are continuing to see good progress on the leadership development front.
Speaker Change: You know, I can think of one engagement that it could be, you know, 30, $40 million for us, leadership development assignment, you know, transforming an entire workforce. And we can only move as fast as that client wants to move.
Speaker Change: And so we have in sitting in backlog, you know, that kind of revenue potential. But that's a multi-year assignment. And, you know, that thing's moving slower than I would have thought a year ago.
Speaker Change: So I think that the mix in terms of larger engagements is a change for us and we have to keep working on the leverage model as well. We have to make sure that that is a little bit more optimal than what it is today and then we're working on that.
Mark Marcon: Great, and then, Gary, you started off by talking about the new talent suite and bringing together. Can you just add more color in terms of, like, from a client perspective, what they would see, and then how you think that ends up impacting the business just in terms of revenue and margins?
Speaker Change: I think the biggest thing is what we've heard is they want to be able to have that IP and that and those products. We had separate products and people were paying per drink per item off the menu.
and that was a problem.
Speaker Change: You know, people need to be able to order, make one order off the menu and be able to choose between the appetizer and dessert.
Speaker Change: and the Entree, they weren't able to do that. We're changing that.
Speaker Change: And that's what this is all about. And then the second piece...
arguably the two biggest HCM providers.
Speaker Change: and we're working very hard on one of them to make sure it's totally integrated and we think we'll get that done. It'll probably be, you know, the third quarter or so of calendar 2025. It takes some time. But those are the two big, that's the two biggest practical changes that clients will see.
would you would you still be buying
Speaker Change: per the drink for the individual solution, or would you basically have an annual subscription for all of the solutions?
Speaker Change: We hope it's the latter, Mark. That's where we're headed. We hope it's the latter. We're not there yet, though.
That's the ambition.
Speaker Change: Okay, great. And then, Gary, you've been through lots of different cycles and elections.
Speaker Change: How do you think the recent change in the U.S. is going to end up impacting things? I think most people are assuming that it's going to be a
Speaker Change: positive in terms of animal spirits and unleashing of the regulatory burdens but I'm wondering how you see it.
Speaker Change: Yeah, I think I think that's probably true. Although that'll take a couple years to actually see it
I think the bigger problem is cost of living.
There's not a lot of room.
Speaker Change: the maneuver here. Because you've got you're losing $2 trillion a year, you've got a $38 trillion dollar debt load. I just don't think there is a lot of maneuverability. So I'm looking at it and saying
Speaker Change: Probably over the next two quarters, I just don't see things materially changing. In the labor market, I just don't see it. I don't think there's that level of maneuverability. But I do think that there is some, what I'm hearing.
Speaker Change: There is optimism around the quote regulatory burden, but I think to see the impact of that I think is a couple years out.
Speaker Change: Okay, great. Appreciate all the comments and congrats in terms of the margins. That's fantastic.
Thanks, Mark.
We have no further questions, Mr. Burnison.
Okay, Lea, listen, I'm, you know, season's greetings, happy holidays.
Speaker Change: I'm incredibly proud of our organization and our colleagues. And I think at the end of the day, and I think we've demonstrated this in a rough environment over almost 24 months, it results in a corn fairy, which is less cyclical, more balanced, and I think it provides for sustainable success. So with that, I'll conclude. Happy holidays, everybody. Talk to you next time.
Speaker Change: Ladies and gentlemen, this conference will be available for replay for one week starting today at 2 p.m. Eastern Time, running through the day of December 12, 2024, ending at midnight.
Speaker Change: You may access the AT&T Executive Playback Service by dialing 866.
207-1041 and enter the access code.
Speaker Change: International participants may dial 402-970-0847. Additionally, the replay will be available for playback at the company's website, www.cornferry.com, in the Investor Relations section. And that does conclude your conference for today. Thank you for your participation. You may now disconnect.