Q3 2025 Korn Ferry Earnings Call
Operator: Ladies and gentlemen, thank you for standing by and welcome to the Korn Ferry 3rd Quarter Fiscal Year 2025 conference call. At this time, all participants are in listen-only mode. Following the prepared remarks, we will conduct a question and answer session.
Ladies and gentlemen, thank you for standing by and welcome to the Korn Ferry third quarter fiscal year 2025 conference call. At this time all participants are in listen only mode. Following the prepared remarks, we will conduct a question and answer session. As a reminder, this conference call is being recorded for replay purposes.
Operator: As a reminder, this conference call is being recorded for replay purposes.
Operator: We have also made available in the Investor Relations section of our website at KornFerry.com a copy of the financial presentation that we will be reviewing with you today.
We have 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.
Operator: Before I turn the call over to your host, Mr. Gary Burnison, let me first read a cautionary statement to investors. Certain statements made in the call today, such as those relating to future performance plans and goals, constitute forward-looking statements within the meeting of the Private Securities Litigation Reform Act of 1995. Although the company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, investors are cautioned not to place undue reliance on such statements. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties which are beyond the company's control.
Speaker Change: Before I turn the call over to your host Mr. Gary Burnaston, Let me first read a cautionary statement to investors.
Speaker Change: Certain statements made in the call today, such as those relating to future performance plans Ingalls constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.
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 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.
Operator: Additional information concerning such risks and uncertainties can be found in the release relating to this presentation and in the periodic and other reports filed by the company with the SEC, including the company's annual report for fiscal year 2024 in the company's soon-to-be-filed quarterly report for the quarter ending January 31, 2025.
Speaker Change: Concerning such risks and uncertainties can be found in the release relating to this presentation and in the periodic and other reports filed by the company with the SEC, including the company's annual report for fiscal year 2024 in the Companys soon to be filed quarterly report for the quarter ended January 31 2025 also.
Operator: Also, some of the comments made today may reference non-GAAP financial measures such as constant currency amounts, EBITDA, and adjusted EBITDA.
Speaker Change: Some of the comments made today may reference non-GAAP financial measures such as constant currency amounts EBITDA and adjusted EBITDA additional information concerning these measures, including reconciliations to the most directly comparable GAAP financial measure is contained in the financial presentation and earnings release relating to this call both of which are posted in the.
Operator: Additional information concerning these measures, including reconciliations to the most directly comparable GAAP financial measure, 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.kornferry.com.
Speaker Change: Relations section of the company's website at Www Dot Korn ferry dot com with that I'll turn the call over to Mr. Bernstein. Please go ahead Mr Bernstein.
Gary Burnison: With that, I'll turn the call over to Mr. Bernison. Please go ahead, Mr. Bernison. Okay, thanks Rob and good afternoon. Thanks for joining us. The team is going to get into our results in more detail, but overall our execution has been outstanding. Korn Ferry drives our client's organizational performance. And we continue to see demand for organizational and workforce transformations that are larger in scale and scope. In the quarter, we went significant transformation engagement. including a global energy company spanning 60,000 employees. and wide-reaching leadership programs covering thousands of employees at one of the world's largest employers, as well as at a leading global insurer.
Bernstein: Okay, Thanks, Rob and good afternoon, and thanks for joining us for the team is going to get into our results in more detail, but overall.
Speaker Change: Our execution has been outstanding.
Speaker Change: Korn ferry drives our clients' organizational performance.
Speaker Change: We continue to see demand for organizational and workforce transformations that are larger in scale and scope.
Speaker Change: In the quarter, we won.
Speaker Change: Transformation engagements.
Speaker Change: <unk>, a global energy company spanning 60000 employees.
Speaker Change: And wide, reaching leadership program covering thousands of employees and one of the worlds largest employers as well as a leading global insurer. These engagements are meant to drive strategic transformation.
Gary Burnison: These engagements are meant to drive strategic transformation. And finally, large post-merger integration solutions at a number of global household brands. These are just to name a few but clearly illustrate the breadth and scale of today's Korn Ferry and demonstrate the power of our business and the strength of our diversification. We do enable people and organizations to be more than. Clearly the macroeconomic environment for consulting services. has been less than ideal for the last eight quarters. But when one examines the durability of our consolidated revenue, it is very clear that our strategy is definitely working. The broadness of our solutions counterbalance each other, providing a durable growth foundation for tomorrow, not to mention the higher levels of profitability and balanced approach to capital allocation.
Speaker Change: Probably large post merger integration solutions at a number of global household brands. These are just to name a few but clearly illustrate the breadth and scale of today's Korn ferry.
Speaker Change: Demonstrating the power of our business and the strength of our diversification, we do enable people and organizations to be more of that.
Speaker Change: Clearly the macroeconomic environment for consulting services has been a less than ideal.
Speaker Change: Last eight quarters, but when one examines the durability of our consolidated revenue it.
Speaker Change: It is very clear that our strategy is definitely working the broadness of our solutions counterbalance each other.
Speaker Change: Abiding a durable growth foundation for tomorrow, not to mention the higher levels of profitability.
Speaker Change: Balanced approach to capital allocation.
Gary Burnison: And we are again raising our dividend to shareholder. This diversification was evident once again during the quarter, with total firm new business sales of 13% per cookie, driven by the America's NMEA.
Speaker Change: Raising our dividends to shareholders. This diversification was evident once again during the quarter.
Speaker Change: Overall for new business.
Speaker Change: Percent of partly driven by the Americas and EMEA.
Gary Burnison: When one taps Google Earth, tomorrow's macro environment will be encircled. by a Lent Supply Demanded. requiring companies to reimagine and re-skill their workforce. Employee Develop, Promote, and Retain. as well as embrace technologies that bridge that labor imbalance, all of which presents tremendous opportunity for Korn Ferry. Our strategy has indeed taken... We are purposefully aligning our capabilities in larger addressable markets. As a firm, we are now a more versatile provider of wide-ranging organizational and talent solutions. This evolution has changed the fundamental composition and scale of our business as we drive more sustainable, large-scale client engagements. Proof positive, our Marquis and Diamond accounts now represent 39% of our portfolio, and nearly all of our Marquis clients are benefiting from at least three of our solution areas.
Speaker Change: When one capsule when one perhaps Google Earth, Tomorrows macro environment will be and circle.
Speaker Change: Ohio lens supply demand.
Speaker Change: Requiring companies to re imagine and re skill their workforce deploy develop promote and retain talent as well as embraced technologies that bridge that labour imbalance, all of which presents tremendous opportunity for Korn ferry.
Speaker Change: Our strategy has indeed taken home.
We are purposefully aligning our capabilities and larger addressable markets.
Speaker Change: Affirm we're now more reversible versatile provider of wide ranging organizational and talent solutions. This evolution has changed the fundamental composition and scale of our business as we drive more sustainable large scale client engagements proof positive our Marty.
Speaker Change: And Diamond accounts now represent 39% of our portfolio.
Speaker Change: Nearly all of our marketing clients.
Speaker Change: From at least three of.
Speaker Change: Our solution areas.
Gary Burnison: The breadth, depth, and scale of our firm, expertise, and offering. puts us in a category of one.
Speaker Change: The breadth depth and scale of our firm expertise in offering puts us in a category of one.
Gary Burnison: And we are well-positioned for the. We are a firm driving opportunity through a team-based client management approach yielding substantial client engagement. an organization with an immense cachet of IP and insights, a brand that has incredible license operating at the highest level of global organizations as we enable people and organizations to be more than, and a business that has grown in current and adjacent verticals further reducing our overall volatility and generating more predictable, visible, and recurring revenue. Validating the confidence we have in our business and our positive outlook for future earnings and cash. We will increase our quarterly dividend 30%, which is the sixth increase in our dividend in the last five years.
Speaker Change: And we are well positioned for the future, we affirmed driving opportunity through a team based client management approach yielding substantial client engagements.
Speaker Change: The organization with an immense cachet of IP and insights a brand that has incredible license operating at the highest level of global organizations as we enable people and organizations to be more of that in a business that has grown in current and adjacent verticals.
Speaker Change: Reducing our overall volatility and generating more predictable visible and recurring revenue.
Speaker Change: Validating the confidence we have in our business and our positive outlook for future earnings and cash flow, we will increase our quarterly dividend of 30%, which is the 6% increase in our dividend in the last five years, we are well on our way to becoming the undisputed leader empowering organizational performance group.
Gary Burnison: We are well on our way to becoming the undisputed leader empowering organizational performance through talent. By steering into the turn, we've aligned our business strategy, operations, and talent to drive performance and deliver meaningful impact and measurable results for our clients.
Speaker Change: Channel Alright, staring into the turn we've aligned our business strategy operations and talent to drive performance and deliver meaningful impact and measurable results for our clients.
Bob Rozek: With that, I'll now turn it over to Bob. Okay, good morning, good afternoon, everybody. We are pleased with our results for the third quarter, which exceeded our expectations and really demonstrate the power of integrating our rich and unique IP data and content into solutions that drive organizational performance through talent. The unique value our firm provides is really realized when we align and collaborate, when we show up as and we are Korn Ferry. In the third quarter, we continue to see a positive inflection in executive search and RPO growth, and our profitability remains strong with year-over-year growth in adjusted EBITDA margins in all solutions.
Bob: With that I'll now turn it over to Bob.
Bob: Okay. Good morning, good afternoon, everybody.
Bob: We are pleased with our results for the third quarter, which exceeded our expectations and really demonstrate the power of integrating our rich and.
Bob: Unique IP data and content.
Bob: Solutions that drive organizational performance through talent.
Bob: <unk> value of our firm provides us really realize when we align and collaborate when we show up as and we are Korn ferry in.
Bob: In the third quarter, we continued to see a positive inflection in executive search and <unk> growth and our profitability remained strong with year over year growth in adjusted EBITDA margins in all solutions now.
Bob Rozek: Now, turning to company-wide highlights, fee revenue in the third quarter was $669 million. That's a 2% year-over-year increase at constant currency. Our earnings and profitability continue to grow. Adjusted EBITDA increased 13% year-over-year to $114 million. Adjusted EBITDA margin increased by an impressive 190 basis points year-over-year to 17.1%. And adjusted EPS increased 11% year-over-year to $1.19. As Gary discussed, Total Company New Business grew 13% year-over-year at constant currency, and that included $210 million of RPO new business, of which 65% was generated from new logos or new clients, which is really important to fuel future growth. Excluding RPO, new business in the third quarter is up 1% at constant currency with particular strength in EMEA.
Bob: Now turning to company wide highlights fee revenue in the third quarter was $669 million.
Bob: 2% year over year increase at constant currency.
Bob: Our earnings and profitability continue to grow adjusted EBITDA increased 13% year over year to $114 million adjusted EBITDA margin increased by an impressive 190 basis points year over year to 17, 1%.
Bob: And adjusted EPS increased 11% year over year to $1 19.
Bob: As Gary discussed total company, new business grew 13% year over year at constant currency and that included $210 million of <unk>, new business of which 65% was generated from new logos or new clients, which is really important to fuel future growth exclude.
Bob: Excluding <unk> new business in the third quarter was up 1% at constant currency with particular strength in EMEA.
Bob Rozek: We continue to diligently execute our go-to-market activities. Marquee and diamond accounts remain strong, very strong, at 39% of our total consolidated fee revenue. Our cross-solution referrals also held strong at 25% of total consolidated fee revenue. And we continue to see success with the integration of our recent interim acquisitions, achieving now close to 1,100 cross-referrals into or from interim since our first acquisition in 2021. As we signaled in our Q2 earnings call, during Q3, we began to ramp up our investment hiring, bringing on almost 25 new fee earners in the quarter. Last, we continued our balanced approach to capital allocation.
Bob: We continue to diligently execute our go to market activities.
Bob: Marchi and Diamond accounts remained strong very strong at 39% of our total consolidated fee revenue.
Bob: Cross solution referrals also held strong at 25% of total consolidated fee revenue and we continue to see success with the integration of our recent interim acquisitions, achieving now close to 1100 cross referrals into or from interim since our first acquisition in.
Bob: 2021.
Bob: As we signaled in our Q2 earnings call. During Q3, we began to ramp up our investment hiring bringing on almost 25, new fee earners in the quarter.
Bob: Lastly, we continued our balanced approach to capital allocation during the third quarter, we invested back into the business spending approximately $45 million on the trilogy acquisition. We also used about $18 million on share repurchases and we paid $19 million in dividends.
Bob Rozek: During the third quarter, we invested back into the business, spending approximately $45 million on the Trilogy acquisition. We also used about $18 million on share repurchases, and we paid $19 million in dividends. Year-to-date, we have repurchased slightly over 1 million shares, or about 2% of our outstanding share count, and returned $133 million to shareholders through both repurchases and dividends. And as Gary mentioned earlier, we are increasing our quarterly dividend by 30%. As you said, the sixth dividend increased in the last five years.
Bob: Year to date, we have repurchased slightly over 1 million shares or about 2% of our outstanding share count and returned $133 million to shareholders through both repurchases and dividends.
Bob: And as Gary mentioned earlier, we are increasing our quarterly dividend by 30% and as you said the six dividend increased in the last five years.
Bob Rozek: Now, let me turn to some of the highlights by solution area. Starting with consulting, our new business was $187 million. That's up 2% at constant currency. Our engagements greater than 500,000, so those are our larger engagements, represented approximately 41% of new business in the third quarter. And that's up from 32% last year, third quarter. Our hourly bill rate climbed 5% year over year to $461 per hour. And profitability remained strong with an adjusted EBITDA margin of 17.7%. And that's up 100 basis points year over year. Fee revenue for digital was $91 million. That's up 3% in constant currency with 39% of total fee revenue generated from subscription and licenses.
Speaker Change: Now, let me turn to some of the highlights by solution area.
Speaker Change: Starting with consulting our new business was $187 million up 2% at constant currency.
Speaker Change: Our engagement is greater than 500000 as those of our larger engagements represented approximately 41% of new business in the third quarter and Thats up from 32% last year third quarter, our hourly bill rate climbed 5% year over year to $461 per hour.
Speaker Change: And profitability remained strong with an adjusted EBITDA margin of 17, 7% Thats up 100 basis points year over year.
Speaker Change: Fee revenue for digital was $91 million Thats up 3% in constant currency with 39% of total fee revenue generated from subscription licenses and that compares to about 36% a year ago.
Bob Rozek: And that compares to about 36% a year ago. Profitability remains strong there as well with an adjusted EBITDA margin of 31.3%. And that's up 100 basis points year over year. Executive search fee revenue grew 4% at constant currency to $205 million with growth in three of the four regions, most notably in North America. Our consultant productivity increased 7% year over year to approximately 1.5 million annualized per consultant. And profitability was strong with an adjusted EBITDA margin of 25% up 320 basis points year over year.
Speaker Change: <unk> ability remains strong there as well with an adjusted EBITDA margin of 31, 3% and Thats up 100 basis points year over year.
Speaker Change: Executive search fee revenue grew 4% in constant currency to $205 million with growth in three of the four regions, most notably in North America.
Speaker Change: Consultant productivity increased 7% year over year to approximately $1 5 million annualized.
Speaker Change: Per consultant and profitability was strong with an adjusted EBITDA margin of 25% up 320 basis points year over year.
Bob Rozek: For more information visit www.FEMA.gov Professional search and interim new business and fee revenue continue to stabilize and were flat year over year at constant currency. Our interim average hourly bill rate and perm placement consultant productivity remained strong at $129 per hour and $650,000 annualized per consultant, respectively. Profitability was also strong with an adjusted EBITDA margin of 21%, and that's up 280 basis points year over year. Finally, our fuel fee revenue grew 6% to $85 million in the third quarter. Fee revenue under contract accelerated sharply higher to $752 million, and about 42% of that is estimated to be recognized in the next four quarters.
Speaker Change: Professional search and interim new business in fee revenue continued to stabilize and were flat year over year at constant currency. Our interim average hourly bill rate improved placement consultant productivity remained strong at $129 per hour and $650000 annualized per <unk>.
Shelton: Shelton, respectively profitability was also strong with an adjusted EBITDA margin of 21% that's up 280 basis points.
Speaker Change: Year over year.
Speaker Change: Finally, our fuel fee revenue grew 6% to $85 million in the third quarter.
Speaker Change: Fee revenue under contract accelerated sharply higher to $752 million and about 42% of that is estimated to be recognized in the next four quarters.
Bob Rozek: RPO profitability was also strong with an adjusted EBITDA margin of 15%, and that's up 360 basis points year-over-year.
Speaker Change: Profitability was also strong with an adjusted EBITDA margin of 15% and that's up 360 basis points year over year to.
Bob Rozek: To summarize, we're encouraged by our third quarter results and expect this momentum to carry into the fourth quarter.
Speaker Change: To summarize we are encouraged by our third quarter results and expect this momentum to carry into the fourth quarter.
Bob Rozek: Turning to our outlook for the fourth quarter of fiscal 25, assuming no further changes in worldwide geopolitical conditions, economic conditions, financial markets, and foreign exchange rates, we expect fee revenue in the fourth quarter of fiscal 25 will range from $680 million to $700 million. Our adjusted EBITDA margin to remain approximately 16.8% to 17%. Our consolidated adjusted diluted earnings per share to range from $1.22 to $1.30 and our gap diluted earnings per share to range from $1.20 to $1.10. Excuse me, $1.28.
Speaker Change: Turning to our outlook for the fourth quarter of fiscal 'twenty five.
Speaker Change: Assuming no further changes in worldwide geopolitical conditions economic conditions financial markets and foreign exchange rates, we expect fee revenue in the fourth quarter of fiscal 'twenty, five will range from $680 million to $700 million.
Speaker Change: Our adjusted EBITDA margin to remain approximately 16, 8% to 17%.
Speaker Change: Our consolidated adjusted diluted earnings per share to range from $1 22 to $1 30.
Speaker Change: And our GAAP diluted earnings per share to range from $1 20 to $1 24, excuse me $1 28.
Bob Rozek: Now let me end the way we began. We have been and will continue to operate in an uncertain macroeconomic environment. As always, we'll continue to be focused on operating excellence and based on the results of our third quarter and our fourth quarter outlook, it is very clear that our strategy is working. As I've said in the past, I truly believe our best days lie ahead of us.
Speaker Change: Now let me end the way we began we have been and will continue to operate in an uncertain macroeconomic environment as always we will continue to be focused on operating excellence and based on the results of our third quarter and our fourth quarter outlook. It is very clear that our strategy is working as I've said in the past I truly believe our best days lie ahead of us.
Operator: With that, we would be glad to answer any questions you may have.
Speaker Change: With that we would be glad to answer any questions you may have.
Operator: Thank you. We will now begin the question and answer session. If you would like to ask a question, please press star 1 in your telephone keypad to raise your hand and join the queue. If you would like to withdraw your question, simply press star 1 again.
Speaker Change: Thank you we will now begin the question and answer session. If you'd like to ask a question. Please press star one on your telephone keypad to raise your hand and joined the queue. If you would like to withdraw your question simply press Star one again.
Trevor Romeo: Your first question comes from a line of Trevor Romeo from William Blair. Your line is open. Hi, thanks so much for taking the questions. Thanks for all the detail in the results and the commentary to the team. Just wanted to first touch on, you know, sort of margins and productivity. I think a lot of the productivity or revenue per consultant metrics across your segments are up quite nicely. I know you've been making some investments in technology tools and such, and you recently started ramping up hiring again.
Speaker Change: Your first question comes from the line of Trevor Romeo from William Blair. Your line is open.
Trevor Romeo: Hi, Thanks, so much for taking the questions. Thanks for all the detail on the in the results and the commentary team just wanted to first touch on.
Trevor Romeo: Sort of margins and productivity I think a lot of the productivity or revenue per consultant metrics across your segments are up quite nicely I know you've been making some investments in technology tools and such and you recently started ramping up hiring again, but what are you some of the areas where you've seen the most success driving productivity for a lot of your businesses and how much room do you think.
Gary Burnison: But, you know, what are some of the areas where you've seen the most success driving productivity for a lot of your businesses? And how much room do you think you'd have to further increase productivity without seeing uptick in your term, you know, market or macro demand? Well, I think there's definitely opportunity to to improve productivity. We made a conscious decision going back now a couple years that we would purposely pivot. We saw the economic economic environment that was on the horizon. and we made decisions to pivot to more profitable type work and you just see it across the board.
Trevor Romeo: You'd have to further increase.
Trevor Romeo: Productivity without.
Trevor Romeo: Seeing uptick in near term.
Trevor Romeo: Market or macro demand.
Trevor Romeo: Well I think there is definitely opportunity to improve productivity, we made a conscious decision.
Trevor Romeo: Going back now a couple of years that we would.
Trevor Romeo: Purposely pivot we saw the economic the economic environment that was on the horizon.
Trevor Romeo: And we made decisions to pivot to more profitable.
Trevor Romeo: Type work and you just see it across the board.
Gary Burnison: You see it in, for example, the rate per hour on both our consulting business, our consulting solution and our interim solution. The consulting solution, the rate per hour is up to $461 an hour. That was $300 an hour three or so years ago. The interim business, we're staying at the high end, which is $129 an hour this last quarter. When you look at our productivity, we're producing probably 35%, 40% more revenue than we did right before the pandemic with the same number of employees. And we made a conscious decision to manage the talent that we have in the company.
Trevor Romeo: You see it in for example, the rate per hour.
Trevor Romeo: On both our consulting business.
Trevor Romeo: Consulting solution and our interim solution consulting solution.
Trevor Romeo: Rate per hours up to $461 an hour I mean that was that was a 300 $300 an hour three.
Trevor Romeo: <unk> three or so years ago.
Trevor Romeo: In the interim business, we're staying at the high end, which is 129.
Trevor Romeo: Bucks an hour this last quarter.
Trevor Romeo: And when you look at our productivity.
Trevor Romeo: We're producing probably.
Trevor Romeo: 35%, 40% more revenue than we did right before the pandemic with the same number of employees and we made a conscious decision to.
Trevor Romeo: Management talent that we have in the company.
Gary Burnison: And you'll see that, for example, in our PS&I solution, the number of VNRs, client-facing consultants that we have there is probably down 50% or so, 40% from where it was three years ago. So we still think we have room to go, even if the environment stays as it is.
Trevor Romeo: And Youll see that for example in our in our <unk> solution.
Trevor Romeo: The number of.
Trevor Romeo: <unk>.
Trevor Romeo: Client facing consultants that we have there is probably down 50.
Trevor Romeo: 50% or so.
Trevor Romeo: 40% from where it was three years ago. So we think.
Trevor Romeo: We still think we have room to go even if the environment stays as it is.
Bob Rozek: Hey, Trevor, this is Bob. The other thing I would say is, just in terms of looking forward, you know, we continue to stay very close to where AI, Gen AI, is going, the direction it's heading in. And so as that continues to evolve, become more reliable, and so on, we do expect to get more productivity into the delivery of our services. And hard to quantify at this very moment, but we do believe that there's more there.
Trevor Romeo: Hey, Trevor this is Bob the other thing I would say is just in terms of looking forward. We continue to stay very close to where.
Trevor Romeo: AI journey is going the direction thats heading in and so as that continues to evolve and become more reliable and so on we do expect to get more.
Trevor Romeo: Productivity into the delivery of our services and are hard to quantify at this very moment, but we do believe that there is more there.
Trevor Romeo: Great. Thanks, Bob and Gary.
Speaker Change: Great Thanks, Bob and Gary and then for my follow up.
Trevor Romeo: And then for my follow-up, I wanted to touch on RPO, I guess. Could you help us understand, you know, the growth of the new business, which again, it's really, really nice in the quarter. Is it mostly, you know, is it competitive takeaways, or is it clients that haven't used RPO before that are now kind of looking to outsource? Or are you kind of starting to see some increases in underlying hiring at your clients? Well, it's a combination of all of that. You know, two thirds of the of the new business was new logos. A lot of it was around marquee and diamond accounts that we purposely targeted and been working on for quite some time.
Speaker Change: Wanted to touch on <unk>, I guess could you help us understand the growth of the new business, which again, it's really really nice in the quarter is it mostly as it gets.
Speaker Change: Competitive takeaways and the clients that haven't used our appeal before that are now kind of looking to outsource.
Speaker Change: Or are you starting to see some increases in <unk>.
Speaker Change: You're lying hiring out at your clients.
Speaker Change: Well, it's a combination of all of that.
Speaker Change: Two thirds of the of the new business with new logos.
Speaker Change: A lot of it was.
Speaker Change: Round marquee and diamond accounts that we purposefully targeted and been working on for quite some time.
Gary Burnison: A good part of it was from health care and to some extent life science. And so it's all of those things combined.
Speaker Change: A good part of it was from healthcare.
Speaker Change: To some extent in life Sciences.
Speaker Change: And so it's all of those things.
Speaker Change: Combined.
Speaker Change: Okay.
Gary Burnison: And, you know, I think the, you know, the broader Outlook here that is extremely positive for us. is that there is a significant Supply and Demand and Balance. that is coming over the next several years. And you look at it at major economies around the world, and the hard, cold truth is there's going to be less people coming in to the workforce. And, you know, take the U.S. economy, you know, over the last five years, nonfarm payroll has only increased by, you know, 7 million or so over five years. And so what that means is, you know, companies are going to have to make sure that they are re-skilling their workforce, that they're retaining the workforce, that they're identifying the 20 percent that does the 80 percent, let alone the, you know, the world in which we live today, which growth is elusive.
Speaker Change: And I think the.
Speaker Change: The broader.
Speaker Change: Outlook here.
Speaker Change: That is extremely positive.
Speaker Change: For us.
Speaker Change: Is that there is a significant.
Speaker Change: Supply and demand imbalance.
Speaker Change: That is coming over the next several years.
Speaker Change: And you look at it at major economies around the world.
Speaker Change: And the hard cold truth is there is going to be less people coming in for the workforce.
Speaker Change: And take the take the U S economy over the last five years non farm payroll.
Speaker Change: It has only increased by $7 million.
Speaker Change: Or so over five years.
Speaker Change: And so with that what that means.
Speaker Change: As you know people companies theyre going to have to.
Speaker Change: Make sure that they are reskilling their workforce that they are retaining a workforce that they are identifying the 20% that does the 80%.
Speaker Change: Let alone the the world in which we live today, which growth is elusive.
Gary Burnison: So I think all of those things point to significant opportunity for us.
So I think all of those things point to significant opportunity before us.
Trevor Romeo: Great. Thanks so much.
Speaker Change: Great. Thanks, so much.
George Tong: Your next question comes from a line of George Tong from Goldman Sachs. Your line is open. Hi, thanks. Good morning. Your digital new business trends inflected from 10% growth last quarter to an 8% decline, constant currency this quarter. Can you talk a little bit about what drove the decline in digital? Yeah, you know, it's, you know, quarter to quarter, you're going to see ebbs and flows. I mean, a year ago in the quarter, we had some significant, you know, it's a tough compare, we had some significant deals that companies were licensing our top database, and they were picking up several countries at a time.
Speaker Change: Your next question comes from the line of George Tong from Goldman Sachs. Your line is open.
George Tong: Hi, Thanks, good morning.
Speaker Change: Digital new business trends inflicted from 10% growth last quarter to an 8% decline in constant currency. This quarter can you talk a little bit about what drove the decline in digital.
George Tong: Yes.
George Tong: Quarter to quarter, Youre going to see ebbs and flows I mean, a year ago in the quarter we had.
George Tong: Some significant.
George Tong: It's a tough compare we had some significant deals that.
George Tong: Companies, we're licensing our comp database and they were picking up several countries at a time and.
Bob Rozek: And, you know, that led to a pretty robust compare to a year ago. But, you know, when you step back and look at it, it's been very, very stable in an environment that, again, has been less than ideal for a good eight quarters here. So that's the specific reason. It was on the licensing of the compensation database. But overall, it's, you know, it's been pretty stable in a tough environment over the last eight quarters. Got it. That's helpful.
George Tong: That led to a pretty robust compare.
George Tong: Two a year ago, but when you step back and look at it it's been very very stable.
George Tong: In an environment that again has been less than ideal.
George Tong: For a good eight quarters here.
George Tong: So that's the specific reason.
George Tong: It was on the licensing of the compensation database.
George Tong: But overall it's.
George Tong: It's been pretty stable in the tough environment over the last eight quarters.
Speaker Change: Got it that's helpful. And then we're seeing real time changes in the macro outlook given potential headwinds from tariff policies. What are you hearing from clients. During this elevated period of uncertainty.
Bob Rozek: And then we're seeing real-time changes in the macro outlook given potential headwinds from tariff policies. What are you hearing from clients during this elevated period of uncertainty? And do you expect hiring activity to pull back given economic uncertainty? Um, you know, there's, there's always uncertainty, you know, it's just clouded in the illusion of certainty. um You know, I do not think that that is going to pull back. I think the reality is, when you look at peak 65. and you consider that over the next three years or so, at least in the United States, and it would hold true for other countries around the world, you know, in the U.S.
Speaker Change: And do you expect hiring activity to pullback given economic uncertainty.
Speaker Change: There is there is always uncertainty.
Speaker Change: It's just clouded and the illusion of certainty.
Speaker Change:
Speaker Change: I do not.
Speaker Change: I think that that is going to pull back I think the reality is when you look at <unk> 65.
Speaker Change: When you consider that over the next three years or so at least in the United States and it would hold true for other.
Speaker Change: The other countries around the world.
Speaker Change: You know your U S youre going to lose probably $4 million 5 million.
Bob Rozek: you're going to lose probably 4 million, 5 million executives that are turning 65 a year. And I think the other the other thing is that when you look at the C-suite You know, the people that are in the C-suite, we're probably leading an organization through COVID, so from darkness to light, in a very, very tough. And then you had the Great Resignation, and you had the pent-up demand, and then you've got, you know, you saw companies raise prices, volumes were down, packaging got shrunk, and, you know, now, you know, there's real price inelasticity. It's hard for companies to raise prices, and so you've got a real cost-of-living crisis.
Speaker Change: Executives that are turning 65 a.
Speaker Change: A year.
Speaker Change: And I think the other the other thing is that when you look at the C suite.
Speaker Change: The people that are in the C suite, we're probably leading an organization.
Speaker Change: Through Covid.
From darkness to light at a very very tough time.
Speaker Change: Then you had the great resignation and you had the pent up demand.
Speaker Change: And then you've got you know you saw companies raised prices volumes were down packaging got shrunk.
Speaker Change: And now.
Speaker Change: There is real price elasticity.
Speaker Change: Hard for companies to raise prices and so you've got a real cost of living crisis, and so you look at those people that are.
Bob Rozek: And so you look at those people that are, you know, that led organizations. through a very, very difficult time in humanity. And, you know, you probably have a lot of people saying, you know, it's just, you know, do I want something else in life? And I think we're actually seeing that play out. When you look at our, at the search solution, the executive search solution, and you look at RPO, you're seeing, we've seen significant uptick over the last, you know, three months or so. And I think it points to all of those factors combined. And as I said, when you look out longer term, there's a significant imbalance between the supply and demand of labor.
Speaker Change: That led organizations.
Speaker Change: Through a very very difficult time and humanity.
Speaker Change: And you probably have a lot of people, saying you know is do I want something else.
Speaker Change: Why.
Speaker Change: And I think we're actually seeing that play out.
Speaker Change: When you look at our <unk>.
Speaker Change: Search solution the executive search solution and you look at our P&L Youre seeing.
Speaker Change: We've seen significant uptick.
Speaker Change: Over the last you know.
Speaker Change: Three months or so.
Speaker Change: And I think it points to all of those factors combined and as I said, when you look out longer term theres a significant imbalance.
Speaker Change: Between the supply and demand of labor.
Bob Rozek: And as Bob said, you know, he's right. You know, how does that imbalance, you know, become rectified? Well, you know, you look back in history and the way it gets rectified is through technology. And so that's definitely a good part of the answer. But the other piece is that companies are going to have to do different things with their workforce because there's just not the supply of talent coming in. And so I think it's all of those things combined. And I just don't think, you know, the uncertainty that you've seen, it's been over the last couple of weeks, you know, and that's, you know, people are negotiating that that's what's happening here.
Bob: And as Bob said.
Speaker Change: He's right how does that how does that imbalance.
Speaker Change: Become rectified well you look back in history, and the way it gets rectified as through technology.
Speaker Change: And so that's definitely a good part of the answer but the other piece is that companies are going to have to do different things.
Speaker Change: With their workforce, because theres just not the supply of talent.
Speaker Change: Coming in and so I think it's I think it's all of those things combined.
Speaker Change: And I, just I don't think.
Speaker Change: The uncertainty that you've seen.
Speaker Change: Then over the last couple of weeks.
Speaker Change: Yes.
Speaker Change: People are negotiating that that's what's happening here.
Bob Rozek: But I don't I don't really see that. I don't see that pulling back. I could be I could be wrong. But it would be hard for me to believe. Got it. That's very helpful, Colin. Thank you.
Speaker Change: But I don't I don't really see that I don't see that pulling back that could be it could be wrong.
Speaker Change: But it would be hard for me to believe that.
Speaker Change: Got it that's very helpful color. Thank you.
Mark Marcon: Your next question comes from the line of Mark Marcon from Baird. Your line is open. Hey, good morning or good afternoon, depending on where you are physically. Congrats on the good results.
Speaker Change: Your next question comes from the line of Mark Marcon from Baird. Your line is open.
Mark Marcon: Hey, good good morning, or good afternoon, depending on where you are physically.
Speaker Change: Congrats on the good results Gary you started out your discussion.
Mark Marcon: Gary, you started out your discussion, which, unfortunately, was a little bit muffled. I don't know if you had a bad connection at the time or not, discussing some of the big engagements that you've been recently winning, and I was just wondering if you could elaborate a little bit further with regards to, you know, the size, scope of those big engagements and, you know, how you were able to get those, who you ended up winning them from, you know, like who else was part of the RFPs, just to a little, you know, elaborate how you're moving up, you know, the food chain in terms of being a thought leader.
Mark Marcon: Which unfortunately was a little bit.
Speaker Change: Muffled I don't know if you had a bad connection at the time or not.
Speaker Change: Discussing some of the big engagements that you have been recently, winning and I was just wondering if you could elaborate a little bit further on with regards to.
Speaker Change: The size and scope.
Speaker Change: Of those those big engagements and how.
Speaker Change: How how you were able to get those who you ended up winning them from <unk>.
Speaker Change: Who else was part of the Rfps.
Speaker Change: Just to a little <unk>.
Speaker Change: How you are moving up.
Speaker Change: The food chain in terms of being a thought leader.
Gary Burnison: Yeah, it's definitely happened. And sorry for that, hopefully, and it's not not muffled now. You know, it's, it's really a decision that we made several years ago, that we would, you know, we want to get into more high impact engagements. And so what what all of those engagements have in common, is the environment today where growth is elusive. And so the question for leaders is around transformation. And how do you transform your workforce given a shift in strategic direction? And so, those engagements are scaled engagements. I mean, where you're touching, you know, literally thousands of employees at a particular client.
Speaker Change: Yeah, it's definitely happened and sorry for that hopefully and thats not not muscled now.
Speaker Change:
Speaker Change: It's really a decision that we made several years ago that we would we want to get into more high impact.
Speaker Change: Engagements and so what what all of those engagements have in common.
Speaker Change: Is the environment today, where growth is elusive.
Speaker Change: And so the question for leaders is around transformation.
Speaker Change: And how do you transform your workforce.
Speaker Change: Giving given a shift in strategic direction.
Speaker Change: So those engagements are scaled engagements I mean, where you're touching.
Speaker Change: Literally thousands of employees at a particular.
Speaker Change: Clients.
Gary Burnison: And they involve largely either organizational design or, you know, far-reaching leadership development programs, professional development programs on how companies can shift their mindset and their employees' skill set to match a new strategic direction for the company. And today, when you look at the consulting backlog, it's actually at an all-time high. And, you know, I think it's about 40% of that backlog are engagements that are definitely over 500,000 and actually could be over a million dollars. Now, there's good news, bad news. The good news is that those are predictable, durable revenue sources. The more challenging news is that it takes, you know, multi-quarters to implement.
Speaker Change: They involve.
Speaker Change: Largely.
Speaker Change: Neither organizational design.
Speaker Change: Or far reaching leadership development programs professional development programs on how companies.
Speaker Change: Can can shift.
Speaker Change: Their mindset and their employees skill side to match, our new strategic direction for the company and today when you look at the consulting backlog.
Speaker Change: It's actually at an all time high.
Speaker Change: And I think it's about 40% of that backlog or engagements that are definitely over 500000 and actually could be over a million dollars now.
Speaker Change: There's good news bad news.
Speaker Change: The good news.
Speaker Change: Is it those are predictable durable.
Speaker Change: Revenue sources.
Speaker Change: The more challenging news is that it takes.
Speaker Change: Multi quarters.
Speaker Change: To implement.
Bob Rozek: And so, you're seeing in our results. that the new business in consulting is significantly ahead of revenue. And so you're seeing a shift towards much more, you know, impactful assignments that take longer to implement. Then you're also seeing less. Quasi-discretionary engagements than we've seen, you know, say, three or four years ago. And, you know, the primary reason for that is that companies don't have a lot of pricing power. and they're cutting costs and they've been cutting costs now for you know seven or eight quarters and so anything that was you know somewhat discretionary is being put on hold.
Speaker Change: And so you are seeing.
Speaker Change: In our results.
Speaker Change: The new business in consulting is significantly ahead of revenue.
So youre seeing a shift towards much more.
Speaker Change: Impactful assignments.
Speaker Change: Take longer to implement.
Speaker Change: Then you are also saying.
Speaker Change: Alas.
Speaker Change: Quasi discretionary engagements than we've seen say three or four years ago.
Speaker Change: And the primary reason for that is that.
Speaker Change: Companies don't have a lot of pricing power.
Speaker Change: And theyre cutting cost and they've been cutting costs now for seven or eight quarters and so anything that was.
Speaker Change: Somewhat discretionary.
Speaker Change: Is being put on hold.
Mark Marcon: And Mark, the only thing I would add to the discretionary engagement that Gary is referring to are generally the ones that are smaller, which convert to revenue much quicker. So you kind of get the dynamics of the larger engagements, which convert over a longer period of time, a little bit compounded by the smaller discretionary. I'm not happy. Got it. And then I, Gary, again, I apologize. I just did not, was not able to hear very much of what you said up front. Could you just, you mentioned a 60,000 employee global energy company, like what sort of projects are you doing for those companies?
Speaker Change: And Mark doing I would add to it.
Speaker Change: The discretionary engagements Gary is referring to are generally the ones that are smaller which convert to revenue much quicker.
Speaker Change: So you kind of get the dynamics of the larger engagements, which are which convert over a longer period of time.
Speaker Change: Little bit compounded by the smaller discretionary stuff.
Speaker Change: That's not happening.
Got it and then.
Speaker Change: Hey, Gary again I apologize.
Speaker Change: Did not was not able to hear very much of what you said upfront could you. Just you mentioned a 60000 employee global energy company like what sort of projects are you doing for those companies and you mentioned a global insurer you mentioned another company that was.
Gary Burnison: And you mentioned a global insurer. You mentioned another company that was a really large employer, but again, it was muffled, so I didn't quite get all of that. But what exactly are you doing and who did you beat out in order to get those engagements? Many times it's the large strategy firms that we're winning work against. Sometimes it's the big four. And for example, the energy company, it's really around success profiles. And, you know, given a strategic change in direction and transformation, going in and saying, based on that strategy, what type of talent do you need and how is that talent different from the talent that you have in-house?
Speaker Change: A really large employer, but again it was multiple so I didn't quite get all of that but what exactly are you doing and who did you beat out in order to get those engagements.
Speaker Change: Many times, it's the large strategy firms.
Speaker Change: That we're winning work and dads.
Speaker Change: Sometimes it's the big four.
Speaker Change: And for example that the.
Speaker Change: The energy company.
Speaker Change: It's really around success.
Speaker Change: Success profiles.
Speaker Change: And given a a strategic change in direction and transformation.
Speaker Change: Going in and saying based on that strategy.
Speaker Change: What type of.
Speaker Change: <unk> do you need.
Speaker Change: And how is that different from the talent that you have in house.
Gary Burnison: Part of it is licensing our IP. You know, we have like 12,000 success profiles. And that's really what it entails. And the other two that I mentioned were also around strategic transformation. And those are, you know, large, large, large, large. um you know, far-reaching leadership programs on, you know, moving a workforce. from what you were to what you want to be. And so it is, in an essence, re-skilling a workforce. But it starts with the company's strategic direction.
Speaker Change: Part of it is licensing our IP.
Speaker Change: We have like 12000 success profiles.
Speaker Change: And that's really what it what it entails and the other two that I mentioned were also around strategic transformation.
Speaker Change: And those are large large.
Speaker Change:
Speaker Change: Far reaching leadership programs.
Speaker Change: One.
Speaker Change: Moving our workforce.
From what you were to what you want to be in.
Speaker Change: <unk>.
Speaker Change: So it's you know it is and in essence re skilling.
Speaker Change: Our workforce, but it starts with the companies.
Speaker Change: Strategic direction.
Gary Burnison: Thank you, everybody. For sure. And are the decision makers in terms of who they're going with when you're when they're selecting you versus a McKinsey or a BCG or a Bain or against one of the big four. Who's the decision maker? Is that the CEO, the COO, or is it within the realm of the chief of HR? You know, it's all of the, it's all of the above. And, you know, I can think of one, a different Energy Company, that it's coming from the CEO. So it really depends, Mark, but it's starting with the leader of the business and a new strategy or a different strategy.
Speaker Change: For sure.
Speaker Change: And the.
Speaker Change: Cision makers in terms of who they are going with when you are when they are selecting you versus on.
Speaker Change: Mackenzie or BCG or obtain or.
Speaker Change: We're against one of the big four.
Speaker Change: Who is the decision makers that the CEO the COO or is it is it within the realm of the chief of HR.
Speaker Change: Okay.
Speaker Change: It's all of the it's all of the above and.
Speaker Change: I can think of one difference.
Speaker Change: Energy company.
Speaker Change: That is actually it's coming from the CEO.
Speaker Change: So it really depends mark but but.
Speaker Change: Starting with the leader of the business.
Speaker Change: And.
Speaker Change: A new strategy or a different strategy than where that gets purchased sometimes it's you know sometimes it is.
Mark Marcon: Then where that gets purchased, sometimes it is the CEO or CFO, and other times it goes down to other parts of the organization, including HR. Great.
Speaker Change: The CEO or CFO in other times it goes down.
Speaker Change: The other parts of the organization.
Speaker Change: Including HR.
Speaker Change: Great well congrats on that and then.
Mark Marcon: Well, congrats on that.
Mark Marcon: And then on interim and professional search, you've obviously made a lot of different acquisitions there with different profiles.
Speaker Change: On interim.
Speaker Change: And professional search you've obviously made a lot of different acquisitions, there with different profiles can you just discuss like within this quarter and even going back to the last quarter, which ones are performing the best which which segments are performing the best which ones are.
Bob Rozek: Can you just discuss like within this quarter and even going back to the last quarter, which ones are performing the best, which segments are performing the best, which ones are, you know, perhaps, you know, being impacted a little bit more by the uncertainty that's out there and how does that inform, you know, what your future strategy is going to be in that space? huge market that has visible, you know, predictable, durable revenue streams. You know, we're, we are going to continue to lean in to the interim space. Today, that business is that solutions probably, you know, 330 million, something like that.
Speaker Change: Perhaps.
Speaker Change: Being impacted a little bit more by the uncertainty that's out there and how does that inform what your future strategy is going to be in that space.
Speaker Change: Huge market.
Speaker Change: That has visible predictable.
Speaker Change: Variable revenue streams.
Speaker Change: You know, where we're going to continue to lean in to the interim space.
Speaker Change: Today that business.
Speaker Change: Is that solutions probably.
Speaker Change: $330 million something like that.
Bob Rozek: 340 in that in that neighborhood. I'll tell you that within the PS&I solution, where we have found the best success is where the company is operating at the higher end. I think we've landed something like 1,000 cross-referral engagements since we've gotten into this business. The ones where the the least success and it's a little bit trickier for us is where the the inquiry has a percentage of their business that is doing kind of contingent placement. That, for us, on a number of dimensions, is a little bit trickier, for sure, given that our business is generally retained.
Speaker Change: 340 in that in that neighborhood.
Speaker Change: I'll tell you that within the <unk> solution.
Speaker Change: Where we have found the best success.
Speaker Change: Is where the company is operating at the higher end.
Speaker Change: With really skilled talent, that's where our competitive advantages.
Speaker Change: And I think we've been Bob can clarify I think we've landed something like a thousand.
Speaker Change: Cross referral engagements since we've gotten into this into this business.
Speaker Change: One is where the lease success and it is a little bit trickier for us is where the the acquiree.
Speaker Change: <unk>.
Speaker Change: A percentage of their business that is doing kind of contingent placement.
Speaker Change: That for us on a number of dimensions is a little bit trickier.
Speaker Change: For sure.
Speaker Change: Given that.
Speaker Change: Our business is generally repaid.
Bob Rozek: And so those businesses that would have a larger contingent portion in terms of hiring in the PS&I solution, those would be harder for us. And they're not as strategically aligned.
Speaker Change: And so those those businesses that would have a larger contingent portion.
Speaker Change: In terms of in terms of hiring in the P. S. A nice solution those would be those would be harder for us and they're not as strategically aligned.
Gary Burnison: So as we're looking at growing that solution to a billion dollars. We're focused on the higher end of the interim business. And we would probably shy away from things that have a bigger contingent solution, for sure. But I just, you know, I think that what you're seeing in this peak 65, I think you're going to see people that may say, hey, I don't want to work full time. but I want to work part-time and I want to have a different work-life balance. They still want to contribute and I think you're going to see more of that as people live longer.
Speaker Change: So as we're as we're looking at growing that that solution to $1 billion.
We're focused on.
Speaker Change: The higher end.
Speaker Change: Of the interim business.
Speaker Change: And we would probably shy away from things that have a bigger contingent.
Speaker Change: Solution for sure.
Speaker Change: But I just I.
Speaker Change: I think that what youre seeing in this peak 65.
Speaker Change: I think youre going to see people that made that say, hey, I don't want to work full time.
Speaker Change: I want to work part time, and I want to have a different work life balance they still want to contribute.
Speaker Change: And I think youre going to see more of that.
Speaker Change: As people live longer.
Gary Burnison: And I think with the impending supply-demand imbalance on the labor front, I think that's going to play to that as well. At least that's how we're looking at it.
Speaker Change: And I think with the impending supply demand imbalance on the labor front I think that's going to play to that as well at least that's how we're looking at things.
Bob Rozek: Mark Marcon, Jasper Bibb, Gregg Kvochak, Keen Tong, Emily Marzo, Karandeep Singhania, Mathias Herzog, Korn I was just wondering if you could, Bob, you were feeding me to the question in terms of the functional verticals, which ones are you seeing the strongest performance in versus which ones? may be challenged. And how are you thinking about the IT vertical, given that there's, you know, more and more discussion about AI potentially, you know, having an impact with regards to, you know, the need for coding or the increasing efficiency as it relates to coding? Gary want me to take that?
Speaker Change: Yes.
Speaker Change: When you think about the different verticals that function of verticals that we have.
Speaker Change: With the diversification.
Speaker Change: Being at higher levels in the organization as well as what Gary just talked about the C suite.
Speaker Change: That gives that business a.
Speaker Change: A bit more.
Speaker Change: Durability when one of the particular verticals is up now it might be down and vice versa. At a later point in time.
Bob: I was just wondering if you could Bob you were beating me to the question in terms of.
Speaker Change: The functional verticals, which ones are you seeing the strongest performance in versus which ones.
Bob: May be challenged in.
Bob: Or are you thinking about the vertical given that there is more and more discussion about AI potentially.
Bob: Having an impact with regards to.
Bob: The need for coding.
Bob: The increasing efficiency as it relates to coding.
Bob: Gary I'll take that yeah. Yeah. Yeah go ahead go ahead.
Bob Rozek: Yeah, yeah, yeah, go ahead, go ahead. Yeah, so listen, I think, you know, as we sit there today, the IT vertical, you know, it has some impact, you know, from the pending, you know, evolution of AI, gen AI, all that, although I would say today, it's still In the sort of what I would call infancy stages, it's making progress and it's accelerating, but it's still at a point where it's not particularly... It doesn't have the efficacy yet that's needed. And I think as IT organizations are trying to deal with it, we have felt some impact there.
Speaker Change: Yeah, So listen I think as we sit there today.
Bob: The <unk> vertical.
Speaker Change: It is.
Speaker Change: Some impact from the pending.
Speaker Change: Evolution of AIG Nai.
Speaker Change: And although I would say today.
Speaker Change: Still.
Speaker Change: In the sort of what I would call infancy stages its maker.
Speaker Change: Making progress and it's accelerating but it's still at a point where.
Speaker Change: It's not particularly.
It doesn't have the efficacy yet thats needed.
Speaker Change: And I think as it organizations are trying to deal with it we have felt some impact there.
Bob Rozek: I would say on the F&A side, we've seen a little bit of bounce back in that particular vertical. where we are right now. So it's, again, the two kind of counterbalance each other. The C-suite area with our patina acquisition, as Gary mentioned, is strong because of the dynamics that we're seeing in the peak 65, if you will. And the other vertical we have is we play a little bit in the HR space, and that one is kind of on the smaller side. The other thing I would say, too, is Gary's right on the contusion side, although it's not a what I would call a part of our business.
Speaker Change: Say on the M&A side.
Speaker Change: We've seen a little bit of a bounce back in that.
Speaker Change: A particular vertical.
Speaker Change: Where we are right now so.
Speaker Change: The two kind of counterbalance each other.
Speaker Change: Sweet area with our protein acquisition as Gerry mentioned is strong because of the dynamics that we're seeing in the.
Speaker Change: The peak 65, if you will.
Speaker Change: And the other vertical we have as we play a little bit in the HR space and that one is a kind of on the smaller side.
Speaker Change: I would say too is Gary is right on the contingent side, although it is not a what I would call a massive part of our business at this point in time.
Bob Rozek: Right.
Gary Burnison: And then this last question, and this is for Gary and Bob, you know, obviously the uncertainty that's out there, you know, has recently unfolded and things are always uncertain. But what would you, like, what would it take for you to see signs that, hey, maybe things are unfolding and, you know, even though we're going into peak 65, the short-term macro kind of overwhelms that. What would you be looking for to say, hey, maybe we need to do even more contingency planning? I know you've always got contingency plans in place, but in terms of, you know, putting in place the playbook for things getting a little bit tougher.
Speaker Change: Great.
Speaker Change: Just last question just for Gary and Bob.
Speaker Change: Obviously, the uncertainty that's out there.
Speaker Change: As recently unfolded in.
Speaker Change: Things are always uncertainty.
Speaker Change: What would you like what would it take for you to see signs that hey, maybe things are unfolding.
Speaker Change: We're even though we're going into peak 65.
Speaker Change: The short term macro kind of overwhelms that what would you be looking for to say hey, maybe we need to do even more contingency planning I know you've always got contingency plans in place but in terms of.
Speaker Change: Putting in place the playbook for things getting a little bit tougher.
Speaker Change: Okay.
Gary Burnison: Well, I think if the cost of living crisis is, you know, is exaggerated, I think that's, that's the big issue. And anything, you know, companies do not have pricing power today. You know, it's pricing inelasticity. And so I think, you know, anything that that materially impacts The thing that I step back and look at this firm over the last eight quarters and look at the overall results and the profitability in just a very, very challenging environment. I mean, it gives me tremendous confidence and hope. The other side of that, though, is within EMEA and, you know, the conversations around, for example, in Germany.
Speaker Change: Well I think if the cost of living crisis is it.
Speaker Change: As exaggerated I think that that's the big issue and anything.
Speaker Change: Companies do not have.
Speaker Change: Pricing power today.
Speaker Change: It's pricing and elasticity.
Speaker Change: And so I think anything that materially impacts the consumer's ability.
Speaker Change: Two.
Speaker Change: Live and.
Speaker Change: Affordability.
That's a problem.
Speaker Change: Now on the other side of it I think youre going to see because we are.
Speaker Change: A very global firm and you see it in our results I mean, you know the.
Speaker Change: Thing that I that I step back and look at the this firm over the last eight quarters and look at the overall results and the profitability in in just a very very challenging environment. I mean, it gives me tremendous confidence and hope.
Speaker Change: The other side of that though is within EMEA.
And the conversations around for example in Germany.
Gary Burnison: that they are going to lift that debt ceiling and that, you know, some countries there are going to be increasing their defense spending is very, very good for us. And so that, you know, that is definitely could be a positive for sure. But I think, I think the most basic thing here is around the cost of living and, you know, anything that makes things more expensive. is not a good thing. And I view the last couple of weeks And I could be wrong, but I view the last couple weeks as, you know, as, as negotiation.
Speaker Change: That they are going to lift that debt ceiling.
Speaker Change: And that some.
Speaker Change: Some countries there are going to be increasing their defense spending.
Speaker Change: Is very very good for us.
Speaker Change: And so that.
Speaker Change: That is that is definitely could.
Speaker Change: B.
Speaker Change: A positive for sure.
Speaker Change: But I think I think the most basic thing here is around the cost of living.
Speaker Change: And you know.
Speaker Change: Anything that makes things more expensive.
Speaker Change: It is not a good thing.
Speaker Change: And I view the last couple of weeks.
Speaker Change: And I could be wrong, but I view the last couple of weeks as you know as as negotiation and it's just hard for me to get my mind around that somebody would actually you would do something thats very very harmful that would make.
Gary Burnison: And it's just hard for me to get my mind around that somebody would actually, you know, you would do something that's very, very harmful that would make the cost of living even higher, per se, in America, you know, the average American.
Speaker Change: The cost of living even higher.
Speaker Change: Pour say in America.
Average American.
Bob Rozek: And Mark, this is Bob. I'll look at it a bit more tactically. So what I look at our new business every day, look at our unit counts, I look at volumes. And for me, that's the real driver of when you start to see trends. And, you know, I'll give you an example. Exec Search, the unit count in the third quarter was up 3%. You know, in the month of February, it was actually up, you know, low double digits. But those are the things that I would pay attention to myself is, okay, we've got the macro environment that Gary just went through and you have to understand all that, but then how does that translate to what we're seeing on a day-by-day basis in terms of levels of new business, volumes and so on.
Speaker Change: And Mark this is Bob.
Speaker Change: Ill look at a bit more tactically so when I look at our new business every day, we look at our unit count to look at volumes and for me that's the real driver.
Speaker Change: You start to see trends and you are giving.
Speaker Change: Give you example, exec search the unit count in the third quarter was up 3%.
Speaker Change: February was actually up low double digits.
Speaker Change: But those are the things that I would pay attention to myself is okay. You've got the macro environment that Gary just went through and you have to understand out there, but then how does that translate to what we're seeing on a day by day basis in terms of levels of new business volumes and so on and that would be one of the main drivers as we <unk>.
Bob Rozek: And that would be one of the main drivers as we think about the need to take action or not.
Speaker Change: About the need to take action or not.
Operator: Great. Thank you very much. Appreciate it.
Speaker Change: Great. Thank you very much appreciate it.
Tyler Bereshaw: Your next question comes from a line of Tobey Sommer from Truist Securities. Your line is open. Hi, this is Tyler Bereshaw for Tobii. You mentioned 25 new fee earners in the quarter. How should we think about that as like a, should we think about that as a run rate going into fiscal year 26? Or can you just maybe raise some expectations for that? Well, we're, you know, I, I think that's probably fair. You know, we we are, we've continued to actively manage the talent that we have within the organization. You're going to continue to see us do that.
Speaker Change: Your next question comes from the line of Tobey Sommer from <unk> Securities. Your line is open.
Tyler Baron: Hi, This is Tyler Baron shop on for Tobey.
Speaker Change: You mentioned 25, new fee earners in the quarter, how should we think about that.
Speaker Change: Well you should think about that as a run rate going into fiscal year 'twenty can you just maybe expectations for that.
Speaker Change: Well were you know.
Speaker Change: Think that's probably fair.
Speaker Change: We are we continue to actively manage.
Speaker Change: The talent that we have within the organization, you're going to continue to see us do that.
Speaker Change: And you know where were out.
Bob Rozek: And, you know, we're out, you know, we have been for many, many quarters continuing to promote from within, creating, you know, opportunities within the firm where we're a coveted career destination. We're going to continue that. Just a couple months ago, we promoted a thousand people across the organization. And we'll continue to augment that by looking at the outside. We don't really publish targets per se like that. But I think you're going to continue to see us make sure that we're pivoting towards profitable work. that we're raising the productivity, whether that's through technology and AI or other things.
Speaker Change: Have been for many many quarters continuing to promote from within.
Speaker Change: Creating opportunities.
Speaker Change: Within the firm, where we're a coveted career destination.
Speaker Change: We're going to we're going to continue to not just a couple of months ago. We promoted 1000 thousand people across the organization.
Speaker Change: And we will continue to augment that by by looking at the outside we don't we don't really publish Todd.
Speaker Change: Targets per se like that but I think youre going to continue to see us make sure that we're pivoting towards profitable work.
Speaker Change: That we're raising the productivity.
Speaker Change: Whether that's through technology, and AI or other things youre going to continue to see us do that.
Gary Burnison: You're going to continue to see us do that. And we're going to aggressively bring in talent.
Speaker Change: And we're going to aggressively bring in bringing talent.
Tyler Bereshaw: So it would be reasonable for the next quarter to kind of think about the number you said, but also that we're going to actively manage the workforce that we have today as well. That's an important point, Gary, because I think the number that we, the 25, is a net number, so depending on what side of the equation you're leaning in on, it's going to influence that outcome. You mentioned on each week's churn, a lot of execs over 65. How should we think about the swing factor of like the capital markets recovery? Should we expect that to have a meaningful impact on demand for execs here?
Speaker Change: So you know.
Speaker Change: It would be reasonable for the next quarter.
Speaker Change: Kind of think about the number you use side.
Speaker Change: But also that we're going to we're going to actively manage.
Speaker Change: The workforce that we have today as well.
Speaker Change: Yes, it's an important point because I think the number that we had the 25 is a net number so depending on what side of the equation you're leaning in on it is going to influence that outcome.
Speaker Change: Got it.
Speaker Change: You mentioned on the C suite churn next over 65, how should we think about the swing factor out like the capital market's recovery should we expect that to have a meaningful impact on the matter exec search.
Gary Burnison: on the capital markets recovery. Well, certainly there's a lot of pent up demand. There's no question about that. And you know, there was there was a talk, you know, five, six weeks ago, there were a lot of animal spirits. In the last couple of weeks, that's been dampened a bit. But I you know, I think the I actually think the bigger issue is the baby boomers. I think that's a big deal. I do believe that's going to have an impact and it's going to create a significant imbalance along with lower birth rates when you look out a little bit longer term.
Speaker Change: The capital market recovery.
Speaker Change: Well certainly there is a lot of pent up demand there. There is no question about that.
Speaker Change: And you know there was there was a car you know five six weeks ago. There were a lot of animal spirits in the last couple of weeks, that's been dampened a bit.
Speaker Change: But you know I.
Speaker Change: I think the I actually think the bigger issue.
Speaker Change: As the baby Boomers I think that's a big deal.
Speaker Change: I do believe that's going to have an impact.
Speaker Change: And it's going to create a significant imbalance along with lower birth rates when you look out a little bit longer term.
Gary Burnison: And I think the other thing too is that those leaders... have guided organizations through arguably a very difficult time in humanity. From, you know, from COVID to the great resignation to a cost of living crisis, I think that's having an impact on executives as well. So, yes, clearly I think, you know, a swing in the capital markets could be for sure a positive. You know, but I think the bigger thing that's just straight mathematics is the actual, you know, supply and demand imbalance. that's heading our way. And that's good for Korn Ferry, because it means that companies are gonna have to do different things with their workforce.
Speaker Change: And I think the other thing too is that those leaders have guided Oregon as Asian through arguably a very difficult time and humanity.
Speaker Change: From from Covid too.
Speaker Change: <unk> resignation.
Speaker Change: Two cost of living crisis, I think thats, having an impact on executives as well. So yes, clearly I think you know.
Speaker Change: A swing in the capital markets could be for sure are positive.
Speaker Change:
Speaker Change: But I think the bigger thing Thats just straight mathematics.
Speaker Change: Is the actual <unk>.
Speaker Change: <unk> demand imbalance.
Speaker Change: That's.
Speaker Change: Thats heading our way and Thats good for Korn ferry.
Speaker Change: Because it means that companies are going to have to do different things with their workforce, how they empower how they inspire how they develop how they reskill.
Gary Burnison: How they empower, how they inspire, how they develop, how they re-skill, all of those things that were talked about many, many years ago are actually at our doorstep. and I think that creates opportunity for us.
Speaker Change: All of those things that were talked about many many years ago are actually at our doorstep.
Speaker Change: And I think that creates opportunity for us.
Speaker Change: Makes sense and then just one.
Bob Rozek: Thanks for joining us. Welcome! Well, you know, Bob can, you know, could definitely correct me. I, you know, we we've targeted, you know, kind of 16 to 18% margins. And, you know, we want to make sure that we are, you know, Simultaneously delivering, you know, increasing earnings for sure for shareholders, investing in the business, and returning cash to shareholders. We're trying, and I think if you've looked, we've been very, very balanced. around that. And I think right now, as we sit here today, we're very comfortable with that 16 to 18%. We just have to make sure that, you know, we're not, you know, cutting our nose off, that we are investing in the places we need to invest to take advantage of what we think will happen over the next several years vis-a-vis labor and what companies are going to have to do differently.
Speaker Change: One final one it looks like.
Speaker Change: 25, it can be another here Europe margin will be a year of orange margin expansion, how should we think about margin expansion in 'twenty six.
Speaker Change: Well you know Bob.
Speaker Change: No.
Definitely correct me.
Speaker Change: We've targeted.
Speaker Change: Kind of 16% to 18%.
Speaker Change: Our margins and we want to make sure.
Speaker Change: That we are you know simultaneously delivering.
Speaker Change: Increasing earnings per share for shareholders.
Speaker Change: Investing in the business.
Speaker Change: And returning cash to shareholders, we're trying and I think if you've looked we've been very very balance.
Speaker Change: Around that and I think right now as we sit here today.
Speaker Change: We're very comfortable with that 16% to 18%, we just have to make sure that we're not cutting our nose off that we that we are investing in the places we need to invest.
Speaker Change: To take advantage.
Speaker Change: Of what we think will happen over the next several years visibly labor and what companies are going to have to do differently.
Operator: Thank you.
Speaker Change: Thank you.
Karandeep Singhania: And your final question comes from a line of Josh Chan from UBS. Your line is open. Hi, good morning. This is Karandeep Singhania on for Josh. Thanks for taking our questions. So you wanted to ask on the Q4 margin guide. Typically, Q4 margins are higher than Q3, but it looks like you're getting margins down this time.
Speaker Change: And your final question comes from the line of Josh Chan from UBS. Your line is open.
Speaker Change: Hi, Good morning. This is <unk> on for Josh Thanks for taking our questions.
Speaker Change: You wanted to ask on the Q4 margin guidance typically Q4 margins are higher than Q3, but it looks like you're guiding margins down. This time. So just wondering if you can maybe give a bit more color on what are you seeing across the businesses.
Bob Rozek: So just wondering if you can maybe like give a bit more color on what you're seeing across the businesses and well, what is different than prior years in terms of that, just that sequential progression? Well, I mean, I think you have to first, Bob, you can take it, but first you have to step back and say, okay, hold on guys, you know, when you, when you adjust for the change of mix in our business, you know, pro forma, our margins are up like, you know, 350 basis over, you know, over the last several years, these margins are incredibly healthy.
Speaker Change: What is different than prior years in terms of just sequential progression.
Speaker Change: Yes.
Speaker Change: Yeah, I mean, I think you have to first for Bob you can take it but first you have to step back and say okay. Hold on guys. You know when you when you adjust for the change of mix in our business.
Speaker Change: Pro forma our margins are up like you know 350 basis.
Speaker Change: Over.
Speaker Change: Over the last several years these.
Speaker Change: These margins are incredibly healthy and whether it's 16, 5% or $17 two.
Bob Rozek: And whether it's 16.5 or 17.2, those are incredible margins.
Bob Rozek: But Bob, I'll let you, and you can. Yeah, I don't, I'm not sure where you got that. Yeah, I mean, the margin, if it's lower, it's, you know. like 10 basis points.
Speaker Change: Those are incredible margins.
Speaker Change: But Bob I'll, let you know when you can get I don't Im not sure where are you guys.
Speaker Change: I mean on the margin if it's lower.
Speaker Change: <unk>.
Speaker Change: Like 10 basis points, so it's not.
Karandeep Singhania: So it's not, I don't think there's really a question there to be honest with you. Got it. Okay, that makes sense.
Speaker Change: I don't think Theres really a question to be honest with you.
Speaker Change: Got it okay that makes sense and just like.
Bob Rozek: And just like as my follow up, I just wanted to ask on the North America executive search business. So growth in that came in strong at like 6%. And I think you briefly touched on that in one of the previous questions. But can you just elaborate on what drove that growth? And can we expect a recovery in that business from your Um, I, you know, look, we're that that business, that solution is, you know, we've seen real strength several months. And I do believe that yes, does that reflect the success of our strategy? Yes. But I also believe that it reflects all the things that I that I've been talking about.
Speaker Change: As my follow up I, just wanted to ask on the North American Executive search business.
Speaker Change: Growth in the back came in strong at 6% and I think your pre feed cost coming back in one of the previous questions, but can you just elaborate on what drove that.
Speaker Change: Okay.
Speaker Change: Covering that business from norland.
Speaker Change: Okay.
Speaker Change: You know look where that that business.
Speaker Change: That solution.
Speaker Change: Yes.
Speaker Change: We've seen real strength.
Speaker Change: Over the last several months and.
Speaker Change: I do believe that yes does that reflect.
Speaker Change: Are they there.
Speaker Change: Success of our strategy, yes, but I also believe that it reflects all the things that I that I have been talking about.
Bob Rozek: You know, including pick, you know, peak 65 and cost of living crisis and work life balance, I think it encompasses all of those things together. And, you know, this is, you know, the last the last eight quarters. have actually been quite unusual when you look at past employment cycles. You know, to see the temp penetration rate go down for almost three years, and now it finally has kind of, it looks like maybe it's stabilized at 1.6%, to see the outsourcing solution that we have, to see that go down at a time when companies are cutting cost.
Speaker Change: Including Pik.
Speaker Change: <unk> 65 in cost of living prices and work life balance I think it encompasses all of those things.
Speaker Change: Together and this is Dan.
Speaker Change: The last the last eight quarters.
Speaker Change: <unk> have actually been quite unusual when you look at past employment cycles to see the temp penetration.
Speaker Change: Rates go down for almost three years and now it finally is kind of it looks like maybe it stabilized at one 6%.
Speaker Change: To see the the outsourcing solution that we have to see that go down at a time when companies are cutting path. It's been it's been very very strange.
Bob Rozek: It's been a very, very strange eight quarters, and that's why I would step back and look at the firm in total, and the fact that we are, you know, impacting a client's organizational performance. We have durable revenue streams. The solutions look to counterbalance each other. and a macro trend ahead that would suggest that companies are going to have to do stuff, you know, do things differently with their workforce. So I, you know, that's, that's how I look at the firm today. And, you know, the search is, I think, the, you know, it's the result of a lot of things we've been talking about on this call.
Speaker Change: Orders and that's why I would step back and look at the firm in total.
Speaker Change: And the fact that we are in.
Speaker Change: Impacting our clients' organizational performance, we have durable revenue streams.
Speaker Change: Solutions.
Speaker Change: Look to counterbalance each other.
Speaker Change: And a macro trend ahead that would suggest that companies are going to have to do stuff, you're going to do things differently with their workforce.
Speaker Change:
Speaker Change: So that's.
Speaker Change: That's how I look at the firm today.
Speaker Change: And the search is I think the.
Speaker Change: It's the result of a lot of the things we've been talking about on this call.
Karandeep Singhania: Coda. That's where you have to look. Thank you.
Speaker Change: Got it that's already.
Speaker Change: Okay.
Operator: And that ends our question and answer session.
Anderson: And that ends our question and answer session I will now turn the call back over to Mr. Anderson.
Gary Burnison: I will now turn the call back over to Mr. Burnison. Okay, thank you everybody. Again, I am enormously proud of our organization. and how we have pivoted through a very, very difficult economic environment over the last eight quarters and have produced incredible results and more importantly, really driving clients' organizational performance. That's what Korn Ferry is all about, to enable people and organizations to be more than.
Mr. Anderson: Okay. Thank you everybody.
Speaker Change: I am enormously proud of.
Mr. Anderson: Of our organization.
Mr. Anderson: And then how we have pivoted.
Mr. Anderson: Through a very very difficult economic environment over the last eight quarters.
Mr. Anderson: And.
Mr. Anderson: Produced incredible results and.
Speaker Change: More importantly, really driving clients organizational performance, that's what Korn ferry is all about to enable people and organizations to be more of them. So with that thank you for your time, Rob. Thank you for hosting this and we'll talk to you next time.
Gary Burnison: So with that, thank you for your time.
Operator: Rob, thank you for hosting this and we'll talk to you next.
Operator: Ladies and gentlemen, this conference call will be available for replay for one week starting today, running through the end, March 18th, 2025, ending at midnight. You may access the Echo Replay service by dialing 800-770-2030 and entering the access code 1529021, followed by the pound key. Additionally, the replay will be available for playback at the company's website, www.kornferry.com in the investor relations section.
Speaker Change: Ladies and gentlemen, this conference call will be available for replay for one week starting today running through the end March 18th 2025, ending at Midnight you May access the Echo replay service by dialing 870, 702030 and entering the access code 15290 to one.
Speaker Change: Followed by the pound key. Additionally, the replay will be available for playback at the company's website Www Dot Korn ferry Dot com in the Investor Relations section. This concludes today's conference call you may now disconnect.
Operator: This concludes today's conference call. You may now disconnect.
Speaker Change: [music].
Operator: [music]
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