Korn Ferry Q4 2023 Earnings Call Transcript

Quartr
Provided by Quartr
June 27, 2023

There are 8 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Korn Ferry 4th Quarter and Fiscal Year Ended April 30, 2023 Conference Call. At this time, all participants are in a listen only mode. Following the prepared remarks, we will conduct a question and answer session. As a reminder, this conference is being recorded for replay purposes. We have also made available in the Investor Relations section of our website atkornferry.com, a copy of the financial presentation that we will be reviewing with you today.

Operator

Before we 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 meaning of the Private Securities Litigation Reform Act of 1995. Although the company believes the expectations reflected in such forward looking statements are based on reasonable assumptions, investors are cautioned not to place undue reliance on such statements. Actual results in Future periods may differ materially from those currently expected or desired because of a number of risk factors and uncertainties, which are beyond the company's control.

Operator

Additional information concerning such risks and uncertainties can be found in the release relating to this presentation, in the periodic and other reports filed by the company with the second, including the company's soon to be filed and report for fiscal year 2023. Also, some of the comments today may reference non GAAP financial measures such as constant currency amounts, EBITDA and adjusted EBITDA. Additional information concerning these measures, including reconciliations to most Directly comparable GAAP financial measures is contained in the financial presentation and earnings release related to this call, both which are posted in the Investor Relations section of the company's website at www.kornferry .com. With that, I'll turn the call over to Gary Bernison. Please go ahead, Gary.

Operator

Mr. Burnison, please go ahead.

Speaker 1

Lois, he just sent me a text. I'm going to tell him to dial back in. Apologies.

Operator

Okay. No problem. Thank you. And Mr. Bernison is online now.

Speaker 1

Okay. Gary, are you there? Yes. Hello? Yes.

Speaker 1

I think we're ready to roll, Gary. I want you to kick it off.

Speaker 2

Okay. We've got Lois, everybody is on the line. Number 1, Good afternoon and thanks for joining us. Our team is going to get into the numbers in a moment. But I first wanted to start by saying how incredibly proud I am of our firm, of our colleagues, Of our purpose to enable people and organizations to be more than and the results of our diversification strategy, which is clearly working as we had planned.

Speaker 2

And so for example, while we've experienced a drop in the search business from post pandemic highs, the rest of the portfolio performed as expected. With RPO less cyclical, digital and which has about $400,000,000 of annual revenue on a run rate basis, bringing our total professional search and interim business To approximately $550,000,000 to $600,000,000 on a run rate basis. And that's the direct result of our strategy, Anticipating over 3 years ago a workplace mobility that we thought would emerge post pandemic, and it has. Tectonic shifts are happening everywhere. How we produce and consume, where and how we work, how we're entertained An ongoing war, shifting trade lanes, inflation, interest rate rises at a rate we haven't seen In a long, long time and now generative AI.

Speaker 2

These megatrends can result in change that's fundamentally good for our clients and for Korn Ferry. And it's interesting to reflect that the foundation of our firm began with IP and science. With the world immersed in generative AI, we'll continue to invest not only in these technologies, but also in our proprietary data, assessment instruments and knowledge. And these will be the ultimate differentiators. Amid this transformation and change, I believe we're still at the very beginning of what Korn Ferry will be with therefore much more tangible opportunity ahead to help our clients be more of that.

Speaker 2

With that, I'll turn it over to Bob Rozak.

Speaker 1

Great. Thanks, Gary, and good afternoon or good morning, depending where you're at. As I've said before, despite the substantial progress we made evolving the business, I really believe that we're still in the Early innings of this transformative journey. As Gary mentioned, strategy is working. It's producing the growth and results We set out for, which really are the proof points that the strategy is in fact working.

Speaker 1

With what has become an ongoing backdrop of macro uncertainty, the execution of our strategy has produced another successful year With organic and inorganic growth resulting in an all time high of slightly more than $2,800,000,000 in fee revenue. If I go back 2 short years to fiscal 2021, which is the year of the pandemic, our fee revenue has grown by more than $1,000,000,000 in that time And 70% of that growth came organically with the rest coming inorganically. Our consulting business showed resilience Throughout the year, bolstered by the relevance of our larger integrated solutions, our digital business also showed resilience while continuing its transformation from selling analog point solutions to licensing our digital performance management tools. RPO remains extremely well positioned with its strong track record of large new business wins And I expect that business to return to robust double digit growth when a lot of the uncertainty that we're seeing today clears. Demand in exec search and in the perm placement portion of professional search moderated in the second half of last year, but in the same time demand in interim remained steady and that offset some of the transitory softness in the perm placement businesses.

Speaker 1

Synergistic referrals between interim and perm placement plus referrals between our other lines of business and our marquee and regional accounts were significant contributors to the achievement of our FY2023 annual fee revenue. So again, it's clear to me our strategy is working. So we're going to continue driving our integrated solution based go to market strategy, including our marquee and regional accounts, delivering unparalleled client excellence, Extending our very strong Korn Ferry brand, advancing Korn Ferry is the premier career destination and continuing to pursue transformational opportunities at the intersection of talent And strategy. With that, let me turn the call over to Greg, who will take you through some of the overall company financial highlights.

Speaker 3

Thanks, Bob. In the Q4, global fee revenue was $731,000,000 up 8% year over year and up 12% at constant currency. By line of business, fee revenue continued to moderate from post pandemic highs for our permanent placement talent acquisition solutions, executive search, professional search and RPO. However, other lines of business remained stable in the quarter. Measured year over year at constant currency, fee revenue was up 3% for consulting, up 5% for digital and aided by our recent acquisitions of ICS and SALO, Fee revenue for our interim services grew $70,000,000 year over year.

Speaker 3

Consolidated new business in the 4th quarter also moderated and was down 4% year over year at actual foreign exchange rates and down 2% at constant currency. Consistent with fee revenue, new business in the 4th quarter moderated most in Executive Search and Professional Search. In line with our guidance, earnings and profitability also moderated in the 4th quarter. Adjusted EBITDA in the Q4 was $98,000,000 with an adjusted EBITDA margin of 13.4%. Earnings and profitability in the 4th quarter were impacted by a number of factors.

Speaker 3

These factors include the mix shift in fee revenue By line of business, start up costs associated with the ramp up of newly awarded large RPO assignments, Investments in headcount to preserve fee generating and execution capacity and product development initiatives for digital. Our adjusted fully diluted earnings per share in the 4th quarter were $1.01 down 74% I'm sorry, down $0.74 or 42 percent year over year. Adjusted fully diluted earnings per share Excludes $6,900,000 or $0.10 per share of restructuring charges related to the cost true up of actions taken in the Q3 and integration and acquisition costs associated with our recent acquisitions. GAAP diluted earnings per share in the 4th quarter were $0.91 Our investable cash position at the end of the 4th quarter remained strong at $488,000,000 and our capital allocation continues to be well For all of fiscal 'twenty three, we deployed $490,000,000 of cash using $94,000,000 for share purchases, dollars 33,000,000 for dividends, dollars 62,000,000 for capital expenditures, dollars $274,000,000 for debt service. Now I'll turn the call over to Tiffany to review our operating segments in more detail.

Speaker 4

Thanks, Greg. Starting with KS Digital, global fee revenue in the 4th quarter was 91,000,000 which was up 2% year over year and up 5% at constant currency. Digital subscription and license fee revenue in the 4th quarter was $32,000,000 which was approximately 35% of fee revenue for the quarter. The accumulation of sales of subscriptions over time has created year over year growth in subscription based revenue with increases in both sales effectiveness and total rewards tools. Global new business for KF Digital was $101,000,000 with $35,000,000 or 35 percent of the total tied to subscription and license sales.

Speaker 4

For consulting, fee revenue in the 4th quarter grew to $175,000,000 which was flat year over year, although both periods are all time high and up approximately 1% at constant currency. Fee revenue growth was strongest in organizational strategy followed by assessment and session in rewards and benefits. Additionally, global new business for consulting in the 4th quarter was down slightly, 4% year over year at constant currency with mid single digit growth in EMEA. The professional search and interim business increased 40% in the 4th quarter versus last year, driven by double digit strength in North America and aided by the current year acquisitions. Total fee revenue was $152,000,000 up $51,000,000 or 50 percent over the same time period.

Speaker 4

Breaking down the quarter, growth in the interim business was more than enough to offset moderation in the permanent placement portion of the segment. Interim services fee revenue grew to 89,000,000 from $20,000,000 in the same quarter of the prior year, driven primarily by the recent acquisitions. Permanent placement fee revenue declined by $18,000,000 to $63,000,000 year over year, down 23% at actual and down 22% at constant currency. Moving on to recruitment process outsourcing. New business The Q4 was strong once again at $115,000,000 and total revenue under contract at the end of the quarter was approximately $777,000,000 Fee revenues totaled $100,000,000 which was down 13,000,000 or 11% year over year and down approximately 9% at constant currency.

Speaker 4

Although we are seeing notable sequential improvement within Life Sciences, Overall fee revenue is impacted by a moderation in hiring volume from all other industries in the base and backlog. We see this slowdown as transitory and believe RPO is well positioned to benefit when hiring returns to more normalized levels in the base and Larger more recent wins begin converting to revenue. Our pipeline remains strong as RPO continues to win new business, the differentiated service offering in the marketplace. Finally, global fee revenue for Executive Search in the 4th quarter was $213,000,000 and as expected, experienced a year over year decline of 11% at constant currency compared to the high growth rates enjoyed during the pandemic recovery last year. Demand continued to moderate, most notably in North America and APAC, followed by EMEA and Latin America.

Speaker 4

Global new business in the Q4 for executive search was down 20% year over year and down approximately 19% at constant currency. I will now turn the call back over to Bob to discuss our outlook for the Q1 of fiscal 'twenty four.

Speaker 1

Great. Thanks, Tiffany. Assuming no new or further changes in worldwide geopolitical conditions, economic conditions, financial markets and foreign exchange rates, We expect fee revenue in the Q1 of fiscal 'twenty four to range from $668,000,000 to 6 $98,000,000 our adjusted EBITDA margin to be approximately 13.5% and our consolidated adjusted diluted earnings per share to range from $0.84 to 1 dollars Finally, we expect our GAAP diluted earnings per share in the Q1 to range from $0.78 to $0.95 In closing, I want to thank all of our colleagues for just an absolutely tremendous year. We continue to believe our portfolio of distinctive Organizational consulting solutions, which are based on our deep risk proprietary IP and data delivered by our world class colleagues will continue to differentiate Korn Ferry on our journey to become the preeminent organizational consultancy. With that, we would be glad to answer any questions you may have.

Operator

Thank you. Indicates that you've been placed in the queue and you may remove yourself from queue at any time by repeating the one zero command. For pressing the number. And our first question comes from the line of George Tom from Goldman Sachs. Please go ahead.

Speaker 5

Hi, thanks. Good afternoon. The consulting and digital businesses were relatively resilient this particularly when compared to exec search and perm placement. Can you discuss the broader selling environment across these business lines And walk through where you're seeing the most change and what assumptions you're currently reflecting In your fiscal 1Q outlook?

Speaker 2

The amount of change That is happening is breathtaking. And from the days of darkness and COVID Economic changes to geopolitical changes to the fact that the U. S. Labor force and other Western Economies, the number of people in the workforce really hasn't changed. So there continues to be This move towards upskilling, towards retaining developing talent.

Speaker 2

And if you look at Fundamentally, what we are doing, we're providing solutions for individuals and organizations to be successful. So whether it's employee fit, coaching, development, methodology, compensation and design, You name it, that's kind of where Korn Ferry is playing today. And when you look at the results, It's absolutely in line with the very beginning of the strategy. And so you're seeing an environment where the world came to a halt. There was incredible demand on all fronts in many, many industries.

Speaker 2

And you saw the executive search business a huge, huge upswing. And what we're seeing here is a Significant moderation of search, a decline in volume. It's interesting to note that basically where we are today in search was essentially where we were pre pandemic. Revenue is up a little bit more than where we were pre pandemic. Volume is a little bit down.

Speaker 2

But what you're saying is that the cyclical parts of the business, the search business are seeing that drop in demand that you would expect, But RPO is less cyclical than search and consulting, digital and interim are all less cyclical Then RPO and surge. So it's playing out exactly as we thought. And what I've seen over the last few months is a stabilization of search, which is good. In May, we saw a rebound in China. And so our main new business overall was up 5%.

Speaker 2

Search was down about 12%. The consulting and digital were up. And so essentially, it's playing out as we called for in the strategy. The marquee and regional accounts We're almost 40% of our new business. So is the market different than it was a year ago?

Speaker 2

Yes, Absolutely, it's different than a year ago. But a year ago, people were coming out of darkness and there was just Huge amount of activity across industries. So it is different than a year ago. But I think I'm really proud of where the organization is and the results kind of bear out the strategic Thesis that we had all along.

Speaker 5

Very helpful. Separately, you noted that interim search Trends remain relatively steady. If you look at other interim staffing providers, even in the higher end IT sector, They've been seeing some revenue headwinds and year over year revenue declines. Can you discuss what's driving the positive separation of Korn Ferry's interim Search business and staffing business compared to competitors?

Speaker 2

Well, I would expect some moderation. I mean, there's no look, We're not going to be immune. But again, it is a large market, a huge market. You've got people that are changing the way that you work. We saw this in we really in April, May, June of 2020.

Speaker 2

This was a conscious decision that we're going to get into this market in a big way, particularly around finance Accounting, technology, HR, supply chain that we were going to go big into it. And in a very, very short amount of time, I think we've developed a very, very high end business with an average hourly rate of $124 So I'm not going to sit here and pretend That we're immune. I do think one of the things that is helping us is the amount of cross And so I look over essentially an 18 month period and what we see is almost $50,000,000 Coming from cross referrals, cross sales, whatever words you want to use, with nearly 700 deals. And so I think that when you look at maybe Some other firms that are strictly in that business, they don't have the wider platform of Korn Ferry. And we'll see if that's going to continue to be a differentiator.

Speaker 2

I personally Think it will be, but I'm not going to sit here and say that we're going to be immune from what we're seeing and what others are Same when it comes to interim services.

Operator

Thank you. Our next question will come from the line of Tobey Sommer from Toulouse Securities. Please go ahead.

Speaker 6

Hey, good morning. This is Jasper Bibbond for Toby. I just wanted to ask how you're thinking about the long term EBITDA margin targets, just given As you know, we've seen the mix of lower margin interim and RPO come up as well as the company has been able to continue to take fixed costs out of the business. So You think that 18% to 19% range is still feasible or would it potentially be lower than that now? Thank you.

Speaker 2

Well, let me Bob will answer that question directly, but I would just provide context when you Look at this firm and I've seen it go from sub $300,000,000 to $3,000,000,000 that what you would say is peak to peak, Cycle to cycle, trough to trough, we've continually gone up into the right. That is absolute fact and you can look at it in The other thing I would point out is that we did make a conscious decision To address a large market that we think is going to be quite lucrative for shareholders and our colleagues Over the next several years, and that's interim services. So with that and an increasing focus on RPO, When you look back in the past, clearly there's about a 200 basis point difference. And so I think you really have to factor that in to the modeling. Before the pandemic, if I remember right, and Bob can correct me, we were probably running 15%, 14.5%, 15.5% EBITDA margins.

Speaker 2

Then we saw a huge upswing A year ago. And I would just say that whatever those models and those boundaries, I do think you have to adjust it by a couple 100 basis points for the changing mix of business as we look forward. But Bob, what would you say on the specific operating boundaries for the firm?

Speaker 1

Yes, sure. Thanks, Gary. And I think, as I said in the remarks, Q1, we expect to be kind of 13.5%. And I would say for the near term, we would continue to manage the business to about 13% to 14 Somewhere in that range is we're just continuing to invest in our revenue generating capacity. If the long anticipated recession were to occur, and again, depending on the severity, we would manage Business kind of mid to high single digits in a more severe downturn and then low double digits in a more moderate scenario.

Speaker 1

And ultimately from a longer term perspective, a lot of it is going to depend on what the business looks like. If search bounces back, Digital, we get digital where we think it's capable of going to. As Gary alluded to, RPO is just continuing to win new business and Become a larger piece of the pie. So there's a lot of moving pieces. But I would say from a long term perspective, you should expect to see us kind of in the 16% to 18% range.

Speaker 1

So down a little bit from the 2018, 2019 where we previously communicated, but I would say 16% to 18% is Probably a good spot to land at this point.

Speaker 6

I think that makes sense. And then, Gary, you mentioned generative AI the prepared remarks, I know it's still early, but any preliminary expectations for AI risks or opportunities in the business model?

Speaker 2

Well, we've got a threefold plan. We're going at it big time. Let me just first say That nobody knows exactly where this is going to go. So that's number 1, even the so called leaders in the space. It's gained a lot of attention for very, very good reason.

Speaker 2

Could it be to the knowledge worker what The industrial revolution was the manufacturing. I don't know if I would go that far. But clearly, It's an opportunity for us. And so we're really looking at it in kind of 3 dimensions. 1 is around how we can use it offensively to drive greater impact with our clients.

Speaker 2

2 Is around our vulnerabilities and 3, is around the people that we need to partner with the broader ecosystem to help Navigate that. But I would just say that I believe very, very strongly That in this business and I think what we've proven over the years is that data and knowledge Is everything. So we've got teams right now looking at, are we capturing all the data we can be capturing? Are we putting it in a warehouse? Can we easily access that warehouse to provide insights to our clients?

Speaker 2

Then secondly, our IP and our assessment, is that truly fit for purpose in this world that we're heading into In the next 5 years, where there's tremendous there's not much anticipated labor growth. There's going to be skill shortages Continuing. And is our assessments in IP fit for purpose for the next 5 years, the next 10 years. And I really do believe that those two things, data, insight, knowledge, our assessment and IP, We have to make sure that we're investing in it because I think that no matter where this AI conversation goes, That ultimately, I think, will be the winner. And so clearly, we're using we've been using AI And part of our recruiting processes for some time now, but Clearly, around our Learning and Development business, there's an enormous opportunity there.

Speaker 2

That's an area that we're focused in on. But I just practically speaking, you make your path as you walk it. And I just think that data, Our IP, our assessment, the knowledge that we have, we have to make sure that we are putting Enough capital into the foundation of the firm.

Speaker 1

Hey, Gary, it's Bob. I would just add to that one point. So if you think about Where we Korn Ferry shines relative to our clients, it's helping them work through disruption, right? And like you said, wherever generative AI is going, nobody knows for sure. But I think the likelihood of it being disruptive obviously is there.

Speaker 1

And you think about what we've done during times of social disruption, COVID, remote, hybrid working and so on, we've been partnering with our clients to help them Work through those disruptive periods. And as I look at this, I think this is just another step along the way for us to help our clients work through disruption And continue to drive their businesses forward.

Speaker 6

Appreciate the detail there. Last one for me. You mentioned China picked up From a search perspective, a little bit in May. At least domestically, it seems like we've seen capital markets Start to pick up a little bit off really low levels in June. Maybe it's early, but are you seeing any Green shoots domestically for the search business in June, just given, I guess, the rebound in equity markets and Maybe the IPO pipeline starting to warm back up?

Speaker 2

When you say domestically, are you talking about domestic China or domestic United States?

Speaker 6

Domestic United States.

Speaker 2

Well, like 1 month doesn't make a trend. What we saw in May It was certainly good news. When you look Month sequential, so not month year over year. But if you just look month sequential and you take April to May, Our normal seasonal pattern, we would expect new business to be down 3% to 5%. We were up 5%.

Speaker 2

On an organic basis, it would probably be in that down 3% to 5 So right in line. May to June, we would expect to see month sequential, not year over year, but month sequential, we would expect that To be up 5%. And we haven't closed out June here. We have a number of days left. And then you've also got the 4th July.

Speaker 2

And we're kind of in line with that kind of number. So I think it's I think you're right, it may be too early for Range shoots. But certainly, it's more encouraging than not That over the last few months, we've seen a stabilization in the executive search business. And in North America, May was May new business was the trend was better than it was The previous month or 2. So but again, with our consulting and digital and interim businesses, Those have really held up quite well overall.

Speaker 6

That's fair enough. Thank you for taking the questions.

Operator

Thank you. And our next question is from Trevor Romeo from William Blair. Please go ahead.

Speaker 5

Hi. Thanks so much for taking the questions. First, I just kind of wanted to ask about 4th quarter results relative to your expectations, particularly on margins since revenue was above the guidance, EPS was kind of more in line. I think Greg's comments had talked about the mix shift in revenue, start up costs with some RPO engagements, investments in head Product development, which is wondering if you could maybe talk about which of those factors had more of an impact than you might have thought going into the quarter, if any? Just any kind of color on the margin performance in the quarter would be great.

Speaker 2

Well, I'll let Bob can comment. I mean, I would just say that We had guided to an EBITDA margin of, I believe, 14%. And I think we where we came out was 13.5%. So it was actually Fairly close to what we had expected. I mean, in any given quarter, you could have Some unusual items swinging one way or the other.

Speaker 2

But I guess I wouldn't say that we said 7 months ago that we were going to run the business at kind of 14%. So this is pretty close to that. And again, when you see the fall off in search, then you see this mix shift that's Within the organization, I think it was substantially in line With what we had thought like 7 or 8 months ago, and that we told our shareholders. But Bob, you can probably You have a better view, I think, than I

Speaker 1

Yes. So, Trevor, if you look at whether you go quarter sequential year over year, The mix shift is likely 80% of the decline that you see in the adjusted EBITDA margin. As Gary said, it's the primary driver of it. In the Q4, because our revenues exceeded the top end of our range, we did have In our business when a lot of the bonuses are driven off revenue. So we had to book a little bit more bonus in the 4th quarter Just to satisfy the demand, but the primary driver is just the change in mix.

Speaker 5

Okay, got it. Thanks. That is helpful. And then for my follow-up, just kind of wanted to ask about your M and A pipeline. I think we've heard from some other companies about a tough M and A market with disconnects On valuation between buyers and sellers, others may be suggesting the pipeline could open up a bit.

Speaker 5

I mean, you guys have obviously done a few acquisitions lately yourselves. Just kind of wondering where your pipeline stands today, which areas you kind of see being attractive right now? Thanks.

Speaker 2

We've always taken a very systematic approach to capital allocation and we would Expect that to continue. And I don't at any one given point in time, I don't really say that the pipeline Is big or small, I mean, we're not that's not how we're going about it. We're going about it to say, where's the real market opportunity? Where can we have greater Client impact. And in whatever we're looking at, what does the neighborhood look like at 11 What are your neighbors like?

Speaker 2

It's all about culture fit. So you go through cycles, up Down cycles, I don't really look at it that way. We continue to have a very systematic approach And we continue to meet with companies to get to know them. And so I don't think today is any different than it was say 3 or 4 months ago.

Speaker 5

Thank you very much.

Operator

Thank you. And our next question is from Mark Riddick from Sidoti. Please go ahead.

Speaker 6

Hi, good afternoon.

Speaker 7

I just wanted to touch on a couple of areas that you touched on earlier, but I just wanted to follow-up on as far as the opportunities that you see before, you talked about being willing to invest and adding talent as we go through the year. Are there any particular Areas either strategically or geographically that are kind of sort of really sort of jumping out As feelings, though, maybe you're understaffed or maybe missing an opportunity at this point?

Speaker 2

Well, there's a couple of places in the world where I've asked our team to quadruple Our business. I mean, I'm not going to point those out publicly, but clearly, it's not one size fits all. There's countries that are doing Subtually well right now, and we have great businesses there, but we're just scratching the surface of what that could be. I'm sure you could Maybe guess at what those are, but we've got a very aggressive plan in 2 or 3 geographies that we see huge, huge Opportunity. Look, the consulting business is a no brainer.

Speaker 2

And we Despite where we are today, I continue to believe that we can use more colleagues and more resources In the consulting area, I just I don't want to just say that's the favorite child Because there's a number of opportunities we could pursue. But just broad based, we've just seen some enormous wins With our consulting and digital solutions working together, I just that's a multibillion dollar opportunity for us Over the medium to long term. And so that's the thing that would come screaming off the page. And then I The fact that we have this incredible data and How do we go about licensing that? How do we go about using that either standalone or with Consulting, pushing or pulling and really helping to solve what I think are going Continue to be organizational challenges for clients.

Speaker 2

I mean, in a time of A tremendous change in the labor market that's really not moving. And I think that's opportunity for Korn Ferry.

Speaker 7

That's very helpful. And then maybe you could touch a little bit on maybe what your thoughts are or expectations are on CapEx For this fiscal year and sort of how that might play into tech spend and maybe whether that is To some level tied to the AI commentary that you had earlier, maybe sort of maybe tie some of that a little bit together to sort to give us a sense of sort of where we might be going there? Thanks.

Speaker 1

Yes, I'll take it. Our capital spending this year will be relatively consistent with what we saw last year In FY 'twenty three. So figuring somewhere kind of $65,000,000 to $70,000,000 with like probably somewhere around 50 Of that going into the digital business, there will be some in the consulting business and then the rest would go to kind of making sure that the It protects all the assets and keeps the bad guys out. But I would look at our CapEx this year very consistently with what we did last year.

Speaker 7

Great. Thank you very much.

Operator

Thank you. And the next question is from Mark Marcon from Baird. Please go ahead.

Speaker 5

Hello. This is Andre Childers on for Mark Marcon. Thank you for taking our questions. Could you go into some detail about what you're seeing And by vertical, I think it's interesting how well EMEA has hold up on the search side, at least relative to North America. And then I know previously you said industrial Was holding up pretty well, but can you give an update on what verticals might be doing well, which ones may be struggling a little bit more?

Speaker 2

Well, I think you're so in EMEA, it's more than the search business. It's all of the businesses are doing very, very well. And It's fairly broad based. I mean, there's a couple of areas that are really performing extraordinarily well. So it's more than search.

Speaker 2

It's an EMEA. It's Across the entire platform. Industrial is that's important for us. It's almost 30% of the company. It's a big, big part of our portfolio.

Speaker 2

And if you look either You look year over year, for example, and you're seeing kind of an 8% lift here. And clearly, the Infrastructure Act in the United States is having some impact, No doubt about it. But you see it across manufacturing, energy, engineering and construction. And even sequentially automotive held up. So it's been fairly broad based Within industrial, I'm not going to kind of pick on one sector.

Speaker 2

But overall, that's a positive For Korn Ferry, given the size of industrial relative to the other pieces of the portfolio.

Speaker 5

Great color. Thank you. And then switching over to the interim side, could you talk about maybe what roles or skills you are Seeing particular success with, whether it be within cross sell or outside of that? And then also, when you're looking at adding Both organically as well as inorganically, maybe what areas would you be more likely to add to?

Speaker 2

Well, we're going to we really do believe that finance and accounting, technology, Supply Chain, HR, those would be the areas that are the natural adjacencies for Korn Ferry And that we would tend to stay at the high end of those markets. And so that's Kind of our strategic focus. And what it is impressive. I mean, I just the quality of the people that have joined, The kinds of assignments that we're doing and the fit within Korn Ferry, I mean, to Think about in a very, very short amount of time that you've seen a $50,000,000 revenue lift in About 18 months, maybe it's a little bit longer. But 700 deals, I mean that wow, you start to extrapolate that out And it's a real, real positive.

Speaker 2

And so that's one of the foundations of the strategy is that can we Create more impact with clients with a broad platform that ranges from org strategy And when you look at the firm overall, our cross referrals are 85% to 30% of the overall firm. And you look at that, then you look at the marquee and regional accounts and you think about That being 35%, 40% of the firm, and it's working, is my point. And so We do believe that with this high end interim service that we have, there could be some moderation. I mean, I'm not going How could we be immune? But the market potential is enormous.

Speaker 1

Yes, Gary, the only thing I would add to that too is the Proclivity for executive search to work with the patina folks on the C suite interim placements, It seems to be an area that there's real synergies going on as well.

Operator

Thank you. And that does appear to be the final question. Please go ahead with any closing remarks.

Speaker 2

Okay. Lois, thank you for moderating this. And as Bob said, we're incredibly proud of our team and We certainly appreciate you listening and we look forward to speaking to you Very, very soon. So with that, we'll sign off and have a great day. See you.

Speaker 2

Bye bye.

Operator

Thank you. Ladies and gentlemen, this conference is available for replay beginning at 11 am today and running through July 4 at midnight. You may access the AT and T replay system at any time by dialing 1-eight sixty six-two zero seven-ten forty one and entering the access code

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Earnings Conference Call
Korn Ferry Q4 2023
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