Korn Ferry Q4 2024 Earnings Call Transcript

Quartr
Provided by Quartr
June 13, 2024

There are 10 speakers on the call.

Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Korn Ferry 4th Quarter and Fiscal Year End April 30, 2024 Conference Call. At this time, all participants are in a listen only mode. Following the prepared remarks, we will conduct a question and answer session. As a reminder, this conference call is being recorded for replay purposes. We have also made available in the Investor Relations section of our website at kornferry.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 risks 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 and in the periodic and other reports filed by the company with the SEC, including the company's soon to be filed annual report for fiscal year 2024. Also, some of the comments today may reference non GAAP financial measures, such as constant currency amount, 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 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.

Speaker 1

Thanks, Leah. Good morning, good afternoon, everybody. Our team, I'm joined by Bob and Tiffany and Greg. They'll get into the results in more detail. But the earnings and profitability were really strong in the Q4.

Speaker 1

They increased year over year and sequentially. We came in with an adjusted EBITDA margin of over 16%, which is our 4th consecutive quarter of profitability improvement. And in fact, when you adjust for the mix change of us getting into a brand new business line that has a huge market opportunity for us interim, Our adjusted EBITDA margin is about 300 basis points higher than pre pandemic levels and the revenue is way higher compared to 4 years ago, probably 35%, 40% higher for sure. Much has changed over the last 4 years, not only in how we live, but also in how we relate to others and how we work. The one thing that hasn't changed though is our purpose to enable people and organizations to be more than.

Speaker 1

And as the premier organizational consulting firm in the world, We're a company that impacts the lives and careers of tens of thousands of people across thousands of organizations, a company that continues to innovate and align our business to help our clients perform and transform, a company Korn Ferry, that sits at the intersection of a client's business strategy, their talent to ultimately drive superior performance. It's clear that our strategy is working. The cyclically sensitive talent acquisition offerings are being buoyed by growth and stability from our diversified offerings, particularly consulting, although that's complemented by digital. They've both generated very, very solid performance during the year. It all begins with data, 109,000,000 assessments we've done, 6,000,000 professionals developed, a 1,000,000 people put to work, more than 10,000 success profiles, compensation information on 30,000,000 professionals covering 30,000 organizations around the world and more importantly, our incredible colleagues who transform that data into unique and scalable insights and compelling solutions for our clients.

Speaker 1

And nowhere is that more pronounced than in our marquee and regional account program, which represents 37% of our portfolio for the fiscal year. And these accounts benefit from the breadth and depth of all things Korn Ferry from our IP to our full suite of offerings to the expertise of our colleagues. And to put that into perspective, today, the growth from these accounts is outpacing the rest of the company. And almost all of our marquee clients use at least 3 of our business lines, which is a key contributor to our success in cross line of business referrals and we exit the year at about 26% of total fee revenue in cross business referrals. In everything we do, we are really striving hard to work more interdependently, more horizontally, less vertically, scaling our data, insights and offerings, our purpose, our vision, strategy, I think really put us at the threshold of even greater opportunity regardless of the environment from one cycle to the next.

Speaker 1

So with that very high level overview, I will now turn it over to Bob.

Speaker 2

Great. Thanks, Gary, and good afternoon or good morning. We ended fiscal year 'twenty four on a high note, generating $691,000,000 of fee revenue in the 4th quarter, and that was at the upper end of our guidance. And more importantly, we delivered really strong earnings and profitability, adjusted EBITDA over $112,000,000 at a 16.3% margin, and that margin is up nearly 300 basis points year over year. Additionally, our adjusted fully diluted earnings per share were 1.26 dollars and GAAP fully diluted earnings per share were $1.24 As Gary indicated, the 4th quarter marked a full year of quarter sequential margin expansion, and it really highlights our strong cost management and improvements in our consultant and execution staff productivity.

Speaker 2

Overall, fiscal 2024 was another example of the success of our long term diversification strategy and really

Speaker 3

and really a

Speaker 4

clear demonstration of the relevancy of our solutions.

Speaker 2

Additionally, our growing earnings power in today's environment, which is pretty challenging, also demonstrates resilience of our business model and the diligent execution of our strategy by all of our colleagues. Now let's take a step back and look at the pieces that really helped shape the year. One of our key growth drivers, marquee and regional accounts, which represents over $1,000,000,000 or 37% of our FY 'twenty four total fee revenue grew 3%, even though our overall business was down 3% for the full year year over year. These accounts include many of our largest clients with several accounts exceeding $10,000,000 in annual fee revenue and those are the accounts or clients that are consuming multiple lines of our business. 2 of our less cyclical segments, consulting and digital, both reached all time highs in fee revenue for all of fiscal 2024, underscoring both relevance and durability of their solution sets.

Speaker 2

Additionally, our full year average bill rate for consulting increased 11% year over year and we exited the year at $4.37 per hour. Now across the business, consultant and execution staff productivity continued to improve. Our productivity in the 4th quarter measured by fee revenue per headcount was up 31% versus the Q3 of FY 2020, which is a quarter right before the pandemic hit. And finally, fee revenue generated by cross lines of business referrals was about 25% of total fee revenue in FY20 24 and it grew sequentially in both Q3 and Q4. And as Gary mentioned, we exited the year at about 26%.

Speaker 2

All of these are important factors that help drive stability in our fee revenue despite the cyclical moderation in the Talend acquisition market, and there were also key factors in driving the improvement in our earnings and profitability throughout fiscal year 2024. Last, I'd like to provide an update on our capital deployment. Return of capital to shareholders has been a priority for Korn Ferry and in fiscal 2024, we returned $107,000,000 to shareholders through dividends and share repurchases. In the 4th quarter, we repurchased approximately $23,000,000 worth of stock, about 365,000 shares, brought our total share repurchases for FY 'twenty four to about 930,000 shares. In addition to the 83% increase in our dividend earlier this year, our Board has just approved another increase in our dividend of $0.04 per share.

Speaker 2

It's about a 12% increase. And that brings our quarterly dividend to $0.37 per share, which is actually double what it was at the beginning of the year. All of our capital allocation initiatives really speak to the confidence we have in the outlook for our business and our future earnings power. Now I'm going to turn it over to Greg, who will take you through some overall company financial highlights.

Speaker 5

Okay. Thanks, Bob. Fee revenue in the 4th quarter grew to $691,000,000 with a seasonally strong and stable demand for consulting and digital, complementing seasonally strong and stabilizing revenue for our permanent placement talent acquisition solutions. By line of business, consulting fee revenue grew 4% year over year, digital was flat and fee revenue for our talent acquisition solutions of executive search, professional search and interim and RPO combined were down 10% year over year, but up 1% sequentially. Within talent acquisition, executive search was down 6% year over year and flat sequentially.

Speaker 5

The permanent placement portion of PFI was down 10% year over year and up 7% sequentially. RPO was down 18% year over year, but down only 8% sequentially. Consolidated new business in the Q4 excluding RPO was down 2% year over year at constant currency. Like fee revenue, stable new business growth in consulting, digital and executive search was offset by slower demand for professional search and interim solutions. At constant currency, consulting new business was flat year over year, digital was up 4%, executive search was up 1% and professional search and interim was down 12% with permanent placement stable and essentially flat year over year and interim off 14%.

Speaker 5

For RPO, new business in the 4th quarter was strong at $128,000,000 which includes $61,000,000 of renewals and extensions and $67,000,000 of new logo wins. As Bob said, earnings and profitability were higher in the 4th quarter driven by strong cost control and greater consultant and execution staff productivity across all lines of business. Adjusted EBITDA in the 4th quarter grew $14,000,000 or 15% year over year and was up $111,000,000 or 10% sequentially to over $112,000,000 Adjusted EBITDA margin grew to 16.3% in the 4th quarter and has now improved sequentially for 4 consecutive quarters. Adjusted fully diluted earnings per share in the 4th quarter were 1 point 26 dollars up $0.25 or 25 percent year over year and up 18% sequentially. Fully diluted earnings per share measured by GAAP were $1.24 in the 4th quarter.

Speaker 5

The 4th quarter was positively impacted by a lower tax rate of 24.6%, which benefited both adjusted and GAAP fully diluted earnings per share by approximately 0 point Q4 grew $110,000,000 sequentially to $606,000,000 Our capital allocation continues to be balanced. For all of fiscal 'twenty four, we deployed $172,000,000 of cash, investing $47,000,000 in capital expenditures, using $19,000,000 for debt service and returning $107,000,000 to shareholders in combined dividends and share repurchases.

Speaker 1

That I'll turn the call over

Speaker 5

to Tiffany to review our operating segments in more detail.

Speaker 6

Thanks, Greg. Starting with KF Digital, global fee revenue in the Q4 was $91,000,000 which was flat year over year at actual rates and up 1% at constant currency. Digital subscription and license fee revenue in the 4th quarter was $33,000,000 which was approximately 36% of fee revenue for the quarter and up 3% year over year. Global new business for KF Digital was 104,000,000 dollars with $39,000,000 or 37 percent of the total tied to subscription and license sales. The overall pipeline for digital remains strong as we head into the next fiscal year.

Speaker 6

For consulting, fee revenue in the 4th quarter was $182,000,000 which was up approximately 4% year over year at actual rates and up 5% at constant currency and an all time high for the segment. Fee revenue growth was strongest in assessment and succession, which increased 10% year over year. Consulting's average hourly bill rate remained in line with the previous quarter and is up $47 an hour or 12% from 1 year ago. Adjusted EBITDA margins continued to improve, increasing 110 basis points sequentially and by 380 basis points year over year, driven by a mix of higher billing rates and increased utilization rates. Additionally, global new business for consulting in the 4th quarter was essentially flat year over year and strongest in North America with 5% growth.

Speaker 6

Total fee revenue in professional search and interim in the 4th quarter was $129,000,000 down $23,000,000 or 15% year over year. Breaking down the quarter, year over year softness in fee revenue was driven by an industry wide slowdown in the interim business. Interim fee revenue was $73,000,000 for the quarter, which was down $16,500,000 or 18% year over year and down 11% when excluding a one time client engagement wind down. Despite the slowdown in demand, interim's average hourly bill rate increased to $129 per hour, which is up $5 an hour or 4% from 1 year ago, reflective of the added value of being part of the broader Korn Ferry ecosystem. Professional search and permanent placement fee revenue of $56,000,000 was down $7,000,000 or 11% year over year, but was up $4,000,000 or about 8% sequentially.

Speaker 6

Also, professional search consultant productivity is up both year over year and sequentially to approximately $670,000 annualized. New business for the combined segment during the quarter was down 12% year over year, but essentially flat sequentially. Moving on to recruitment process outsourcing. New business for the Q4 was 128,000,000 dollars comprised of $67,000,000 of new logos and $61,000,000 of renewals and extensions. Fee revenue in the Q4 totaled $89,000,000 which was down $111,000,000 or 10% year over year at actual rates and at constant currency, but up $8,000,000 or 10% sequentially.

Speaker 6

Fee revenue was impacted by a moderation in hiring volume within the existing base of contracts as well as recruiter labor hoarding conditions, which have continued in the market. Although the timing of new business can be lumpy, we believe RPO is well positioned to benefit when client hiring returns to more normalized levels. The pipeline remains strong as RPO continues to renew existing clients and win new business with a differentiated service offering in the marketplace. Finally, global fee revenue for executive search in the 4th quarter was $199,000,000 down 7% at actual and 6% at constant currency. Global demand for executive search has been stable with ease of the last four quarters of fee revenue near 200,000,000 dollars Additionally, consulting productivity continues to improve, contributing to higher EBITDA, almost $46,000,000 and an adjusted EBITDA margin of 22.9%.

Speaker 6

I will now turn the call back over to Bob to discuss our outlook for the Q1 of fiscal 'twenty five.

Speaker 2

That's great. Thanks, Tiffany. In recent months, new business growth trends have continued to be a little bit choppy. In the Q4, new business improved each consecutive month starting in February and concluding with April up 4% year over year, which kind of brought the full quarter essentially in line with our expectations. Starting fiscal year 2025, main new business was also essentially in line with our expectations.

Speaker 2

Assuming normal historical seasonal patterns, we fully expect new business in June to grow sequentially and for July to be essentially flat to slightly down with June. Additionally, in line with normal seasonality, we're expecting both consulting and digital, the growth for Q1 to be down sequentially, but to be remained stable measured year over year. And for our tail end acquisition services, we expect the normal Q4 to Q1 seasonality given what we're seeing in the current market conditions today. Now assuming no further changes in worldwide geopolitical conditions, economic conditions, financial markets, foreign exchange rates, we expect fee revenue in the Q1 of fiscal 2025 to range from 655,000,000 dollars to $675,000,000 our adjusted EBITDA margin to remain approximately 15.8% to 16.2% and our consolidated adjusted diluted earnings per share to range from $1.07 to 1.17 and finally, our GAAP diluted earnings per share to range from $1.05 to 1 $0.15 Now in closing, we continue to focus on the execution of our strategy, which obviously is becoming the preeminent organizational consulting firm. We have a tremendous opportunity ahead and are going to continue to drive initiatives that will generate growth.

Speaker 2

First, continuing to focus our go to market and our marquee and regional accounts, really looking to drive more clients at scale, Continuing to drive top line synergies with our cross line of business referrals, we recently enhanced and expanded the incentives. We're going to continue to capitalize on both our core and integrated solution, how relevant they are in today's world, continue to execute on initiatives to drive growth for digital, including the creation of one delivery platform to improve client consumption and consultant execution efficiency and with a continued focus on large subscription and license deals. As Gary mentioned, we want to maximize unique client specific insights that we're able to draw from our rich repository of data. And last, developing what we call the next level of 1 Korn Ferry consultants. These are fee earners who are skilled at bringing all of our firm's resources to help our clients solve their most pressing human capital needs.

Speaker 2

The world that we live in today is full of contradicting uncertainties and challenges. As a management team, we are relentlessly focused on influencing what we can control, including balancing the maintenance of our cost base and productivity to maintain our profitability, while making appropriately timed investments to position the firm for long term growth. As I always say, we're at beginning of what's going to be a very long ballgame and I truly believe our best is yet to come. With that, we would be glad to answer any questions you may have.

Operator

We go to the line of George Tong with Goldman Sachs. Please go ahead.

Speaker 3

Hi, thanks. Good morning. You talked about cyclical moderation in the talent acquisition market. Can you elaborate on trends that you're seeing in your cyclically sensitive businesses?

Speaker 1

I would say that it's been the good news and what we shared in the last quarterly call was that we would expect that RPO would see some improvement, which it did. And as you know, depending on what part of employment services you're talking about, comparables could be down anywhere from 8% or 9% to 28%. Clearly, what we've seen over the last several months is definitely stabilization, some improvement in RPO. And also as we talked about last quarter, we thought we would see some improvement in perm in professional recruiting. So what you've seen is our professional search business up sequentially.

Speaker 1

Executive search is essentially flat the last several months. RPO, although down year over year, it's definitely improved and new business has been flat sequentially. And the other thing we talked about with the RPO business is we thought we would see a shift more towards new logos and that actually materialized in the quarter.

Speaker 3

Got it. That's helpful context. And then with respect to profitability, you delivered over 16% EBITDA margins in the quarter, which meaningfully outperformed your guidance. Can you talk about what drove the outperformance versus your initial expectations and how sustainable these margins are?

Speaker 1

Well, how sustainable depends on the economic environment that we're handling. We've guided for this next quarter at the mid 16% EBITDA margin at that revenue level. You know, a 16% EBITDA margin at that revenue level. One of the things we're really proud of is the fact that the revenue is up 35%, 40% since the pandemic. That was an all time high, by the way, pre pandemic revenue levels was an all time high for Korn Ferry at that point.

Speaker 1

And our revenue now is 35%, 40% higher. And our profitability, once you adjust for the mix change, getting into a bigger market of interim is up 300 basis points. So at this level of revenue, it's certainly sustainable. And at the same time, we're investing and returning cash to shareholders. And Bob said, we've doubled.

Speaker 1

We've doubled the dividend now over the last year and we continue to systematically repurchase stock.

Speaker 3

Got it. Very helpful. Thank you.

Operator

Next, we go to the line of Mark Marcon with Baird. Please go ahead.

Speaker 7

Hey, Gary, Bob, Greg, and Tiffany. Hey, congrats on a really nice margin performance and sustaining profitability. One, I'm going to take George's question, but flip it around a little bit. So you're able to do these margins while revenue is still kind of choppy, the outlook is still kind of choppy. How should we think about the margins when things eventually end up being a little bit more stable?

Speaker 1

Well, stable is a relative term. I mean, I think if there are economic tailwinds, you're going to see a couple of 100 basis points of margin improvement for sure. And that's kind of what that's been our kind of long term guide. We think in this kind of environment where most economies are still producing jobs that we can comfortably operate the firm at 15.5%, 16% EBITDA margins, and we're guiding towards the higher end of that for this next quarter, Mark.

Speaker 7

Great. And then you've had a lot of success with regards to changing the incentives and it's been something Gary that you worked a long time on in terms of getting the cross selling motion up. When you think about where we are today relative to your aspirations for 2 to 5 years from now, in terms of that cross selling motion, what inning are we in? How much better can we become do you think? I think we're like

Speaker 1

in the 2nd inning. I mean, we're not crawling anymore, but we're not running. We've just started to walk. I think we can do a lot more. We have to think much more horizontally.

Speaker 1

The interesting thing is, when we first met Mark and at that point, when we got into this leadership business, we were doing engagement sizes of $5,000 or $6,000 I mean, the interesting thing now is the pivot towards transformational consulting engagements. I mean, probably 40% of our new business this year are $1,000,000 engagements. And so what comes with that is definitely more stability, the ability to leverage, to deploy leverage, having real impact on clients. But I'll tell you, we're at the beginning of and we have to move from cross referrals to more integrated solutions. But I just think I look at some of the work we're doing and it's definitely the beginning.

Speaker 1

I mean, the consulting and digital businesses have clearly been a huge, huge differentiator for Korn Ferry. So, yes, I think we can do more. That quote cross referral percentage, could that be 35%? Yes, it could be 35% for sure. But we have to continue to innovate in terms of the solution sets and continue to modify how we reward our colleagues.

Speaker 2

Hey, Mark, it's Bob. Just maybe a little bit more context on that. So if you look at the consulting new business in FY 2024 for the full year versus FY 2023, engagements that are kind of close to or above $1,000,000 Those were up 36% year over year. So you can see the strategy clearly working in terms of the push towards no more point solutions, but really selling integrated solutions that help solve clients' human capital needs.

Speaker 7

Great. And then on professional search and interim, and then I'll jump back in the queue. But on professional search and interim, for everybody who follows the space, it is a it's been a tough market and particularly on the interim side, we've been seeing declines across the board. I'm wondering, do you think on the interim side that things are stabilizing and how would you characterize the differences between your various interim businesses? And so what they're seeing from a top line perspective, but yet you're able to maintain and improve the margins, which is pretty amazing.

Speaker 7

What are you doing to get the margins up while the revenue is declining as much as it is and it's doing the same thing for everybody? And then as a follow-up to that, how given the current economic environment, how does that impact your desire in the short term to make investments in interim or permanent?

Speaker 1

We would continue to make investments in interim. We made a conscious decision about almost a year ago that we were going to modify the where we were placing emphasis on our professional search business. And so if you were to look at the data on the number of consultants we have in that business, you would find that it's down significantly. And we made portfolio switches and we said, okay, let's go to this industry versus that industry. That was absolutely a conscious decision that we made and that's paid off.

Speaker 1

The interesting thing about the temp penetration rate now is 1.7%. The 25 year average is 1.86%. I think the next 3 to 5 years are going to I think there's going to be major talent issues. It's so called peak 65, where over the next 4 to 5 years, kind of the last of the baby boomers are retiring or should be retiring statistically. And you could lose 4,000,000 people a year in the United States alone, 4, maybe it's higher.

Speaker 1

The economy right now is producing about 1,008,000 jobs at this run rate. So there's really some imbalances when you look out 3, 4, 5 years that could bode very, very well. Your question around the interim, we saw at first a decline in technology. Interim, we've got definitely stabilized. Then over the more recent months, we saw a a decline in finance and accounting.

Speaker 1

The temp penetration rate, it's been falling for 27 months and counting. Generally, when you see a fall in temp employment, it generally means that it's going to have an impact on the labor market. And you just look back historically and those lag times have definitely become longer. Assuming there's not some major event, I'm not so sure that this is going to turn upside down. I just think there's tremendous demographic pressure on the other end here.

Speaker 1

And I think it's the case for the not only the United States, but some other countries. We would absolutely we are going to make investments in the interim business for sure. And the number of cross referrals we've had. And the number of cross referrals we've had. It's a much, much, much bigger market opportunity.

Speaker 1

Clearly, the margin profile is different. We're going to stay towards the higher end. This quarter we did the average rate was like $129 an hour. We're going to we're for sure going to stay at the upper end. But it's there's more market opportunity there for Korn Ferry.

Speaker 2

Hey, Mark, it's Bob. I can touch on the you asked the question about how we make those businesses profitable. And we've talked about this in the past. So we have an incredible integration playbook, right. When you look at these companies, when we buy them, their adjusted EBITDA is somewhere around 8%.

Speaker 2

And we built a company that's plug and play, right? So we have common systems, common processes, common controls across the globe. And a lot of these businesses we buy, they're under invested, maybe not as well managed. And we just literally pick them up and plug them into our systems and our processes. And so by doing that, it allows us to bring the EBITDA margin up into the kind of 12%, 13%, 14% range relatively quickly.

Speaker 2

And then as the go to market activity become more and more integrated and we start to see the referral activity elevate the top line, that's when you really see the juice happening.

Speaker 7

That's great. Thank you very much. Appreciate it.

Operator

Next, we have a question from Tobey Sommer with Truist Securities. Please go ahead.

Speaker 4

Yes, good morning. This is Jack Wilson on for Tobey. Maybe just to start out, so that continued momentum in be momentum in new business and digital. Is that a product of sort of a change in the market or a change in what you're doing? Could we just dig into that a little bit?

Speaker 1

Well, some of it can be lumpy, for sure. So I wouldn't read too much into that. The thing that we would hope is that this tremendous IP that we have, that we could really monetize it. I mean, it's not a small business today, dollars 360,000,000 It's the most profitable part of Korn Ferry. You can really impact a client organization.

Speaker 1

You can change thousands of people's lives. So it is one that we strongly believe in. It is one where we are trying to get the entire firm to push those offerings to solve client problems. The offerings are largely centered around an organization's what they do around professional development and learning, which is one of the biggest markets that we could go after. It's anchored around compensation, how organizations compensate people.

Speaker 1

And it's anchored around a company's sales force, how do they improve their sales effectiveness. But it's also we've got legacy products, digital offerings as well around, say, assessment, or design, how you set up an organization, people can license our intellectual property, to do spans and layers and the whole thing. So it is one that we do believe in. We are working very hard to get the entire Korn Ferry to be in the market with those digital solutions. We're working quite heavily on a platform, and we're also working to create a better ecosystem of partners.

Speaker 1

Because if you look at, for example, the big four consulting firms, they enjoy an ecosystem of partners that bring them 100 of 1,000,000 of dollars of revenue a year. And we sit here and look at our intellectual property of 109,000,000 assessments, 30,000,000 comped out on 30,000,000 people and we say, why not us? We think it can be a huge differentiator and we continue to work hard on creating an ecosystem with partners that can make our journey up the next mountain easier.

Speaker 2

And Jack, this is Bob. Just one other point I would make on that. As you think about the digital business going forward, Gary had mentioned, I had mentioned earlier in consulting, selling larger engagements and the same thing is happening in digital, right? We're now selling $3,000,000 $4,000,000 $5,000,000 deals that span multiple years. And so Gary mentioned you might see some choppiness, because you could get 3 or 4 of those in a quarter and then in next quarter you might get 5 or 6.

Speaker 2

So it's kind of like what you see with RPO. RPO signs a huge contract in 1 quarter and you'll see the new business spike up. But to me, the key there is that we are selling larger multi year deals, dollars $3,004,000,000 $5,000,000 deals versus point solutions. And so as you think about that going forward, that will influence what we report as new business as well.

Speaker 1

Yes. And I think Bob too, the other thing is that intellectual property, that chassis, if you will, of our digital capabilities actually fuels a good part of our RPO business and a good part of our consulting business. And in fact, we use that same IP for the recruiting businesses.

Speaker 2

That's right. It permeates everything we do.

Speaker 1

Yes.

Speaker 4

And then maybe one more from me. I think you've previously spoken about using AI as more of a growth driver than, I guess, a cost reducer. Can you offer us more color on sort of any specific business lines you see that as a key driver?

Speaker 1

Nobody knows where this thing is going. We are very concerned about the ethical ramifications. We've developed 6,000,000 people over the last few years. We put somebody in a new job every 3 minutes. We use IP all over the place.

Speaker 1

We are spending an awful lot of time to make sure that whatever we do in the area that we're building a moat around our data. And so we're very, very systematic there. Yes, we are using it in some of the coaching, some of the assessment. And over time, we will look at how we can make the entire Korn Ferry more efficient, but that's not in this next quarter. Our primary concerns right now are where can we be disintermediated?

Speaker 1

What are the ethical issues around this? And let's use it in a couple of solution areas. That's where we are right now.

Speaker 4

Okay. Thank you very much. I'll turn it over.

Operator

Next, we go to Trevor Romeo with William Blair. Please go ahead.

Speaker 8

All right. Good morning, team. Thanks so much for taking the questions. I know we've had several margin questions already, but just wanted to ask another one a bit differently given the outperformance there. I think for most of the segments, you're running at a lower headcount than you had been kind of a year ago, that type of timeframe, yet seeing kind of much better productivity and higher bill rates for a lot of the segments.

Speaker 8

So I was just wondering if you could talk a bit more about which specific productivity initiatives you've implemented recently and which are starting to really pay off now and how much further you can improve on those productivity metrics?

Speaker 1

Well, look, we do think there's room to go. Part of the improvement comes from clearly technology, as Bob indicated, around platforms and the like. And I think he covered that really well. The other though over time here, like take our consulting business. So as we do more impactful multimillion dollar engagements, the firm will see better scale, better productivity.

Speaker 1

And I think it's bearing out in the numbers. On the interim side, we definitely want to stay at a certain level. And I'm not going to sit there and say you're going to see gigantic productivity there. We've made some huge, huge strides over the last 15 months. So I'm not going to say there's a long ways to go there.

Speaker 1

But I think it's a combination of our technology that we're using and the go to market strategy as it relates to consulting and digital.

Speaker 8

Okay. Thanks, Gary. That makes a lot of sense. And then just another one kind of on the overall demand environment, some of the green shoots that you talked about last quarter in the cyclical businesses. But maybe specific to search, I think your revenue was kind of flattish sequentially, maybe not quite as strong of an uptick as a few of the other competitors may have reported recently.

Speaker 8

Just kind of wondering if you could speak about the demand environment specific to search, whether you're still seeing those green shoots and whether they're stronger, weaker or about the same as last quarter? Thanks.

Speaker 1

I think they're about the same. I mean, what we talked about last quarter was that we would expect to see some uptick in professional search. And we said we would see an improvement in RPO. And that's absolutely happened. You step back from all of this and we're clearly in the middle of a multi quarter reset And companies are adapting to a rate environment that is 2.5 times what it was.

Speaker 1

And people haven't seen this for 25 years. And I don't see in the near term, in the next few months, I don't really see much changing. I think the really encouraging news though when you look out at megatrends is what I touched upon a little bit, just take the United States labor force. I mean, it's not going to be too long. I think right now, 19% of the population is retired in America.

Speaker 1

That could go to 20%. At some point, for every person that's retired today, you got 2 workers. That's going to change. And with this peak 65 and baby boomers, you look at it and you look at some other countries and you say, wow, there's a real demographic issue there. And so how do companies deal with that demographic issue?

Speaker 1

And so part of that is going to be through technology, but part of it is going to be with the kind of services that we actually deliver and that we're building our firm for. So I look at the megatrend around demographics and I say that's really, really good news. Again, absent some unforeseen event that could happen. So I look out and say, I think there's going to continue to be this concept of labor hoarding. But I'm more encouraged than not longer term on what the demographic trends mean for Korn Ferry.

Speaker 8

Okay, Gary. Appreciate the perspective. Thanks.

Operator

And our final question will come from Karan Singhania with UBS. Please go ahead.

Speaker 9

Hi, good morning. This is Karan on for Josh. So thanks for taking my questions. So I had a question on Executive Search. With Executive Search seeing positive new business growth and new engagements, do you think it's going to return to growth in the Q1?

Speaker 9

And if so, which regions?

Speaker 1

No, no, no, no, no, no. This environment, we're in a very, very every company is in an incredibly difficult environment. There is a fight for growth. There is a fight for relevancy. The winners are going to be those companies that invest in 2 or 3 areas that are going to accelerate them through the turn.

Speaker 1

And that's what Korn Ferry is doing. I think the labor market in the United States is not going to change materially. I don't think there's going to be huge adjustments to interest rates. Costs for most Americans gone up 35% to 40%, wages have not gone up that much. And so I think realistically, if you're only looking at quarter, which is quite myopic, I think it's going to be kind of the environment that we're in.

Speaker 1

Now does that that certainly doesn't say that we can't take market share. When I look at the things that we're doing around the globe, we have never ever done more high impact assignments ever. And so I look at that and say, wow, that is incredible, incredible news. Is there if there is economic tailwind, can executive search get on a completely different trajectory? Absolutely.

Speaker 1

Do we have the best people in the industry? Absolutely. Is there room to go? For sure. But if your question is 2 or 3 months?

Speaker 1

No. I mean, it's you're in the environment you're in. And great companies make their best moves in these kinds of economic climates, and that's what we're going to do.

Operator

And speakers, that does conclude our question and answer session. I'll be turning the conference back to you for closing remarks.

Speaker 1

Okay. Thank you for joining us and for taking an interest. I think we have done the thing I'm most proud of is when we say something, we do it. And you have an organization that has tremendous colleagues, tremendous reach around the world, and a really, really solid leadership team. We're everywhere where you want to be in every industry and we're building solutions that matter, particularly over the next 5 years.

Speaker 1

So with that, thank you and we'll talk to you next time.

Operator

Ladies and gentlemen, this conference call will be available for replay for 1 week starting today at 2 p. M. Eastern Time running through June 21, 2024 at midnight. You may access the AT and T Executive Playback Service by dialing 866 207-1041 and entering the access code 5,486,987.

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Earnings Conference Call
Korn Ferry Q4 2024
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