Korn Ferry (KFY) 2019 Q3 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Korn Ferry's Third Quarter Fiscal Year 2019 Conference Call.

(Operator Instructions) 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.

Before I turn the call over to our host, Mr. Gary Burnison, let me first read a cautionary statement to investors.

Certain statements made in today's call 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.

Additional information concerning risks and uncertainties can be found in the release relating to this presentation and in the periodic reports filed by the company with the SEC, including the company's annual report for fiscal year 2018.

Also, some of the comments today may reference non-GAAP financial measures such as adjusted fee revenue, 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 related 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 will turn the conference over to Mr. Burnison.

Please go ahead.

Okay.

Thank you, Anna.

Good afternoon, everybody, and thank you for joining us.

I would say that the quarter was very good for Korn Ferry.

We grew the top line 10% in constant currency, and the profitability was outstanding.

This is my 67th earnings call.

It kind of feels like number 6. But today, Korn Ferry is a much, much different company.

We're an organizational consultancy that helps companies look at their talent and strategy together.

Most clients can come up with a sound strategy, but many struggle to make it stick because their talent strategy they're not in synch.

And that's exactly where we come in.

We help companies make sure that they have the right people in the right places for the right rewards that bring their strategy to life.

How do we do that?

Well, we do it by redesigning their org structure, by helping them hire and hold on to the best people with the right skills and mindset for the future and also, most importantly, by motivating their people to not just fulfill but to exceed their potential.

And as I said before, strategy without talent is hopeless, but talent without strategy is helpless.

And we connect those dots.

That's what Korn Ferry does.

And so on this 67th earnings call, I see a substantially different company today than even 2 or 3 years ago with a completely different profile.

Number one, we're 50% bigger.

More than half of our revenue is now generated from outside the U.S. 61% of our colleagues are women.

53% are millennial.

And only 14% of us are baby boomers.

Our Advisory business is over $800 million in revenue, which alone is bigger than any other search firm.

And in fact, it's about the size of our entire firm 10 years ago.

And most importantly, I think we've got a much more balanced and less cyclical company, an evolution that's taken place all while our flagship search business has thrived.

It operates at the highest level.

And you would look to that not by hyperbole, but you'd actually look at your average fee.

And our average fee is $125,000, and we're generating more revenue by far than any industry competitor.

This company today is not a cyclical binge or bust company.

We are now a firm for all seasons.

Whether the challenges is globalization, cost synergies, M&A, digital transformation, we can help organizations make an impact in any kind of economic environment.

And the breadth and depth of our company is substantial.

Our organizational strategy capabilities, it's about 11% of the company today.

With that, we help companies align their strategy with their people to their organizational structure.

Our succession and assessment offerings, we help clients close the gap between the talent they have and the talent they need.

Nearly 50 million people have been assessed by Korn Ferry.

The assessment and succession offerings represent about 12% of our firm.

Every year, we develop 1.2 million executives.

We have almost 1,000 colleagues every single day the only thing they are doing is leadership development.

That accounts for about 10% of the company's footings.

We have reward data on 25 million people.

We know what it takes to keep your best talent.

Our rewards business is about 10% of the company.

So we absolutely have the foundation for a multibillion revenue opportunity.

So the real question is, well, what do you do is to get there?

And it has to start outside in.

It has to start with pursuing enduring, scalable, meaningful client relationships, engagements that deliver measurable results for our clients.

Today, about 18% of our clients utilize more than one line of business.

So we've got a lot of runway with the remaining 80%.

And -- but specifically, we've got to relentlessly focus on 5 areas.

One, the centerpiece has to be the approach to client development, and it starts with our marquee accounts, those companies where we have a strong opportunity for impact today.

Those clients represent about 20% of the company.

The growth rate for those marquee accounts have been twice the rate of the remaining portfolio.

And as part of our One KF strategy that we announced last summer, we're now in the process of expanding this account program to another 200 regional accounts, which is approximately about another $200 million of revenue.

We're going to continue to develop and add account leaders to ensure that we bring the full weight of the firm to these clients and gain more wallet share.

Secondly, we've got to take those singles, the smaller clients, and we've got to make them doubles and triples.

We're doing that practically right now through solution training.

And again, as part of the One KF initiative, last month we kicked off a firm-wide program to educate every single colleague in the company at every level about all of our solutions.

We have over 100 trainers with about 330 sessions already scheduled across the globe today.

The third piece of the growth strategy is the product business.

When you look at Advisory, that $820 million, $840 million business today on a run rate basis, 2/3 of it is consulting, and 1/3 of it is product.

So it's about a $250 million product business today.

Those products are much less cyclical.

They are substantially profitable.

And we've got the opportunity to scale that.

Fourth, as you know, M&A has been a pretty consistent pillar.

We're continuing to explore opportunities at the intersection of talent and strategy.

And then the final piece is about our own people.

I spent a full 2 days with a colleague advisory council, almost 50 people from around the world at all levels.

And we have to have a commitment to developing our own talent and providing growth opportunities for everybody.

And at the same time, we have to continue to bring in world-class consultants.

And then finally, in addition to the M&A, we continue to execute a balanced approach to capital.

Year-to-date, we've allocated about $18 million to dividends and $37 million to share repurchases, representing a payout of about 25% of EBITDA.

Our return on invested capital has continued to improve.

It's up about 200 basis points from the end of fiscal 2018.

And I'll let Bob get into this, but the Board of Directors approved an additional stock repurchase program that would take us up to $250 million.

So with that, I'm going to turn it over -- I'm joined here by Gregg Kvochak and Bob Rozek.

And so Bob, I'll turn it over to you.

Great.

Thanks, Gary.

And good afternoon, everyone.

As Gary said, we're pleased with what we delivered this quarter.

And as usual, I'm going to start with a couple of highlights.

So demand for our industry-leading solutions remained solid in the third quarter.

In what is our seasonally slowest quarter, we ended calendar year 2018 with new business growth in both November and December and transitioned into the beginning of 2019 with an acceleration in new business activity for January, giving us a great start towards achieving what should be record revenue in our fourth quarter.

In the third quarter, our global fee revenue reached $475 million, which was up 10% year-over-year at constant currency.

This marks the sixth consecutive quarter in which we achieved double-digit revenue growth measured at constant currency.

Growth continued to be broad -based, with each of our operating segments benefiting from synergies realized by tying our solutions together.

At constant currency, RPO and Professional Search grew 19%; Executive Search grew 10%, and revenue growth for Advisory was 6%.

More importantly, our results in the third quarter continue to demonstrate the earnings power of our business, with adjusted EBITDA growing at a pace faster than revenue and adjusted EBITDA margin reaching a record high of 16.4%.

Adjusted EBITDA in the third quarter is approximately $78 million, which is an improvement of $6.3 million or 9% measured year-over-year.

And finally, consistent with our policy to maintain balanced approach to capital allocation, in the third quarter we repurchased approximately 353,000 shares of our stock, spending about $14.6 million.

And our board approved the declaration of a quarterly dividend of $0.10 per share.

In addition, as Gary mentioned, our Board of Directors approved an increase to our share repurchase program, bringing the amount available to repurchase under the program up to approximately $250 million.

Now turning to new business trends.

Globally, in the third quarter, Executive Search new business totaled approximately $191 million.

That's up 6% year-over-year, driven by strength in North America and EMEA.

For Advisory, global new business in the third quarter was $221 million, and that's up 5% year-over-year.

And we saw growth in North America, Europe and Asia Pacific.

And finally, in the third quarter, RPO and Professional Search secured $104 million of total new business.

That's the best quarter of new business so far in fiscal 2019.

Total new business consists of $78 million of long-term RPO awards and $26 million of Professional Search.

The $78 million of RPO awards consists of approximately $59 million of contract expansions and renewals with existing clients and approximately $19 million of new client contracts.

Now at the end of the third quarter, total cash and marketable securities were $623 million.

That's up approximately $94 million compared to the third quarter of fiscal '18.

Excluding amounts reserved for deferred comp and for accrued bonuses, our investable cash balance at the end of the third quarter was approximately $296 million.

That's up approximately $54 million year-over-year and $52 million quarter sequential.

The firm had outstanding debt at the end of the third quarter of approximately $223 million.

Last, adjusted fully diluted earnings per share in the third quarter were $0.81.

That's up $0.11 or 16% compared to the third quarter of fiscal '18.

On a GAAP basis, which includes the final month of the amortization of retention bonuses related to our acquisition of Hay Group, our fully diluted earnings per share for the quarter were $0.80.

I'm going to turn it over to Gregg now to review the operating segments in more detail.

Thanks, Bob.

Despite calendar year and holiday seasonality, fee revenue for Executive Search continued to grow in the third quarter, improving to over $193 million globally.

Compared year-over-year and measured at actual exchange rates, global Executive Search fee revenue grew $13 million or 7.2% in the third quarter and 10% measured at constant currency.

Growth for our Executive Search segment remained broad based.

At constant currency, North America was up 12%; Europe was up 3%; Asia Pacific was up 10%, and Latin America was up 34%.

By specialty market, growth was mixed in the third quarter.

Compared to the third quarter a year ago, at actual exchange rates, our financial services and technology practices were each up 25%; our industrial practice was up 7%; our life sciences and health care and consumer goods practices were down 13% and 3%, respectively.

The total number of dedicated Executive Search consultants worldwide at the end of the third quarter was 552, up 16 year-over-year.

Annualized fee revenue production per consultant in the third quarter improved year-over-year to $1.4 million.

And the number of new assignments opened worldwide in the third quarter was 1,608, which was up approximately 3% year-over-year.

EBITDA for the Executive Search in the third quarter was $48.2 million, which was up $10.9 million or 29% year-over-year.

The consolidated EBITDA margin for Executive Search in the third quarter of fiscal '19 was 24.9% compared to 20.7% in the third quarter of fiscal '18.

Now turning to Advisory.

In the third quarter, global fee revenue for Advisory reached $201.5 million, which was up 6% year-over-year measured at constant currency.

By geographic region, growth in the third quarter was strongest in both the Europe and Asia Pacific regions.

Similar to Executive Search, the Advisory segment was impacted by year-end holiday seasonality, where fewer working days resulted in fewer billable hours with clients.

As previously mentioned, to start calendar year 2019, global new business awards accelerated for Advisory.

January new business was up nearly 11% year-over-year, providing a solid backlog to begin the fourth quarter.

Advisory earnings and profitability trends also remained strong in the third quarter.

Adjusted EBITDA for Advisory was $38.2 million with an adjusted EBITDA margin of 18.9%.

Finally turning to RPO and Professional Search, where in the third quarter growth continued at a double-digit pace.

The RPO and Professional Search segment generated $79.6 million of fee revenue in the third quarter, which was up 19.4% year-over-year at constant currency.

All geographic regions continued to grow double digits in the third quarter, led by North America and Asia Pacific, which were up 23% and 20%, respectively, at constant currency.

As previously mentioned, in the third quarter the RPO and Professional Search segment secured a total of $104 million of new business consisting of $78 million of larger long-term RPO assignments and $26 million of smaller shorter-term Professional Search assignments.

Earnings also improved sharply in the third quarter for the RPO and Professional Search segment.

EBITDA in the third quarter was $13.1 million, with an EBITDA margin of 16.4%, which were both up sharply year-over-year.

I'll now turn the call back over to Bob to discuss our outlook for the fourth quarter of fiscal '19.

Great.

Thanks, Gregg.

Following the seasonally slower month of December, new business activity to begin calendar year 2019 has ramped back up.

January and February new business across all our operating segments has been strong, providing us with a solid backlog to start the fourth quarter, which in a typical year is our seasonally strongest quarter.

For Executive Search, global new business awards in the month of January and February combined were up 6% year-over-year, with growth in every region.

If monthly new business patterns are consistent with prior years, we expect March to be one of the best months for new business this fiscal year and that we will finish the year with a solid April.

For Advisory, the fiscal fourth quarter is also typically a seasonally stronger quarter where both backlog and new business awards combined with more hours with clients to execute assignments drives a quarter of strong revenue.

To start the fourth quarter, Advisory global new business awards for the month of January and February combined were up 6% year-over-year.

With regards to RPO and Professional Search, the number of large RPO contracts already in backlog are ramping up in the fourth quarter, and the pipeline of potential new business opportunities remain strong.

We expect both of those spec to combine -- on a combined basis will drive a stronger quarter of revenue growth.

Considering these factors and assuming worldwide economic conditions, financial markets, foreign exchange rates remain steady and assuming a 25% to 26% effective tax rate for the quarter, we expect our consolidated fee revenue in the fourth quarter of fiscal '19 to range from $485 million to $505 million.

And we expect our consolidated diluted earnings per share to range from $0.85 to $0.93.

When comparing to the fourth quarter of last fiscal year, it should be noted that our fourth quarter revenue guidance reflects a significantly stronger U.S. dollar relative to a number of currencies, including the British pound and the euro.

Finally, the amortization of retention bonuses associated with the Hay Group acquisition over 3 years ago ended in December of 2018.

Therefore, in the fourth quarter, there will no longer be adjustments to earnings per share presented under U.S. GAAP for this item.

That concludes our prepared remarks, and we're glad to take any questions that you may have.

(Operator Instructions) And our first question comes from Tobey Sommer with SunTrust.

This is Joseph Charles on for Tobey Sommer this evening.

I had 1 quick question about consultant productivity.

Last quarter, I think you referenced that consultant productivity is a lot higher in the U.S. than it is in a lot of the other countries in which you operate.

Are there any particular regions or industries that you'd like to highlight that you think you still have runway for growth?

Well, I think first, overall, when you say consultant productivity, I don't know if you're talking about our consulting business...

Executive Search consultants?

The Executive Search consultants, today it's about -- the overall global average is about $1.4 million or so.

Average fee per assignment is $125,000.

Obviously, we have a much -- a far-reaching footprint, probably more global than any other search firm.

So when you look at regions around the world, you're going to find a great disparity in the level of executive pay.

So our fee and our productivity is going to vary substantially from Mexico to China to Ecuador to Belgium to the United States.

And I would just say that when you look at it -- the overall average of $1.4 million, there is clearly room for productivity.

Now whether that is 15%, whether that's 20%, I'm not going to put an exact number.

But clearly, there is still headroom there.

Got it.

And do you see that headroom more so in your -- the developing markets you're in or the developed markets you're in?

I'd say -- no.

Look, it's in both.

I mean, just look at -- the -- when I started at this place, I think the average search fee was like, I don't know, $55,000 or $60,000.

Today, we're at $125,000.

Part of that has been wage growth.

Part of it has been our strategy.

But if you just look at the underlying dynamics, what are you seeing?

Well, you're seeing career nomads.

So new people coming out of college are going to work for 30 different employers.

So there is going to be more and more churn.

So I think that bodes very well for this company over the long term.

In the United States, there's 7 million unfilled jobs.

I mean, there is a ton of jobs out there, high-skilled, good-paying jobs.

We're seeing that in our RPO and Professional Search business, where the demand for talent is robust, and people are finding they're having to pay much more for talented people than what they thought.

Our next question is from Kevin McVeigh with Crédit Suisse.

Gary or Bob, kind of heading into the last kind of inflection point in this cycle, you folks did a real nice job of kind of acquiring assets that really proved to really differentiate the firm through this up cycle.

Any thoughts on that just within the context of boosting the buyback because it seems like a pretty sizable step-up in the buyback?

Just any thoughts on that relative to the acquisition strategy?

Is that just as a function of you got the footprint you need?

Just any thoughts on that it'll be super helpful.

No, we're going to continue to -- we've followed a pretty consistent playbook.

We've made 10 acquisitions over a 10-year period of time.

And we are continuing to follow that playbook.

And so we have to have a balanced approach to capital.

We have to think of stakeholders.

We have to think of our clients.

We have to think of our colleagues.

And we have to think of our shareholders.

And we've got to make sure we got a right balance.

So we did think that the buyback -- we only had about $50 million left.

And so we thought it prudent to raise that.

So I think you're going to see us have a very balanced approach to capital deployment.

But no, we very much have an appetite to make investments that would increase our breadth and depth.

And Kevin, this is Bob.

Just put it a little bit more -- a little more color on it.

When we first put the buyback authorization in place back in 2014, it was roughly somewhere between 10% and 12% of our market cap.

And so the number that we're at today is roughly the same.

Obviously, we're a bigger company today; and hence, you get the larger authorization amount.

Got it.

That's super helpful.

And then maybe, Bob, just any thoughts on -- within the context of the Q4 guidance, what gets it to the upper end of the range versus the low end and conversely on the EPS?

Just any kind of factors that would kind of swing it towards the upper end or the lower end?

Yes, I think the -- as we sit here today, what's going to push us towards the upper end of the range is our ability to convert our Advisory backlog into revenue is one factor.

They've had strong new business in Q2, strong new business in this past quarter, Q3.

And what we're seeing is that they sell larger engagements.

The conversion to revenue takes a bit longer.

We've also seen a bit of a change in mix in that business where the leadership development is a higher proportion of the mix, and that takes a little bit longer.

So our ability to actively manage -- proactively manage that and convert to revenue is one area.

I think the other area that's going to get us to the higher end of the range is in the RPO business.

They have sold a number of large engagements that we're standing up now, so our ability to execute against those successfully will help us get there as well.

Got it.

And then any sense of -- any color on kind of upticks across any segments or any thoughts around that?

No, we haven't seen much change in Executive Search and upticks.

It's been pretty consistent.

I mean, over the past couple of years, they've drifted up but not remarkably.

Where we're seeing a little bit more uptick activity on the positive side is in the Professional Search area.

Again, that is not remarkably different, but we're starting to see a little bit of upward advancement in Professional Search.

Our next question comes from George Tong with Goldman Sachs.

You indicated that your marquee accounts are growing at twice the rate of the overall business and that you're expanding the program to another 200 regional accounts, which would yield another $200 million in revenues.

Can you elaborate on the rollout of this expanded program and the timing of when this $200 million in incremental revenues will be achieved?

Well, the $200 million in revenue is from those existing -- it's the run rate, so it's from existing portfolio of regional accounts today.

So today, we've got 100 marquee accounts, and that represents about 20% of the company's overall footings.

We're now expanding that to include another couple of hundred accounts, where we would have dedicated account leaders, people that we are either recruiting from outside the firm that have account management responsibility -- experience or promoting from within.

And so today, the run rate on those 200 accounts without real dedicated account ownership would be $200 million.

So you could look at the whole piece of the dedicated account program and say today, okay, that's something like $600 million or 30% of the overall company.

So you would think about the growth from that kind of starting point.

And definitely, the marquee accounts, the performance of those accounts, the growth of those accounts has outperformed the rest of the portfolio.

Got it.

That's helpful.

In the Advisory business, the growth there decelerated from 11.8% constant currency in fiscal 2Q to 6% this quarter.

Can you help unpack the quarter specifically, if there were certain onetime items that weighed on growth?

And if not, what strategies you have to accelerate the growth?

Yes, I think -- George, this is Bob.

I think the -- if you go back to how I responded to Kevin's question, the conversion of backlog into revenue as we move our solutions to larger scale, those solutions does take a bit longer, so that had some impact.

And the change in mix of leadership development again take a bit longer to convert.

So that had some impact on us.

And then the only other piece is, if you look at the number of days in the way that the holidays fell this year, we had 1 less business day.

So that had, obviously -- if you're not working, you can't charge your time and generate revenue.

Got it.

Any other active strategies you have to improve the growth performance there?

Because it sounds like -- the exit rate for January, February sounds relatively comparable at 6% in terms of new business trends?

Yes -- no, it's -- I would say, it's okay.

I mean, am I satisfied with the growth?

No.

But when you look at it, today you've got an $820 million Advisory business that 10 years ago was 1/10 of the size.

But I think when you look at it at a moment in time and you say, okay, well, what do you have to believe, how do you get there?

Well, you look at the components.

We've got an organizational strategy component that's 10% of the company.

That has to be a much bigger percentage.

Being able to link business strategy with organizational strategy, so that has absolute runway.

The assessment and succession is about 12%.

We've got a lot of different instruments, and we've assessed 50 million people.

We can do anything from simulations to on-site.

I mean we've got great IP there.

If we were to pick something up, that's fine, but we're not out purposefully looking for that.

The leadership development area, if you look at the market opportunity, that's the biggest area.

I mean, when you look at the HR services, that is a substantial market.

And so for us today that's, call it, a couple of hundred million dollars business.

I mean, that's got a lot of headroom.

Then the other piece is rewards, which again is about 10%.

And so when you look at the business, one of the things that we have to solve for is to moving to bigger, more impactful engagements.

And so today, you'll find a lot of the volume is actually sub-6-digit engagements.

And a lot of that comes from the heritage of assessments.

And so we're doing thousands of assessments.

And so you have to believe that you can move that portfolio towards bigger, more impactful assignments.

And so when you looked this last quarter at the dollar volume, 50% of the new business was for engagements that were over $500,000.

So that's something you have to believe.

The whole reason for the account strategy, I mean, is for this very reason, is we have incredible relationships.

We're dealing with 10,000 clients a year, but the reality is only 18% of those are using us for one thing.

So you've got to have a purposeful strategy with dedicated leaders that are working those clients all the time, that are walking the halls.

That has to be something that you really have to believe in, and you've got to execute.

I think, finally, when I come to the North American market, we've got fabulous people.

We don't have enough people.

I mean, just plain and simple.

So the market opportunity is absolutely there.

And we've demonstrated that we can cross-introduce people from different parts of the organization.

The solution training that we're doing, the whole reason for that solution training is to get at the very question that you asked.

Our next question is from Tim McHugh from William Blair.

It is actually Trevor Romeo in for Tim.

So first just wanted to clarify, are those new businesses growth rates you provided for January and February in constant currency or is that reported growth?

And how much of an impact are you expecting from currency in the fourth quarter?

Yes, so the first question, it's in actual dollars the rates that we quoted.

If you go back and you look at sort of Q4 of last year, the rates that were in place at that point in time and you can kind of compare that to what we did for January, we did for February rate, and it's about 4 percentage point impact.

Okay.

Got it.

And then it seems like your revenue in Europe has held up fairly well despite kind of some of the softer economic data lately.

So what is your assessment of the demand environment there, given some of that recent economic weakness?

I think that's -- one of the strengths of the company today is that when people say the brand Korn Ferry you kind of think of one thing.

But the reality is the portfolio is way more balanced today than it was, say, a decade ago.

So you've got a products business that is definitely going to be less cyclical, for sure.

So you've got a different profile.

And even when you look at it on a regional basis, you would drive that same conclusion.

And so I'd even like -- look at new business in China in February, our search was down a little bit.

But guess what, we were up overall because we had a couple of other parts of the business that made up for it.

The European business, I think, is probably what I'm most proud of.

It's an incredible business.

In the U.K., believe it or not, I mean, the U.K. in the quarter grew -- this is again constant currency, but I think it's the most comparable way to do it.

It was up 14% in the quarter, so -- which you would find very, very hard to believe.

So I think it's the balanced nature of the portfolio between the consulting business, the products business, the RPO and the search business.

In Europe, there was weakness in France that you would probably guess even on a total portfolio basis.

But the U.K. has held up better than you would have thought.

Okay, great.

And maybe if I could just sneak in one more.

Have you seen any meaningful change in turnover in the Advisory segment since the Hay Group retention program ended?

No.

The business there is going to -- looks like the firm does today.

It's completely different.

So you've got an employee base that today is now 53% millennial.

And so for the company overall -- that's why we're on college campuses now recruiting.

I mean, we just had our winter start class.

We put them through 8 weeks of training, consistent training around the entire solution footprint of the organization.

They just graduated a couple of days ago.

That's why we're ramping that up in a very big way.

Because I really think that for young people coming out of graduate or undergrad, they're going to be career nomads.

And the challenge for any company is to identify the high potentials to develop.

I mean, that's a business opportunity actually for us.

Our next question comes from Greg Mendez with Baird.

This is Greg on for Mark Marcon.

I guess, first, just going back to the talent piece that you've been discussing, Gary.

With what you're trying -- with what your guys are accomplishing and building, how are you thinking about just the mix of the talent that you need to add?

You mentioned folks coming from college.

But the balance between experienced versus new-new and then given the labor environment, how tough is it to find right now those experienced folks?

Yes, it's definitely -- look, it's tough.

I mean, there's no doubt about that.

I think that the -- one of the things that we're very, very focused on is bringing people that have account management experience.

So that has -- we've got a big focus on that today, and that's something we're going to have to do.

I think secondly we have an eye on consulting talent that can sell and deliver bigger, more impactful engagements.

In other words, they can sell the integrated solutions.

So that the crossover between org strategy, assessment, succession, leadership, developments it's a more integrative business outcome solution.

And then the final piece that we have to get right is promoting from within because this does need to look like a professional services firm where you do hire lots of people off graduate or undergrad campuses and give them the right kind of development and the right kind of opportunity to grow.

And so that's not only for the consultants, it's for the entire organization.

But we have to have a real orientation on that.

That's why we've got all these solution training sessions scheduled.

To this day, we've got 330 of them scheduled.

It's to give everybody -- to try to give everybody a lens into pivot points around clients, how to broaden the conversation and all that.

That's great.

I know -- on the profitability side, you've done a really good job of continuing to expand the margins.

With the focus on marquee, with the focus on product, as we see your subscription model build over the coming quarters, I mean, how -- assuming the economy stays where it's at, how do you think about profitability then over the next 2, 3 years?

Or maybe just the aspiration if we can get -- if product goes to 40% or 50% of Advisory, for example, and we see the continued strength in -- from marquee accounts?

Yes, the way that we -- this is Bob.

The way we kind of manage our activity is, is we have this concept called flow-through, and we look at things on an incremental basis.

And so as an overall company, if our margins this quarter were 16.4%, so on the incremental revenues that we generate, if we're not driving margins on those dollars at the 20%, 25%, then we're not growing our profitability.

So we set targets for the whole company as well as for each individual line of business because they're all -- they have different profit profiles.

But we manage to the flow-through.

And generally, rule of thumb, I would set it somewhere between 20% and 25% overall for the company.

Okay, great.

And then just my last question.

I know you did the rebranding in a few other countries in January.

That continues to go on.

Just any update there on that initiative?

Listen, I think it continues to -- and we've got a playbook that -- it's like when we did the Hay acquisition, we put a playbook in place in the integration.

I mean, with a lot of hard work, but it went without a hitch.

And that's what we're seeing on the One Korn Ferry initiatives that we've got underway.

I mean, the legal entity rationalization, which is what you just referred to, we did 6 countries.

We're in the process of doing another 7 or 8 countries now.

And we've got it down to a science.

And so there is no -- other than to say it's just continuing.

And again, a lot of hard work, but we're not encountering any real issues or sticking points.

And our next question comes from Marc Riddick with Sidoti.

A quick question, I guess, maybe a pivot toward some of the things that we saw with financial services.

I was wondering if you could share some thoughts there because it certainly seemed as though, at least from a year-over-year perspective, that there was very strong growth there.

And then maybe if you could sort of touch a little bit on what that sort of continued as far as having growth that outpaced the rest of the company?

And then I had a couple of follow-ups there.

Well, when you look at the quarter, I mean, clearly, the 2 -- from an industry perspective year-over-year, you would look to financial services and technology.

And both of those were actually -- they were good in the Advisory -- financial services was pretty good in the Advisory, but actually both of them were driven in North America -- were driven by search.

So in particular financial services, we've got an incredible commercial banking business, investment banking business, asset management.

So there is not any single large engagement.

So I wouldn't point to anything that was, wow, this is -- this kind of one-off or anything, but it was good growth in North American search.

Is it fair to think about the pace of that part of the business being as strong as it is, to think that could have continued into the beginning of this quarter?

I don't have the confirms broken down by February.

I'll tell you overall for the search business it was kind of up 10%, I want to say.

Right?

But we don't -- I don't have it broken down by industry.

Again, I think -- it's kind of -- hopefully, we're building a company that is not binge or burst and that one part can kind of compensate for another.

That kind of growth -- I would not at all -- quarter-on-quarter, I wouldn't kind of factor that in by any means.

Okay, that's fair.

And then I was wondering if you could touch a little bit going back to the addition of expanding to another 200 accounts under the marquee program.

I was wondering if there is sort of a similarity or differences that you would call out as to the mix of that customer and maybe what it might look like, whether it be industry vertical or geographic?

Or is there any type of mixed differential for that next 200 accounts that we should be thinking about?

Well, there was -- there is definitely a series of streams that were run against the 10,000 clients that we have.

And so there was a very systematic process.

And so to -- out of the 10,000, we picked another couple of hundred more, where we really believe we have the opportunity for impact.

There wasn't -- and it would follow -- pretty much follow the geographic distribution of the company.

There wasn't any -- there wasn't something that was overweighted in terms of geography.

We hope to see more out of Asia.

So I would -- I have a personal bias there, but I wouldn't say there was anything overweighted.

And from an industry perspective, no, I mean, there are some practicalities.

I mean, our life sciences business is unbelievable.

I mean, we're -- it's almost 17%, 18% of the company, something like that.

It's got incredible penetration.

I mean, we have to be mindful how far that can go.

So maybe there is going to be a little bit less in life sciences.

But that would really be about it at a very, very high level.

Okay, great.

And then last one from me.

I was wondering if you could sort of give us a bit of an update on CapEx year-to-date and what you might be looking at for full year.

Got it.

Marc, it's Bob.

Our CapEx year-to-date -- and that includes stuff we're doing on the IT platform, what we're doing on leaseholds as well as some of the investments we're making into the products area.

To date, it's somewhere around $35 million.

And that I would expect on a run rate basis to continue through the course of the rest of this year.

We're just kicking off our annual operating plan process for fiscal '20 right now.

And so we'll set our thinking around capital for next year as we go through that process, but I wouldn't expect there to be a dramatic change, up or down, at this point in time, assuming the economy and everything holds as we see it today.

It appears there are no further questions, Mr. Burnison.

Please go ahead for any closing comments.

Okay.

Thank you, Anna, for moderating this and for everybody on the line.

Look, we're redefining an industry, creating a firm that possesses the right know-how, the science, the data and the offerings to help global organizations deliver superior performance.

So we're very, very proud of what we have here and what we're building.

And thank you for taking the time to listen to this call, and we'll talk to you next time.

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That does conclude our conference for today.

Thank you for your participation, and you may now disconnect.

Thank you, Anna.