Korn Ferry (KFY) 2022 Q2 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Korn Ferry Second Quarter Fiscal Year 2022 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 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 Act of 1994 -- 1995, excuse me. 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 expected or desired because of a number of risks and uncertainties, which are beyond the company's control. Additional information concerning such risks and uncertainties can be found in the release relating to this presentation and in the periodic and other reports filed by the company with the SEC, including the company's annual report for fiscal year 2021 and in the company's soon-to-be-filed quarterly report for the quarter ended October 31, 2021.

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 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 conference over to Mr. Burnison. Please go ahead, sir.

Thank you, Tom. Good morning. I'm pleased to report that Korn Ferry once again achieved all-time financial performance highs. Revenue was up 47% and our diluted and adjusted diluted EPS were $1.38 and $1.53, respectively. And our adjusted EBITDA margin was 21.1%. I think our performance over recent quarters has reached a new level of scale, and it speaks to the resiliency and agility of our colleagues as well as our operational excellence, amid a time of enormous transition and secular change. And this aligns with our businesses. Today, wherever and whenever strategy meets talent, Korn Ferry is at that cross section, enabling agility in a world that will undoubtedly be in transition for the next several years.

Our strategy in the new year will be to continue to innovate, replicate and scale, allowing people and organizations to exceed their potential in this rapidly changing world. Elements of our strategy will include driving a top-down go-to-market strategy through our marquee and regional accounts, which represent about 36% of our portfolio, and that not only facilitates growth but enduring partnerships, but is also key to more scalable and durable revenues. For example, in the quarter, about 30% of our revenue was driven by cross referrals within our firm, demonstrating the effectiveness of our go-to-market strategy. Although our search businesses, both pro search and executive search, combined represent about 45% of our revenue, we believe there's still substantial market opportunity ahead, given the acceleration of an increasingly nomadic labor market. It's one of the reasons we acquired the Lucas Group during the quarter, a move that adds breadth and depth to Korn Ferry's search portfolio.

Looking at our digital and consulting businesses, we will continue to innovate, marrying Korn Ferry's capabilities with tomorrow's opportunities from ESG to DE&I to M&A services. And we're also going to further push the monetization of our IP and move more of our digital business to a subscription offering. We're going to also scale our Learning Development Outsourcing, our LDO capabilities, leveraging our Korn Ferry Advance platform in which we now have completed 50,000 development and coaching sessions. And lastly, we're going to deploy a balanced capital allocation strategy, including a disciplined approach to M&A.

Looking ahead, I truly feel we have the strategy, the people, the diversity of solutions and expertise to help our clients drive performance in this new world. And our results clearly reflect this reality. We look forward to keeping up the momentum in the new year ahead.

And with that, I'm joined by Bob Rozek and Gregg Kvochak. Bob, I'll turn it over to you.

Great. Thanks, Gary. Good morning and good afternoon, depending on where you are in the world. Let me start with a few comments before I jump into second quarter results. So I've always felt that the best way to measure success is through performance. And if you look at our performance coming out of the COVID recession, it's really been and continues to be exceptional, and that's reflected in our Q2 results. There's no doubt that the world we live in has changed for good. Today, more than ever, our clients are facing unprecedented organizational and human capital challenges as workforces are transformed and digitized, as corporations are called upon, they have greater environmental, social and governance responsibilities, as organizations strive to have work environments that are inclusive and free from bias or even as companies are challenged to grow in a post-COVID environment. These are real secular changes, creating real and challenging business issues for companies across the globe. And it's a fact that no business issue has ever been solved without the involvement of people.

And that's really where Korn Ferry comes in. And that's our sweet spot. Our core and integrated solutions line up perfectly with the secular changes that companies across the globe are wrestling with today, whether it's finding the right talent in a dislocated labor market to accelerating the top line growth or to even keeping employees engaged, motivated, appropriately rewarded and retain in this new and evolving work and social environment. As these forces continue to shape the workplace, our clients, in growing numbers, continue to recognize the role that our people and our solutions play in helping them solve their most pressing business issues through their most precious asset, their people. I would also say that this is not our 15 minutes of fame. I mean these secular changes that we're all feeling are real and they are here to stay. In my view, I think I really believe that we're in the first inning of a long ball game. Now just as market demand has been strong, our execution has been stronger, driving our fee revenue, earnings and profitability to all -- new all-time highs.

Now I'm going to turn to Q2 results. So as Gary mentioned, fee revenue in the second quarter grew $204 million or 47% year-over-year and $54 million or 9% sequentially, reaching an all-time high of $639 million. Fee revenue growth in the quarter for our consolidated executive search business was up 59% year-over-year and up 9% sequentially, while our RPO and professional search business was up 76% year-over-year and 8% sequentially. Growth for our consulting and digital businesses was also very strong. Consulting grew 30% year-over-year and 11% sequentially, while digital was up 18% year-over-year and 10% sequentially.

Turning to earnings and profitability. They also grew to new highs in the quarter. Our adjusted EBITDA grew $69 million year-over-year and $13.5 million or 11% sequentially to $135 million with an adjusted EBITDA margin of 21.1%. Both are new quarterly highs. Our earnings and profitability continue to benefit from both higher consultants and execution staff productivity and lower G&A spend. Adjusted fully diluted earnings per share also advanced to a new high in the quarter, improving to $1.53, which was up $0.99 compared to adjusted fully diluted earnings per share in the second quarter of fiscal '21 and actually up $0.16 or 12% sequentially.

It's really interesting when you compare our business today through the first 6 months to the same period in fiscal year '20, and that's the pre-pandemic period just 2 years ago. Both our scale and our profitability are up dramatically. Our firm's fee revenue for the fiscal year '22, Q2 year-to-date period is up 25% with double-digit growth in every line of business. Our adjusted EBITDA over the same comparison period is up 67% at nearly 3x greater than fee revenue growth and our adjusted EBITDA margin is up 530 basis points to nearly 21%. Our earnings power has never been higher.

Now as I look at new business, that also accelerated in the quarter, reaching new highs for each of our lines of business. On a consolidated basis, new business awards, excluding RPO, were up 40% year-over-year and up approximately 8% sequentially. RPO new business was also extremely strong with a record $136 million of total contract awards. This consolidated record level of new business across the -- all of our business lines in the second quarter really provides us with a very solid backlog entering the fiscal third quarter.

Our investable cash position also remains strong. At October 31, the end of the second quarter, cash and marketable securities totaled $997 million. Now when you exclude amounts reserved for deferred compensation arrangements and accrued bonuses, our global investable cash balance at the end of the second quarter was approximately $591 million, and that's up about $133 million or 29% year-over-year. It should be noted that this investable cash position includes approximately $90 million that was used to acquire the Lucas Group on November 1. We continue to take a balanced approach to allocation of capital. In addition to the Lucas Group and investing in the hiring of additional fee earners and execution staff, year-to-date, we've repurchased approximately $14 million of our stock and have paid cash dividends of approximately $14 million as well.

With that, I'll turn the call over to Gregg to review our operating segments in more detail.

Thanks, Bob. I'm going to start with KF Digital. Global fee revenue for KF Digital was $88.6 million in the second quarter, which was up 18% year-over-year and up 10% sequentially. The subscription and licensing component of KF Digital fee revenue grew to $26 million in the second quarter, which was up 16% year-over-year and up 7% sequentially. Additionally, global new business for KF Digital in the second quarter grew 29% year-over-year to a new high of $114 million with $44 million or 39% related to subscription and license services. Earnings and profitability also continued to grow for KF Digital in the second quarter with adjusted EBITDA of $28.6 million and a 32.2% adjusted EBITDA margin.

Now turning to Consulting. In the second quarter, Consulting generated $164.9 million of fee revenue, which was up approximately $38 million or 30% year-over-year and $16 million or 11% sequentially. Fee revenue growth continued to be broad-based across all solution areas and strongest regionally in North America, which was up over 43% year-over-year. Consulting new business also reached a record high in the second quarter, growing approximately 17% year-over-year and 2% sequentially. Regionally, new business growth was also broad-based in the second quarter with continued strength in North America and improving trends in EMEA and APAC. Adjusted EBITDA for Consulting in the second quarter improved to $30.1 million with an adjusted EBITDA margin of 18.2%.

Growth for RPO and Professional Search continued to improve in the second quarter. Globally, fee revenue grew to $150.4 million, which was up 76% year-over-year and up approximately $11 million or 8% sequentially. Both RPO and Professional Search continues to take advantage of post-recession dislocation in the labor market for skilled professionals. RPO fee revenue grew approximately 69% year-over-year and 10% sequentially, while Professional Search fee revenue was up approximately 88% year-over-year and 5% sequentially. Sequentially, both the number of new search assignments and the average fee per assignment were up double digits for Professional Search. New business wins for both RPO and Professional Search were also extremely strong in the second quarter, reaching new all-time highs. Professional Search new business was up 13% sequentially, and RPO was awarded a record $136 million of new contracts, consisting of $28 million of renewals and extensions and $108 million of new logo work. Adjusted EBITDA for RPO and Professional Search continued to scale with revenue improving to $36.3 million with an adjusted EBITDA margin of 24.1%.

Finally, in the second quarter, global fee revenue for Executive Search reached another new all-time high of $235 million, which was up 59% year-over-year and up 9% sequentially. Growth was also broad-based and led by North America, which grew 74% year-over-year and over 14% sequentially. Fee revenue in our international regions remained steady in the second quarter. EMEA and APAC were up approximately 34% and 36%, respectively, measured year-over-year and essentially flat sequentially.

We continue to invest in expanding our team of consultants in the second quarter. The total number of dedicated Executive Search consultants worldwide at the end of the second quarter was 570, up 58 year-over-year and up 5 sequentially. Annualized fee revenue production per consultant in the second quarter improved to a record $1.66 million and the number of new search assignments opened worldwide in the second quarter was up 37% year-over-year and 5% sequentially to a new all-time high of 1,830. In the second quarter, global executive search adjusted EBITDA grew to approximately $66 million, which was up $38 million year-over-year and up $4.5 million or 7% sequentially. Adjusted EBITDA margin in the second quarter was 28.1%.

Now, I'm going to turn the call back over to Bob to discuss our outlook for the third quarter of fiscal '22.

Great. Thanks, Gregg. As I mentioned earlier, new business in the second quarter grew to a new all-time high, and it actually accelerated each consecutive month in the quarter, and that positions us with a very strong backlog entering our third fiscal quarter. In fact, as we ended the quarter, October and September were our first and second highest new business months ever. While our third quarter is usually our most seasonal quarter, both our clients and colleagues take time off during the year on holiday season. However, November was also an excellent month for new business actually eclipsing September as the second highest month ever. That was up 37% year-over-year. Now monthly trends in each of our lines of business are consistent with our historical patterns and the market conditions remain strong.

We would expect December to be seasonally slower than November, with demand accelerating and peaking at a quarter high in January. Additionally, we will continue to make investments in consultants and execution staff to fuel future growth, and we expect employee productivity to remain strong and G&A spend to remain at current levels in the third quarter, keeping both earnings and profitability strong.

Now assuming no new major pandemic-related lockdowns or changes in worldwide economic conditions, financial markets and foreign exchange rates and including fee from the Lucas Group, we expect our consolidated fee revenue in the third quarter of fiscal '22 to range from $640 million to $660 million, and our consolidated adjusted diluted earnings per share to range from $1.42 to $1.58, while our GAAP diluted earnings per share should range from $1.38 to $1.56.

As we look ahead to the new year, we see a great opportunity to continue to build on our strong financial performance. Based on the strength or, I should say, the continuing strength of our new business trends, it is evident to us that our portfolio of solutions will have a continuing relevance as companies address the secular changes I previously discussed. We will continue to execute at a high level, and there is little doubt that we are well-positioned to take more than our fair share of the growing market. Korn Ferry has never been better positioned to serve all of its constituencies: colleagues, clients, candidates and shareholders for years to come.

With that, we would be glad to answer any questions you may have.

(Operator Instructions) Our first question today will come from the line of Tobey Sommer, representing Truist Securities.

I was wondering if you could comment about the benefits of building out your Professional Search capabilities and if you could continue to add to it. Is there anything in the marketplace that in terms of having a bigger established rein in the marketplace that could help because I think that's a relatively fragmented market?

It is. It's a very, very fragmented market, and it's a sizable market and against the backdrop of a nomadic labor market where people work at a company for a year or 2 and move on and upscale and parlay salary and benefits. We really see an incredible opportunity. And the brand of Korn Ferry is very, very powerful. And we think that, that combination, along with our IP and our people create a sizable opportunity for Korn Ferry. And today, on a run rate basis, that Professional Search piece of our RPO and PS business is probably running about $350 million, and we easily see that as a $1 billion business for us. So we're going to continue to invest in all of our search businesses and in particular, Professional Search. And that could also incur interim work and possibly even high-level staffing as well.

And Tobey, the only thing I would add to that is the access that our search folks provide to us and we've seen it in each of the acquisitions that we've done, elevates our ability to perform as well because the companies that we're acquiring just simply don't have the access that our folks do.

Yes. That that's a very, very good point, Bob. Because when you look at the -- when you look at the cross referrals in the quarter, on a dollar basis, it was an all-time high. And out of the $640 million or so of revenue, about $173 million of that represented cross referrals. And those are real dollars that our colleagues get paid off of for cross referring business. And when you look at our RPO and PS business, that's typically 40%, 50% of the revenue in any given quarter is actually referred from inside the network. That's an excellent point, Bob.

Could you talk a bit about inflation, both in terms of how it helps your top line across different businesses as well as what you're seeing internally, and your need to kind of stay competitive with internal compensation as well?

Yes. It's certainly unlike anything I've ever seen. When you look at the trend, the nature of many companies' workforces today, then the outlook of younger people entering the workforce, it's just -- it's night and day from when I started years ago, a completely different perspective. If you look at our -- take our average fees, for example, on Professional Search, they're probably up 18%, 19% over the last 4 or 5 quarters. On the Executive Search side, they're also up probably 12%, 13%, 14%, something like that. And I think that reflects what you're seeing in the market today around inflation and wage pressure. We've also raised prices across the board, Whether it's our Consulting business or Digital businesses, we've had to increase our price points. And then internally, for our colleagues, we've also -- I mean, the amount of raises that we've given over the last 12 months is 3x higher than we've ever done. So I think that we're taking a balanced approach to making sure that we are being rewarded for the value that we deliver to clients, and also passing that on to not only our shareholders but, as important, to our colleagues.

Last one for me. If you could comment on what the continued acquisition pipeline looks like, so that you're able to deploy your ample balance sheet and business return.

Yes. That's a good question. We certainly have a big eye towards the Professional Search market. It's something that, as you asked the question, it's opportunity, it's a fragmented market. Korn Ferry's brand is phenomenal. And so we continue, as we have, to look at ways that we can grow that business. The Lucas Group is a company that I met probably 15 or 16 years ago. And it's one that we have periodically stayed in contact with, and we're thrilled to make that investment and have those colleagues now join Korn Ferry. And so I think that given our legacy Professional Search business we have, combined with the powerful platform of the Lucas Group, it's really a solid foundation to grow that business. So that's clearly one.

The second is, I do believe that there's an opportunity to create an LDO business here, much like we did in RPO years ago. When you look at, again, the mega trends in the world and you look at increasing level of turnovers at companies, you can maybe partially solve that through compensation, but that's really not the answer. People want to grow. They want to be developed. They want to be stimulated. They want to know that what they do matters to another human being. And I think the development, whether that's coaching, that can go a long way to, I think, reducing turnover, and that makes a huge impact on a company's P&L. There's a hidden cost on every income statement called turnover. So we see, with our IP that we have, just a phenomenal opportunity to replicate what we did with RPO to do it in the learning space. So those 2 areas certainly come screaming off the page. And then we're also looking at other areas such as our Consulting business or Digital businesses. So we're going to -- we had a very systematic approach to M&A, and we're going to continue that.

Next, we'll go the line of Tim Mulrooney, representing William Blair.

You were helpful in sharing with us what percentage of your Professional Search clients or, I guess, what percentage of your Professional Search business is referred from the Executive Search business. I was wondering if you could also comment on how many Executive Search clients don't currently use Professional Search services but could benefit from them.

So a huge amount. I mean, I don't have the data in front of me, but it's enormous.

It's not saturated?

No, no, not even close. And so, okay, the opportunities there. So how do you go about that? Well, the first answer to that is through our marquee and regional accounts, driving loyal sustaining clients at scale. And today, we have about 350 marquee and regional accounts. It represents about 36% of the portfolio. And that would be the first lever that we pull. But no, there's -- it is far from saturated in terms of the penetration there.

Okay. All right. Well, that's helpful. Did Lucas Group -- did that include some temp staffing as well, like 2/3 professional staffing. Was this [intended]? Is that something that you guys would look at, is temp staffing an attractive spot right now? Are all the companies are up a lot, it's very busy, or there's a dislocation there, too? Is that something you guys would look into getting further involved in?

Absolutely. Yes. We do believe there's an opportunity there. Again, against this nomadic labor market, it's for sure. And I think that coming through this pandemic and now not only digitizing everything but work anywhere anytime, that is going to play very, very well into that trend. So yes, we did pick up a very good base of interim staffing business, and we're going to continue to drive that, which is new for Korn Ferry. I mean both of these areas really -- I mean, we've been in the Professional Search business for years. But both of these areas really speak to a new opportunity for our firm.

That's interesting. I wasn't sure how you were going to answer that. Yes, I mean, that makes perfect sense. Just one more for me. Within your Executive Search business, both Pro and Executive, I guess, within your search businesses, both of them, I was hoping you could talk in a little more detail about how the volumes trended through your fiscal second quarter here? I mean, did they -- essentially, did they continue to accelerate month-over-month throughout the quarter? Or was there a little more choppiness in those numbers?

Bob, do you want to answer that?

Yes. I'll take that. Listen, the volumes in line with our overall new business did accelerate throughout the quarter and actually continued in the month of November. The month of November is in terms of the search volumes, it was our highest volume in terms of units that we've ever head. So we continue to see great volume, great levels of searches being won by our folks.

We will go the line of George Tong with Goldman Sachs.

You touched on continued traction with your marquee and regional accounts this quarter. Can you elaborate on broader cross-selling activity among these larger accounts? And how much opportunity remains as well as what that means for potential market share performance?

Well, the marquee and regional accounts represented about 36% of the portfolio. If you look at world-class professional services firms like ours, you will find that number on (inaudible) house accounts would be 40%, could be as high as 45%. We continue to have -- that's our first strategic lever. The performance of those accounts outperformed the portfolio again. And then in terms of the cross referrals, this was the highest dollar amount of cross referrals that we've had in a quarter. And like I said earlier, those are real numbers. Our colleagues are rewarded, both on the spot, on an ongoing basis as well as when they evaluate end-of-the-year performance. So both of those aspects of our strategy, we're locking -- definitely locking the [TAM].

And George, this is Bob. I would also add, when you look at the opportunity there, I mean, as we think about the cross line of the business referrals to be excellent in that area, you're achieving a 35% to 40%, that -- then you're really hitting your seats fast. I look at what we've done over time, go back to FY '18, we were at 14%. Year-to-date, we're at 28% -- a little bit north of 28%. So obviously, we've grown that nicely, and there's still -- to get to 40%, there's still ample opportunity for us to grow the cross line of business referrals. The other thing I would add as well is if you look at -- what I find really encouraging, a lot of the referral activity historically had gone from Executive Search to the other lines of business. Again, going back to FY '18, the referrals into Executive Search were only 3.6%. Today, it's closer to 10%. So again, we made some great progress there in terms of sort of cross-fertilization across all lines of business.

Got it. That's helpful. You've continued to deliver significant EBITDA margin expansion in the current environment. How are you thinking about the long-term structural margin opportunity at Korn Ferry? And how has the pandemic changed your overall underlying cost philosophy?

Gary, you want me to jump on that?

Yes. Yes. Appreciate it.

Yes. So George, I think in the last couple of calls, we had talked about some of the key drivers to the structural change, whether that was how we enabled the execution of our services, our BD, kind of internal meetings, travel and our real estate. And we said that we saw it was a 200 basis point improvement. So historically, we talked about a 15% to 16% sort of long-term range, and we bumped it up to 17% to 18%. And now that we've got sort of 3 quarters under our belt, we actually think that it's closer to 18% to 19% in terms of the structural changes. You saw in the quarter, we took a charge for our real estate strategy. Where we are today on that, we've reduced about 20% of our overall footprint. We still have some -- a little bit of work to do there. My guess is by the time the dust settles, it will be down probably 25% plus/minus. And so that will be obviously permanent structural change that we have on the BD, the travel and internal meetings. We were doing $11 million a quarter, I think going forward, we were at 1 -- over the past couple of quarters, 1 to 2, that will probably settle in right around 5, 5.5. So again, permanent structural change.

And I think just the scaling of the business and the productivity of our folks driven by the ability to work virtually, that's going to be permanent structural changes. That's one of the things that I do for every quarterly call, I reach out to partners in the firm. I was talking to a couple of search partners last week, and they were commenting on the fact that they believe they're going to be able to conduct more searches, the close time with the searches is faster. So I think the impact of working virtually is going to be, again, more structural change. And that's why we've elevated our long-term sort of EBITDA margin outlook to 18% to 19%. And then, given where our top line goes, if Digital achieves what we expected to achieve, I mean, there could be upward pressure on the 18% to 19%.

Next, we'll go to the line of Mark Marcon with Baird.

Congratulations on the great quarter. I'm wondering, Gary, I want to just start on a big topic. If you get more into a temporary staffing, it has a certain market perception and Korn Ferry has an elevated market perception related to Executive Search and Consulting. Can you frame a little bit about how you're thinking about the types of temporary staffing that you could potentially get into, and how you would protect the franchise and the brand name?

Well, you're absolutely right. It's -- number one, it starts with the quality of delivery. But we would be definitely focused on the more higher end of that marketplace. We would not see ourselves going -- and I hate to use this term, but downmarket, we would not be doing that. We would certainly be focused on skilled positions and probably around 3 or 4 functional areas such as legal, such as finance and accounting, such as certain aspects of technology. But we would say, as you indicated, at the higher end, for sure. No question about that.

Great. And can you talk a little bit about Lucas Group? I mean, obviously, it was just completed on November 1, but -- and so early, but what is the initial reaction? And what's embedded in terms of the guidance in terms of their contribution? And what -- how should we think about the annualized run rate?

About $100 million a year without taking into account the growth synergies, so call it, today, $25 million a quarter. I had indicated it's a company that I met with -- I met with Art Lucas probably 16 years ago and was always enamored by their -- the brand that they have in the marketplace. They started more on the military side and over the years have evolved into technology, finance and accounting, legal, supply chain technology. And so it's a very, very balanced portfolio. And it really speaks to the handful of functional areas that Korn Ferry would have an interest in. And there was an earlier question, part of their business -- less than 50%, but part of their business is around interim placement, which we were also attracted to.

And in terms of the success so far, we're only one month into this, and we've already seen some very, very nice wins, and including a couple of wins actually for our Executive Search colleagues that came from the Lucas Group, and I can think of one that was very, very sizable for Korn Ferry, say, 2.5x to 3x the size of our average fee. So it's -- we're off to the right start for sure. I think they've got just fantastic people. And I think this is the beginning. I think with Lucas Group and our Pro Search business, and the reaction inside the firm has been incredibly positive. And all of the physical meet and reach that we've done so far, very, very well. And more importantly, we've seen rims in the marketplace. And I think that, hopefully, the Lucas Group colleagues, they like the power of the Korn Ferry family.

That's great. And Gary, we've both gone through multiple cycles. How are you thinking about the -- I completely agree with you with regards to -- we've got a number of behavioral changes that we can observe about the baby boomers that are retiring. But obviously, there's also some peakish-type behavior out there as well. So how are you thinking about it just in terms of where you think we are? And then how are you thinking about the capital deployment, because you obviously have the capital to deploy? So how careful would you be at this stage?

Yes. We're certainly not going to -- we certainly wouldn't reach. That's for sure. I can speak to somebody that I know very well, who's graduating from college, who hasn't even started, and she's going to work for a professional services firm in the summer and has already seen 2 raises before she's even started. So it's a market that is unlike anything I've seen. I mean, the big wild card is inflation. That could be the real chiller. And it is definitely not transitory. It's certainly widespread. So that is -- I think that is probably the biggest risk next only to geopolitical risk. We haven't seen anything in terms of this new mutation in terms of the impact on the new business, it could. But I would say that younger people coming out of college today have just a completely different outlook on opportunity and careers that I certainly did not have. And I think that, that nomadic labor market spells opportunity for Korn Ferry.

Yet at the same time, you're right, we've seen a number of different cycles. And I'll tell you, just going back 2 years, December of '19, if you would have told me that there was going to be a global pandemic, and we would have lost so many lives and so many people who are being afflicted by this common enemy and society would go through all of this and on our business, we had furloughed employees, we asked people to take pay cuts and we would repay all of those pay cuts, we would hire back substantially all of those employees, and our business would be 30% higher, who would have guessed it. So it's certainly hard to predict the future. But I think inflation is probably the biggest question that's out there, Mark.

And obviously, you are able to more than pass along all of that.

Yes. We're certainly -- fortunately or unfortunately, we're doing that. And you just look at the data in the Professional Search and Executive Search business, in terms of the average fees. I mean it's absolutely reflective of not only the strategy, but clearly, it's reflective of the inflationary environment we're in.

That's great. Can you talk a little bit about capacity? I mean, obviously, business is booming. How stretched do you currently feel? How should we think about internal adds and just deploying capital to recruit more people organically?

Well, we're going to continue to deploy capital to recruit people on all aspects of our business. We've probably never been as aggressive as we are right now. So we're going to continue to do that. I think we've got a good track record of bringing new colleagues and onboarding them. So we're going to absolutely continue that. In terms of our colleague count, we're actually a little bit higher than we were pre-pandemic. So I think that we've gotten the right balance there in terms of our capability. Clearly, the ability to execute on engagements, just like we're looking for fee earners, we're certainly continuing to pay out execution resources. Our turnover is substantially less than what I would consider a world-class professional services from the (inaudible). So I'm not going to disclose it, but our turnover right now, so far this year, is only [300] basis points higher than it was, say, before the pandemic. So that's good news as well.

That's great. And then with regards to Consulting and specifically Digital, can you talk a little bit about some of the new wins and what you're most excited about? And what is -- what seems really promising?

Well, the -- I think we have unlimited IP. And the question is, can we take that IP and configure it to improve an organization's retention of their people. And whether that's retaining people another year, 6 months, 2 years, it has an enormous impact. So that's absolutely our intent. And I can think of an engagement that I -- very, very recently, a major technology company, where it's an 8-figure engagement, that's principally Digital, where they license our IP to improve their effectiveness. And so -- and that came about -- that part in part came about because of our marquee and regional accounts strategy. It came about because of an acquisition that we did before the pandemic. So I think that's pretty indicative of what we can do there. And I think the other area is the LDO capability and to take our IP and to license that to companies to develop their people. And through the KF Advance platform, we've done 50,000 individual coaching and development sessions. So what started out as a B2C business actually has turned out to be an incredible technology platform that, coupled with our IP, companies can use to develop their people at a pretty cost-effective way.

That's great. And yes, that 8-figure deal that you have with that specific company is pretty exciting. Do you see others that could be like that coming in the near future?

Well, we don't -- look, that's a huge win. It's -- we do have a good pipeline. And we'll see. I think that our IP is second to none. I mean if you look at -- we develop 1 million professionals a year. We've done 70 million assessments. We have incredible learning journeys, whether those are anchored around DE&I or ESG. I mean it's pretty robust. And I think part of it comes down to CEOs. Will they recognize that there's other ways than just money to keep people engaged? And I think at a time where people are going to be increasing -- increasingly nomadic, the real risk for companies is that in this hybrid world that employees become kind of free agents. And it's hard to leave other people. It's easy to leave companies, but it's harder to leave other people. And the risk is, in this hybrid world, are people going to become -- are they going to feel increasingly like they're free agents. And there's no loyalty to a brand, to a company. And there are ways that CEOs can address that and it's not just money. And I think that potentially using Korn Ferry's IP, whether that's for coaching or whatever, is one way that can have an impact on turnover.

And Mark, this is Bob. Just so it's clear, the engagement Gary was talking about actually is, it's going to be a subscription. So It'll -- the 8-figure will be realized over 3 years.

Yes, I know about that one.

And then the LDO one that Gary was talking about, those are also 8-figure engagements that are going to be realized over 2, 3, 4 years.

That's great. And lastly, just on the RPO new business lines, you mentioned a number of new logos. Were those new logos former RPO users? Or are they brand-new to RPO?

I don't have the exact split on that, Mark. But my guess is it's probably in the kind of 50-50 range where we're stepping in, and roughly half of them taking over from another provider. And then the other half is just there's -- what we're seeing in the marketplace is a growing acceptance of handing over your talent acquisition activities through an outsourced provider.

Gentlemen, there are no further questions at this time.

Okay. Well, thank you, everybody. I sincerely wish everybody a Merry Christmas, Happy Hanukkah, Happy Holidays and we look forward to speaking to you in the New year. Thank you very much. Bye-bye.

And ladies and gentlemen, this conference will be available for replay starting this afternoon at 4:00 p.m. Eastern, and running through December 14 at midnight. You may access the AT&T Executive playback service at any time by dialing (866) 207-1041 and entering the access code of 4258773. International participants, you may dial (402) 970-0847, and use that same access code of 40258773. Also, the replay will be available for playback at the company's website at www.kornferry.com in the Investor Relations section.

That does conclude our conference for today. Thank you for your participation using the AT&T Executive Teleconference. You may now disconnect.