Korn Ferry (KFY) 2022 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by, and welcome to the Korn Ferry Fourth Quarter and Full 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 conference over to your host, Mr. Gary Burnison, let me first read the 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.

Additional information concerning such risks and uncertainties can be found in the release relating to this presentation and the period -- and in the periodic and other reports filed by the companies with the SEC, including the company's soon to be filed annual report for the fiscal year 2022.

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 direct comparable GAAP financial measure is contained in the financial presentation and earnings release relating to the call both of which are posted in the Investor Relations sections of the company's website at www.kornferry.com.

With that, I'll turn the call over to Mr. Burnison. Please go ahead, Mr. Burnison.

Thank you, Toni. Good afternoon, everybody, and thanks for joining us. As I look back on the last 12 months, our vision to become the premier organizational consultancy is clearly working. And for that, I'm incredibly proud of our company, of our colleagues and all of our accomplishments. Our performance has been outstanding.

During the fourth quarter, we generated $721 million in fee revenue, a new high, up 33% at constant currency and our profitability was also very strong. And our performance has been consistent. For example, our 10-year CAGR has been 13%, while our 20-year CAGR has been 10%. And during this time, we've seen our top line grow by more than 7 fold.

A major account strategy that now represents 36% of our portfolio, consulting and digital capabilities that represent 38% of our firm an integrated go-to-market strategy One Korn Ferry that has resulted in almost 30% of our revenue coming from cross line of business referrals, a new Korn Ferry that trains and develops over 1 million professionals a year. A compensation and rewards advisory, a digital offering with comp data on more than 25 million executives, a new interim transition management and staffing capability with over $110 million of annual revenue on a run rate basis and the continued execution of our balanced, disciplined approach to capital allocation.

And yet with this transformation, we're still at the very beginning of what Korn Ferry will be, and therefore, with much tangible opportunity ahead. The world and our clients have entered a new reality, a fight for not only growth but relevancy and profitability. Based with this reality, clients will have to rethink all aspects of their strategy, including their organizational, leadership and talent components needed to drive success.

We're also in an era in which shortages of skilled labor are projected to persist. If history repeats itself, the labor participation rate will unlikely reach the level it was before the pandemic, thereby, compounding the current supply-demand imbalance.

We've also used this time of change as an opportunity to continue to evolve our strategy and reimagine our business. This includes broadening the scope of our offerings in Professional Search and Interim Services with 2 strategic acquisitions in the last 6 months alone. Today, boomers are retiring and career nomads are looking for change early -- and our strategic moves, approach and offerings reflect this dynamic.

We're going to continue to invest heavily in expanding our suite of technological and digital capabilities, helping to transform the way our clients succeed in this new world. To fulfill our vision and further position our company for long-term success, we remain relentlessly focused on meeting the evolving needs of our clients, which includes continuing to drive an integrated go-to-market strategy through our marquee and regional accounts.

This not only facilitates growth, but is also the key to more scalable and durable revenues. Our 350 marquee and regional accounts continue to demonstrate the power and value of these relationships, generating more than $950 million in revenue last year utilizing our global capabilities even during differing economic periods.

Looking to the fiscal year ahead, I truly feel we have the right strategy with the right people, the right time to help our clients drive performance in this new world. Korn Ferry is indeed poised for even greater things to come.

And before I turn the call over to Bob Rozek and Gregg Kvochak, let me just say that our thoughts continue to be with those in the Ukraine, including our colleagues as well as those that have been impacted by the senseless and tragic shootings over the last several weeks. With that, Bob, I'll turn it over to you.

Great. Thanks, Gary, and good afternoon or good morning, depending on where you are in the world. As Gary said, we've entered a new reality in the world of work, an era where social, political and demographic shifts have created what are projected to be permanent shortages in skilled labor and really changing attitude towards how and where work is done.

The reality is in the post-COVID economy, regardless of level of economic activity, we anticipate many of these changes are here to stay and will force organizations to reevaluate all aspects of their talent strategy. And as I'd like to tell everybody, this is not our 15 minutes fame. The changes that I'm speaking about are real and they're here to stay.

And with our unmatched collection of talented colleagues, intellectual property, data, other assets, we are uniquely positioned to partner with our clients and lead them through their talent transformation journey. Our portfolio of solutions have never been more relevant in our top line more durable. We are thriving in today's new world harvesting years of investment in intellectual property, people, data and processes, and we're well positioned for sustained future success backed by a powerful brand and a proven operating model.

I often say the best way to measure success is through performance. And when you look at our Q4 and full year FY '22 performance, I mean, it really is the definition of success and it's indisputable proof that we are executing the right strategy and that it's a winning strategy.

Now in the fourth quarter, we once again achieved new highs for new business fee revenue, adjusted EBITDA and adjusted diluted earnings per share. Fee revenue reached a new high of $721 million that was up $166 million or 33% year-over-year at constant currency and up $40 million or 6% sequentially.

Nearly every line of business achieved a new fee revenue high led by RPO and Professional Search and Executive Search, which grew 77% and 22%, respectively. Growth for our Consulting and Digital businesses was also strong year-over-year at 13% and 11%, respectively. And then for all of fiscal '22, our consolidated fee revenue grew over 45% to a new high of $2.63 billion.

New business also reached a new quarterly high in the fourth quarter for the whole company as well as for nearly every line of business. By month, strong new business in February was actually followed by an all-time record month of March in a very strong but sequentially lower April, which is kind of our normal seasonal pattern in the fourth quarter.

RPO new business remained exceptionally strong in the fourth quarter with $213 million of new contract awards, easily the best performance to date. Our earnings continue to scale with the revenue growth. Adjusted EBITDA grew over $31 million or 28% year-over-year to $144 million with an adjusted EBITDA margin of 20%.

Our earnings and profitability continue to benefit from both higher consultant and execution staff productivity as well as our disciplined G&A spending. And these efficiency drivers throughout fiscal '22 helped grow our adjusted EBITDA to $539 million with a 20.5% adjusted EBITDA margin.

And finally, our adjusted fully diluted earnings per share also reached a new high in the fourth quarter and for the full year of fiscal '22. Fourth quarter adjusted fully diluted earnings per share grew to $1.75, improving $0.54 or 45% year-over-year and 10% sequentially. For all of fiscal '22, adjusted fully diluted earnings per share grew to $6.23, which was up $3.72 or nearly 150% year-over-year.

Our investable cash position remained strong. At the end of the fourth quarter, cash and marketable securities totaled about $1.2 billion, and when you exclude amounts reserved for deferred compensation arrangements and accrued bonuses, our global investable cash balance at the end of the fourth quarter was approximately $605 million.

Our capital deployment in both the fourth quarter and for all of fiscal '22 continues to demonstrate the disciplined execution of our balanced capital allocation policy. Now in the fourth quarter alone, we repurchased 1,035,000 shares of stock and used about $67 million to do that, paid a cash dividend of about $6.8 million, and we deployed $42 million for the acquisition of the Patina Solutions Group.

For all of FY '22, we repurchased about 1.47 million shares of stock using about $99 million in cash. We paid cash dividends of almost -- of approximately $27 million and deployed about $134 million for M&A. Additionally, we funded $46 million of capital expenditures, most of which was directed to development activities for our emerging digital business.

And finally, I'm pleased to announce that our Board of Directors has recently approved the authorization of an incremental $300 million for share repurchases and a 25% increase in our quarterly dividend, raising it to $0.15 per share. Continued investment in the business, effective deployment of cash, strong cash generation and a resilient balance sheet positions us extremely well for the future.

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

Thanks, Bob. Starting with KF Digital, global fee revenue for Digital was $89.5 million in the fourth quarter, which was up 11% year-over-year. The subscription and license component of KF Digital's fee revenue continued to grow in the fourth quarter, reaching $29 million, which was up nearly 21% year-over-year and was approximately 32% of revenue for the quarter.

Global new business for KF Digital was approximately $107 million with 36% or $38 million of the total coming from subscription and license sales. Earnings and profitability also remained strong in the quarter even as investment hiring and dedicated sales professionals and other product development initiatives accelerated.

In the fourth quarter, Digital generated adjusted EBITDA of $27.7 million with a 31% adjusted EBITDA margin. For all of fiscal '22, Digital fee revenue grew 22% to $349 million and generated $110 million of adjusted EBITDA with a 31.5% adjusted EBITDA margin.

Now turning to Consulting. In the fourth quarter, Consulting fee revenue grew to a new high of approximately $174 million, which was up approximately $20 million or 13% year-over-year. Fee revenue growth continued to be broad-based across all solution areas and strong regionally in North America and EMEA, which were up 24% and 11%, respectively.

Consulting new business also reached a new high in the fourth quarter, growing approximately 13% year-over-year. Regionally, new business growth was strongest in EMEA and APAC, which were up 37% and 9%, respectively. In the fourth quarter, adjusted EBITDA for Consulting grew to $30.7 million with an adjusted EBITDA margin of 17.6%. For all of fiscal '22, Consulting fee revenue grew 26% to a new high of $650 million with an adjusted EBITDA growing over 42% to approximately $116 million with a 17.9% adjusted EBITDA margin.

The growth of our RPO and Professional Search business remained extremely strong in the fourth quarter driven by the widening supply-demand imbalance for top-scale professionals in the post-COVID environment. Globally, fee revenue grew to $213.5 million which was up 77% year-over-year and up approximately $25 million or 13% sequentially.

RPO fee revenue grew approximately 43% year-over-year and 14% sequentially, while Professional Search fee revenue was up approximately 142% year-over-year and up 12% sequentially. In the fourth quarter, we began the integration of Patina a provider of senior level executive professional talent on an interim or project basis. Patina was acquired on April 1 and generated approximately $4.1 million in the last month of our fiscal fourth quarter.

New business wins for both RPO and Professional Search were also very strong in the fourth quarter, reaching new highs. Professional Search new business was $108 million and RPO was awarded $213 million of new contracts consisting of $44 million of renewals and extensions and $169 million of new logo work.

Adjusted EBITDA for RPO and Professional Search continued to scale with revenue improving to $50.8 million with an adjusted EBITDA margin of 23.8%. For all of fiscal '22, RPO and Professional Search also achieved new highs for revenue, earnings and profitability with $692 million of fee revenue, up 87% year-over-year and $165 million of adjusted EBITDA with a 23.9% adjusted EBITDA margin.

Finally, fourth quarter global fee revenue for Executive Search grew to $244 million, which was up 22% year-over-year to a new quarterly high. Growth was also broad-based with North America up 20% and EMEA and APAC up 20% and 28%, respectively. Global new business for Executive Search was also strong in the fourth quarter, up 19% year-over-year to a new high.

We continue to invest in expanding our team of consultants in the fourth quarter, the total number of dedicated Executive Search consultants worldwide at the end of the fourth quarter was 587, up 63 year-over-year and up 6 sequentially. Annualized fee revenue production per consultant in the fourth quarter remained strong at $1.67 million and a number of new search -- and the number of new search assignments opened worldwide in the fourth quarter was up 8% to 1,851.

Fourth quarter Global Executive Search adjusted EBITDA grew to approximately $64 million, which was up $14 million or 29% year-over-year with an adjusted EBITDA margin of 26.3%. For all of fiscal '22, Korn Ferry became the first firm ever to generate $900 million of annual Executive Search revenue.

In fiscal '22, Global Executive Search fee revenue was $936 million, up 47% year-over-year with an adjusted EBITDA of nearly $258 million with an adjusted EBITDA margin of 27.5%.

I'll now turn the call back over to Bob to discuss our outlook for the first quarter of fiscal '23.

Great. Thanks, Gregg. As previously discussed, our consolidated new business grew to a new high in the fourth quarter with strength across all lines of business. Our backlog of revenue under contract exiting the fourth quarter was the highest in company history in May new business, although down sequentially from April was in line with both our expectations and our normal historical monthly seasonal pattern.

Additionally, new business for June month-to-date is also in line with our expectations in the normal monthly seasonal patterns as well. Evolving megatrends and workforce disruption are driving more consistent demand and regardless of economic headwinds presenting new areas of opportunity across One Korn Ferry.

Ongoing changes in the workforce, such as more broadly skilled labor shortages, continued competition for talent, people working differently and a growing focus on ESG and DE&I means our synergistic portfolio of offerings is more relevant today than ever. Now even with these favorable trends, it is difficult for us to quantify the risks associated with economic factors like global inflation, rising interest rates, supply chain disruptions and escalating geopolitical tensions. With all of this in mind, however, assuming no new major pandemic-related lockdowns or further changes in worldwide geopolitical or economic conditions, financial markets, foreign exchange rates we expect our consolidated fee revenue in the first quarter of fiscal '23 to range from $680 million to $710 million.

And our consolidated adjusted diluted earnings per share to range from $1.42 to $1.58 and our GAAP diluted earnings per share to range from $1.35 to $1.51. Now as I previously mentioned, we deployed about $134 million on the acquisitions of the Lucas Group and Patina Solutions Group in the last 6 months.

These acquisitions are currently being integrated into the professional search portion of our RPO PS segment and really will provide new scale in a new interim service offering, which we really believe is a tremendous opportunity for growth. Now these acquisitions serve as a catalyst for repositioning our existing RPO PS segment into 2 separate reporting segments.

The first being RPO on a stand-alone basis and the second, obviously, being professional Search on a stand-alone basis. And these will both be effective starting May 1 of 2022.

In closing, we're very optimistic about our future FY '22 was just a phenomenal year for us that we achieved tremendous success, numerous new financial and operational highs. But as Gary said, we believe our best performance is yet to come. Our solutions are highly relevant in today's business environment, they're aligned with long-term secular trends that will drive strong durable growth, combined with sustained profitability for years to come.

Korn Ferry has never been better positioned to serve all of its constituencies, colleagues, clients, candidates and shareholders.

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

(Operator Instructions) Our first question will come from the line of George Tong with Goldman Sachs.

Monthly new business reached a new high in March but decelerated in year-over-year growth in April with a particularly sharp slowdown in consulting. Can you discuss whether you expect the deceleration in April to continue and how the Consulting business is positioned to perform in the current macro environment?

Well, I think the Consulting business has never been better positioned. It's a far-reaching business from old strategy to learning and development to compensation, rewards and assessment succession. It really -- it plays at the essence of what a leader's job is. That is to be a conductor synthesizing and synchronizing the company's strategy with their organizational structure and with their talent.

So I -- when we look at the new business, and what we've seen is exactly in line with what we've done in the past. And so our year-end is April 30, and we tend to see a deceleration in May and that is about -- historically speaking, that's about 12%, and that's what we saw as a firm overall.

And in June, we would expect based on history for new business to be basically flat or maybe slightly up. That's what history would suggest. And so it's still early in the month, and we've got a number of days to go. But as Bob alluded to, we're basically tracking what we thought we would do in our historical pattern. There's no question.

And then you know this better than anybody that the market has been unsustainable. And it's been red hot in a whole series of factors -- a series of events and data points. But -- so yes, it's clearly moderated as we thought it would, but it's still, I think we're incredibly well positioned.

And George, this is Bob. The other thing I would say that what we're seeing is exactly what we expected. It's exactly what we've done historically. And if you go back and look at all of FY '22, Q1 was our fourth best new business quarter ever. Q2 was #3. Q3 was #2 and Q4 was #1. So we continue to progressively get better and exited the year with our best quarter ever.

Got it. Digital new business trends were relatively anemic in the fiscal fourth quarter. Can you discuss the factors weighing on digital growth and whether you expect those factors to persist beyond 4Q?

Well, generally speaking, the biggest quarter for growth in the business is our October quarter. And so we would expect to see that again. I would expect the growth to be very much tempered in the first quarter.

And we -- what we've done is really reposition that business. We've put on a lot of new sales professionals. And we're going to continue to do that over the next quarter or 2. So just this last quarter or quarter even to date, we've put on an additional 30 to 40 sales professionals. We're going to continue that.

So we've certainly reimagine that business as we have the rest of the firm. And so I would expect in this first quarter that the new business would be lower than it's been. And again, I don't think that's particularly unusual with historical trends. But I would expect the October quarter is always the best quarter in that business.

And George, if you caught on my commentary where I talked about the $46 million that we deployed. A significant portion of that was put into place in the digital business to continue to try to accelerate the product development and our go-to-market offerings.

That's helpful. And then lastly, can you provide an update on progress with your cross-selling initiatives, including the amount of fee revenue coming from cross line of business referrals and how quickly large marquee and regional accounts are growing?

It was -- Bob can talk about the marquee and regional accounts, they are cross referrals, it's continued despite the increase in scale of the business, the cross referrals were about 28%, almost 30% in the quarter.

And so that's 1 data point that you can look at and say, is this strategy working? Are you having deeper impact with clients? And are you integrating the organization across solution lines. And so -- that's one of the things that I'm most proud of.

So that number -- look, that number is not going to get to 50% or 60%. I don't foresee that. But I do believe that it's a positive reflection and a data point that certainly supports the strategy. And in some parts, of the business that cross-referral percentage is actually materially higher than 28%.

George, I think -- this is Bob again. I think one of the things that maybe is perhaps a little underappreciated is how -- how much connective tissue that exists between our core solutions and how easy it is to move across those core solutions and when you're dealing with the client, if you place a CEO, you can help that individual accelerate the performance.

You can help them to get the right team in place, you can help them put in place an incentive compensation program to motivate and reward the team for driving his or her strategy and so on. And I think as Gary mentioned, we're almost at 30%. I think there's room to grow there just based on how much, again, interconnectivity there is between our solutions and how easy it is to walk across all of them when you're facing off your clients.

Our next question comes from Tobey Sommer with Truist Securities.

This is actually Jasper Bibb on for Tobey. Just on Exec and Pro Search, I wanted to ask there are certain industry groups that are trending better or worse here. I was kind of thinking of some of the headlines around tech companies, instituting hiring freezes or doing layoffs and I was wondering if that was having any impact here.

Our tech business was up sequentially 6%, so it's not having an impact. The Professional Search, we've been in the business for some time, obviously, with the RPO offering. But this is a really renewed focus on the part of Korn Ferry.

And so when you look at our market opportunity, it's probably $300 billion, $350 billion. And when you look at that market, there's a couple of really big aspects. One is around learning and development. That's an enormous piece. Today, learning and development is about 10%, 11% of the company. We develop over 1 million professionals a year.

I think the opportunity around LDO, Learning Development Outsourcing is big for Korn Ferry and it's kind of what RPO was many, many years ago. So we're going to continue to put emphasis there.

Then secondly, when you look at that $300 million, $350 billion, a big part of it is around knowledge workers and Professional Search and interim services. The megatrend of work anywhere, anytime has only accelerated during the pandemic. And we don't really see that going away. So this idea of flexibility in a hybrid work and what I would call career nomads, I think it's going to continue.

And so as an example, we're putting a new focus around interim services, putting in seasoned professionals to help drive an initiative or lead a business. And really, that business has gone from almost to today a run rate of about $110 million. So if you look at all that in the Professional Search segment is today, it's about $400 million.

And I look at it and say, why shouldn't we quadruple that business, I think we really do have that kind of opportunity. So in terms of industry trends, we haven't seen anything that would sound an alarm bell. And it was good to see that the technology business actually grew sequentially.

Makes sense. And I was just hoping you could speak to your thinking around the Tina deal growing in the interim executive market. How are you thinking about the opportunity for revenue synergies and putting that business besides kind of the core Executive Search brand?

We've already seen -- well, first of all, with all of the work that we do, it begins and ends with quality. That's true in every part of the business and we monitor that daily in terms of what we're doing, whether it's assessing people, developing people, placements. So that's something we pay very, very close attention to.

The interim is a unique opportunity, I think, for us, given the brand that we have. And it's a relatively new entry for Korn Ferry. So I look at that and say, well, it's a $110 million business today, that should be a $1 billion business. I really think there's that much market demand.

And today, that offering is primarily anchored in the United States. We have a little bit of capability globally, but that's another area for us to tap. So you're going to see us continue to invest in that part of our business.

Last question for me. Just how should we think about the durability of margins of a recession where they occurred here. Do you think there are potential offsets to think about as far as consultant productivity or some of the real estate cost takeouts you've done in the past 2 years relative to maybe the experience of the last 2 recessions.

Well, look, I'll let Bob comment in more detail. But I think this is my 80th earnings call with the firm. And I think what you'd find over that time is our 20-year CAGR is 10%. Our 10-year CAGR is 13%. Our cross referrals are almost 30%. We've got a marquee and regional account go-to-market strategy that's 36%, 37% of the portfolio.

And the other thing when you look at that span of time, you'd find that peak to trough looks significantly different over time. And that is -- that even bore out in this COVID debacle that we all went through where there were parts of the business that were more cyclical, and there were others that were less cyclical.

So I think the thesis around tamping down the cyclicality is actually borne out in the data. But at the end of the day, you do have a consulting business, and that can, over time, tend to ebb and flow. But for Korn Ferry, it's been up and to the right.

So Bob, you could probably speak to the operating boundaries and how we're thinking about that.

Yes. So one of the things that we constantly are looking at the business and assessing what the world looks like. And going into the COVID sort of pandemic recession, if you will, our operating boundary at that point in time was to make sure that we were cash flow neutral in a particular quarter and on a trailing 12 basis.

What we experienced was that we were well above cash flow neutral, and we've really reassessed our operating boundaries now and are really looking at the business from the perspective of having a -- nothing less than a 5% EBITDA margin on a trailing 12 basis, which obviously puts us very much in a cash positive position.

Your point on real estate is actually a very good one. One of the things that we're looking at now that offices are reopening. We're tracking attendance in offices and seeing how many people are actually coming in using the office facilities, how frequently and so on. And I really believe that there will be a sort of a second wave, if you will, of real estate reductions. It won't be what we did the first time.

First time we took out kind of 21%, 22% of our footprint. But I think there's going to be opportunity for further reductions in our real estate footprint just based on office usage and the way that people want to work today. And our view is you kind of have to meet them where they are and not be in a position to force anyone to come in the office if they don't want to be in and they don't have to be in.

Our next question comes from the line of Mark Marcon with Baird.

And congratulations on the strong year. Obviously, really strong, particularly in terms of RPO. Can you talk a little bit about like how much of the new logo wins on the RPO side would you expect to spill into the first quarter of this year from a revenue perspective.

Bob, do you want to do that?

Yes, Mark, I would say there's probably very little in the first quarter that will spill in essentially when you stand up as these are large engagements. And when you sign up a large engagement, it takes some time to stand it up.

And the way that the contracts are written as we get an upfront implementation fee, which is a very small percentage of the total contract value. And so as the requisitions -- as the job gets stood up and the requisitions start to open up, that's when you'll see the real impact from the revenue.

So I would say probably very little in Q1, and then we'll see it more in hitting in Q2 and beyond. That's consistent with the way that the large engagements have always operated.

Great. And when you were answering at the very beginning of the Q&A, when you were answering the question from George in terms of the May was 12%, June flat. Are you talking about as it relates to new business, is that on a year-over-year basis?

So in other words, May looks like it's up about 12% and June seems like it's flat relative to the June of last year or June is flat relative to May?

We're talking sequentially.

Okay. So May would be up 12% relative to April or sound positive?

Relative -- May relative to April, down 12% sequentially on a year-over-year basis, though, May is actually up 13%.

Okay.

The way we look, we look at new business every day, and we have tiles and I generally tend to look at new business on a month sequential basis because that's -- we manage the business with looking at current data, and we have certain goals and targets each month and as long as they line up with where we are more focused on the current data than the year-over-year compare, especially this past year because the compares are still all over the place.

Okay. And if June is flat relative to May, what would that be on a year-over-year basis?

That would be, Mark, roughly...

It's about -- it would be about 10% year-over-year growth, right?

That is about right, yes, 10%.

Okay. Great. That's super helpful. And then with regards to -- on the Executive Search side, any sense for like what percentage of the business is basically coming from relatively new entities that might still be private?

No. We don't have that at our fingertips, Mark. It's a pretty balanced portfolio. And I would say that overall, it kind of mirrors the global economy. I don't think there's anything that's particularly out of balance there.

And then how about what percentage of searches -- we obviously are all aware that, hey, there are cyclical factors, there's demographic factors. From a demographic perspective, the boomers are retiring.

Any sense in terms of what percentage is roughly -- what percentage of the searches are basically due to retirements that where somebody needs to be replaced and it's not necessarily because of churn and job hopping?

Yes, I think -- I'm not going to give you a specific percentage, Mark, but it's a decent -- it's a decent ratio. I mean I've thought a lot about June of '07 and kind of compare that to this June, so 15 years ago. And did we really see the Great Recession coming?

And what were we paying attention to, what were we ignoring, where were the blind spots. And we had actually started to tap down hiring. We had gone out and made sure our balance sheet was bolstered. And I look at that 15 years because I don't think that COVID is a good comparable. But I look at that and say, June of '07 versus today, and what's really happening in the labor market. And I don't need to tell you. But I think labor force participation rate is lower. The workforce is older and there's been really not much growth in the labor force.

So June of '07, the participation rate was 66%. Today, it's 62%. The workforce in the United States was 153 million. Today, it's 163 million. There's only been 10 million more workers over 15 years. And over the last 2.5 years, there's been no growth in the labor force. So it's definitely getting older. There's millions of people that have left the workforce.

The labor force growth is 35% slower than the population growth. College unemployment rate is still, as you know, very, very low. And the thing, it's also -- yes, they're definitely certainly, people are retiring. The boomers are retiring. But the other thing that's interesting is the just a demographic trend of 55 and older back in June of '07, it was 29%, and today, it's 38%.

So I think you have a just completely different labor force dynamic today than what you had, say, 15 years ago. But the reality is there are literally millions of people have left the job market, at least in the U.S., and I think the trend is true for other western economies.

Great. Gary, you've always been extremely thoughtful about cycles, and I obviously started following you Korn Ferry prior to the dot-com bust. And so we live through GFC together.

In terms of like -- and you've always looked ahead and thought you were very thoughtful about cycles. So how are you -- how exactly -- there's obviously some people who are basically assuming that we're going to go into a recession right now. That's -- I mean, that's obvious. There's others who think it might be a soft landing if we go into a recession.

Like to what extent do you think -- like what sort of revenue degradation? And it's not like a great financial crisis, but more like a garden variety type recession. If we ended up with that sort of scenario, how do you think revenue -- and you gave like, okay, EBITDA is not going to go less than 5%. But what do you think realistic about where margins could go in a garden variety recession, where we just have a couple of quarters of down GDP but nothing overly dramatic.

It's obviously I'm not an economist. I -- it's very, very difficult to predict those kind of things. I think the huge wildcard that I've said now for 3 earnings calls, clearly inflation. I had said months ago, it wasn't transitory. And that's turned out to be the case. That is a huge issue for Americans and others in the world.

I think the thing that's hard to handicap right now is given the labor market is substantially different than it was during the financial crisis and there is still a shortage of talent. And the data points in '07 were significantly different. How much is that going to buffer a garden-variety recession?

And I do believe that it will. I'm not convinced that the great application is going to turn into the great resignation. I'm just not convinced of that yet. And so we haven't seen any signs of cracking here. And I think the labor market is substantially different. And in Korn Ferry's business is way different. And as I said, when you look at this peak to trough and the actual performance it has been markedly different over these last 15 to 20 years. So it's hard for me to really give you a precise number. But I do think it's different this time. And I think there is a buffer when it comes to the labor market that maybe wasn't there 15 years ago.

Okay. And then how are you planning like over the next 12 months? Like how are you thinking about hiring? Where would we see the strongest levels of growth from a consultant base, et cetera.

And a separate question. You mentioned wage inflation and inflation in general. What sort of levels of wage inflation are you currently seeing in terms of the new assignments, both in terms of Professional as well as Executive Search?

Yes. We even saw it in May. We're continuing to see it, which may not be great news for the economy. But we're continuing to see it. I mean we saw it in Professional Search, for example, in May. So when you look just take today versus pre-COVID, you'd find that knowledge workers is where Professional Search operates, our average fees are up 20%. In the Search business, it's less than that. It's probably more like 10%, but we're continuing to see that. We haven't seen a falling off there.

And from your own hiring perspective, what would you...

We're all out on -- we have 11,000 colleagues where we've -- out of those 11,000, there's probably about 1,800, what we would call partners and principles, people that have responsibility for originating business. We're looking for talent everywhere.

We're as aggressive today as we were 6 months ago. We're going to continue to be -- we're obviously very mindful on the costs. We've tried to take a measured approach, particularly over the last, say, 7, 8, 9 months on that, but the demand has continued to be there. So as I mentioned, we have to add more commercial capability in our digital business.

And again, nothing against the colleagues that we have today. We just need -- we need more of them, but we're really looking across the board from organizational strategy consultants to comp and benefits consultants, Executive Search. I mean we're still continuing to do that. My view is you invest in winter time.

And I have no idea if winter times come, but the firm is just incredibly well positioned. We're going to continue to make investments around Pro Search in the interim. And it's not like we're trying to double or triple down on cyclicality, but I just think that the mega trend around mobility is going to continue.

And you just see it in young people. I think no matter what happens, that's going to absolutely accelerate. So we're going to make investment in interim services and Pro Search. So we're certainly very mindful and cautious of the R word and what everybody is talking about. So we're mindful of cost, but at the same time, this is about growth. The story of Korn Ferry, it has to be about growth for the long term.

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

Okay. I just wanted to again thank not only our shareholders and for those following us but our Board and most importantly, our colleagues. It's been an incredible show of resiliency. And I really do believe the best is yet to come.

Thank you very much for listening, and we look forward to speaking to you again. Thank you. Bye-bye.

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