Mark Steven Marcon

Mark Steven Marcon inquired about the PEO environment, its sequential performance from Q4 to Q1, and primary headwinds, then asked for clarification on direct expenses as a percentage of revenue versus SG&A, and how these operating expenses are expected to trend.

Answer

President and CEO John Gibson reported that PEO continues to perform well with mid-single-digit worksite employee growth, double-digit bookings, and record retention, despite challenges in the competitive Florida market. CFO Bob Schrader added that PEO performance was slightly better than expected, but the agency segment was a drag due to workers' comp rate pressures, with stronger growth anticipated in the second half due to easier comparisons. Regarding expenses, Mr. Schrader highlighted strong adjusted operating income growth of 15% and an organic expense growth closer to 3%, expecting full-year expense growth to be consistent with Q1 organic trends.

Mark Steven Marcon asked for more details on a significant deal with a large HCM company, including its potential size and duration. Marcon also questioned Korn Ferry's strategy for Professional Search and Interim Solutions, specifically regarding past acquisitions, market fit, and global expansion opportunities. Finally, he inquired about the impact of AI on client labor demand and Korn Ferry's internal AI integration, spending, efficiency drivers, and potential headcount impact.

Answer

CEO Gary Burnison described the HCM deal as a multi-year, multi-million dollar transformational leadership development program involving IP licensing, consulting, assessments, and coaching. He noted that consumption speed depends on the client. For Professional Search, Burnison stated the contingent part of the market doesn't fit the brand, but there's significant opportunity outside the U.S. For Interim Solutions, he sees a mega-trend in fractional workers, with strong synergy and global expansion potential. Regarding AI, Burnison believes lower birth rates and the need for productivity growth will drive technology adoption, leading companies to likely reduce employee counts for efficiency. CFO Robert Rozek detailed Korn Ferry's substantial AI investments, centralizing 40 individuals, rolling out licenses, and focusing on "human plus AI" as an efficiency tool. He expects AI to free up capacity by automating menial tasks, helping deliver backlog and potentially impacting overall headcount.