Korn Ferry - Earnings Call - Q4 2020

Transcript

Speaker 0

Ladies and gentlemen, thank you for standing by, and welcome to the Korn Ferry Fourth Quarter Fiscal Year twenty twenty Conference Call. At this time, all participants are in a listen only mode. Following the prepared remarks, we will conduct a question and answer session. As a reminder, this conference call is being recorded for replay purposes. We have also made available in the Investor Relations section of our website at cornferry.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 continuation statement to our investors. Certain statements made in this call today, such as those relating to future performances 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.

Additionally, 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 quarterly report for the quarter ended 01/31/2020, the company's current report on Form eight ks filed on 05/11/2020, and the company's soon to be filed annual report for fiscal year twenty twenty. Also, some of the comments today may reference non GAAP financial measures such as constant currency amounts, EBITDA and adjusted EBITDA. Additionally, information concerning these measures, including reconciliations to 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.cornferry.com. With that, I'll turn the call over to Mr. Burnison.

Please go ahead, Mr. Burnison.

Speaker 1

Okay, thank you Amy and good afternoon everybody and thanks for joining us. You know the last several months, are unlike anything most of us have experienced in our lifetimes, with long overdue calls for social equality, persistent global pandemic and recovery curves. The only certainty today is uncertainty. You know, amid all this change, we'd be remiss not to recognize all the heroes. You know, it's been truly uplifting to see the humanity around us, our health care workers and other first responders and all of those who are committed to making our world a safer, better, and more equal place.

I've never been more proud of our firm and how we've responded during these times. At the beginning of this pandemic, we adopted a framework of safety, caution, agility to navigate the crisis. That included mobilizing almost all of our global colleagues to a work from home environment in really the course of days. And we sized our business to the current reality while preserving tremendous muscle, which we believe will allow us to accelerate through the term. We took a strong voice in the world hosting multiple COVID nineteen webinars, which were attended by over 20,000 leaders.

Then we led race matters webinars for colleagues and clients that attracted more than 100,000 leaders from global organizations. We're continuing to engage with clients in these discussions given our large diversity and inclusion consulting business. Then we appointed Mike Heideff as our Chief Diversity Officer elevating our ongoing focus on and continuing commitment to not only diversity but much more importantly inclusion. You know, diversity is a fact. Inclusion is a behavior.

And we're committed to continuing that conversation beyond the pledge through action. Now let me comment briefly on our fiscal fourth quarter. Fee revenues were down about 7.9% at constant currency as the impact of the virus accelerated through the quarter. Our adjusted EBITDA margin was almost 16% and we delivered $0.60 of adjusted EPS. Full year revenues were $1,000,000,000.00 dollars and we delivered approximately $300,000,000 of adjusted EBITDA and $2.92 of adjusted EPS.

Now for the future. There's no question that the magnitude of the humanitarian and economic impact brought on by the virus far outweighs what anyone could have expected a few short months ago. The pace and magnitude of the decline caused by this global health crisis is unprecedented, at least in the last hundred years. But with the crisis there's also tremendous opportunity and we believe that includes real tangible opportunities for Korn Ferry. Almost every company on the plan is and will have to reimagine their business and I believe in the next two years there's gonna be more change than in the last ten.

Quite simply, different work needs to get done and work needs to get done differently. To get work done differently, companies will need to rethink their org structure, roles, responsibilities, how they compensate, engage and develop their workforce. Let alone the type of talent they hire and how they hire that talent in a virtual world which will depend to even a greater extent on assessment. As a reminder, our assessment and learning business is almost 25% of the company. These are Korn Ferry's businesses and this is on top of our M and A change management, virtual sales effectiveness and customer experience services, let alone the D and I services that we offer to the marketplace.

That's real opportunity for us. As an organizational consulting firm, we enable people in organizations to exceed their potential. And to exceed potential, people need an abundance of opportunity, development and sponsorship which is absolutely foundational for our service offerings. We're also using this time of change as an opportunity to reimagine our business. For example, we're moving from analog to digital delivery of our assessment and learning business which as I just mentioned, it's 25% of the company in a way that makes our IP more relevant and scalable.

On the recruiting side, we're further refining our platform processes such as AI, video, and technology. And on the administrative front, we're continuing to further consolidate our activities, adopting a one Korn Ferry approach to deliver greater efficiencies across the entire organization. When I look back during the great recession, our revenue was up almost sixty percent four quarters from the trough eventually growing five x to almost 2,100,000,000.0 revenue run rate, annual revenue run rate a few months ago. We believe the opportunity to grow after the pandemic subsides lies in front of us. We're a much different company today.

Our firm's recovery could be substantially different with a pronounced upswing based on a broader and deeper mix of business. To undertake this journey, we're going to be agile, flexible, and responsive to the environment and our clients. Fortunately, we're facing this crisis from a position of strength when you consider we have a solid balance sheet with high levels of cash and liquidity and we've taken swift and decisive actions actions to protect the company and more importantly preserve its muscle. We've also seen some green shoots in new business and client wins. April, May and June stabilized down approximately 30% year over year and sequentially June was up approximately 18% over May.

So June was better than May and May was better than June in terms of new business. We've also guardrails in our business designed to preserve our position of strength and enable the firm to invest into the recovery. We're committed to maintaining at least neutral EBITDA. This preserves the muscle of the firm and our ability to fully harness the opportunities in the recovery and we will maintain our dividend this quarter. As we discussed in the last earnings call, we continue to assess the changing health and economic environment and the impact it has on our forward visibility.

As cities, states and countries reopen their economies, there's been a significant resurgence of COVID-nineteen cases in a number of places. In some cases, this has resulted in the delay or even cancellation of plans to reopen. Despite the recent positive data indicating that our new business trends may be stabilizing as well as the resilience that our clients and colleagues demonstrating, the near term predictability of our business remains clouded. As a result, we will not be providing specific revenue and earnings guidance for the first quarter of FY 'twenty one. In wrapping up my remarks, want to leave you with this.

You know, at some point, we'll be looking at this virus through the rearview mirror. And I truly believe that we have the right strategy with the right people at the right time to accelerate through the turn like we've done before. We have a demonstrated track record of doing that. So now, I'm joined virtually by, Bob Rozak and Greg Kubocek And I'll turn it over to you, Bob.

Speaker 2

Thanks, Gary, and good afternoon, good morning, everyone. I'll start with a few important highlights for the full year and the 2020 before I address new business trends. For the full year of fiscal twenty twenty, our fee revenue was $1,930,000,000 which was essentially flat year over year. Our adjusted EBITDA margin was or adjusted EBITDA, I should say, was $3.00 $1,000,000 and the adjusted EBITDA margin was 15.6%. And as Gary indicated, adjusted fully diluted earnings per share were $2.92 Now turning to the most recently completed quarter, our fourth quarter.

Fee revenue was $440,500,000 which was down 7.9% year over year measured at constant currency. In the fourth quarter, revenue for Executive Search was down 10% globally, RPO and Pro Search was down nine percent, Consulting down 14% and Digital grew 14% and all of that at constant currency. Adjusted EBITDA in the fourth quarter was approximately $70,000,000 with a 15.8% adjusted EBITDA margin and our adjusted fully diluted earnings per share in the quarter were zero six zero dollars Our balance sheet and liquidity remained very strong. At the end of the fourth quarter, cash and marketable securities totaled $863,000,000 and that's up about $95,000,000 year over year. And then when you pull out amounts reserved for deferred compensation and accrued bonuses, that's our what we define as our investable cash.

That balance at the end of the fourth quarter was approximately $532,000,000 that's up about $150,000,000 year over year. At 04/30/2020, we have undrawn capacity of $646,000,000 on our revolver. So we have close to $1,200,000,000 in liquidity to manage our way through COVID-nineteen and as Gary indicated to invest back into the business through the recovery. Last, the firm had outstanding debt at the end of the fourth quarter of about $400,000,000 Finally, due to the negative economic impact of COVID-nineteen, we did take swift and decisive actions to downsize our cost base. As previously announced, we took cost actions that were targeted at compensation as well as G and A spend.

And we have initially reduced our cost base by about $300,000,000 on a run rate basis. We believe these actions will help us manage the business to maintaining our minimum operating boundary of adjusted EBITDA neutrality throughout the COVID crisis. And in the current environment, maintaining operational flexibility is critical for us and will allow us not only to preserve the franchise, but as I indicated will allow us to invest into the recovery. Do you want to go through some of the operating segments? Sure.

Thanks, Bob. I'm going

Speaker 3

to start with the Digital segment. Global fee revenue for KF Digital was $69,000,000 in the fourth quarter and up approximately $7,000,000 or 14% year over year measured at constant currency. The subscription and licensing component of KF Digital's fee revenue in the fourth quarter was approximately $21,000,000 which was up $6,000,000 year over year and was flat sequentially. Adjusted EBITDA in the fourth quarter for KF Digital was $17,000,000 with a 24.5% adjusted EBITDA margin. Now shifting to the Consulting segment.

In the fourth quarter Consulting generated $121,000,000 of fee revenue, which was down approximately 14% year over year at constant currency. In every region, consulting fee revenue in the fourth quarter was negatively impacted by the sudden shift to work from home protocols, which limited our consultants' ability to execute and complete advisory assignments at client sites. Adjusted EBITDA for consulting in the fourth quarter was $11,100,000 with an adjusted EBITDA margin of 9.2%. RPO and Professional Search generated global free revenue of $82,000,000 in the fourth quarter with both components down approximately 9% year over year at constant currency. Adjusted EBITDA for RPO and Professional Search in the fourth quarter was $12,700,000 with an adjusted EBITDA margin of 15.4%.

Finally, for Executive Search, global fee revenue in the 2020 was approximately $168,000,000 which compared year over year and measured at constant currency was down approximately 10%. At constant currency, North America and EMEA were each down 10% year over year and APAC was down 16%. The total number of dedicated executive search consultants worldwide at the end of the fourth quarter was five fifty six, down nine year over year and down 26 sequentially. Annualized fee revenue production per consultant in the fourth quarter was $1,180,000 and the number of research assignments opened worldwide in the fourth quarter was twelve twenty nine, which was down approximately 28% year over year. Adjusted EBITDA for Executive Search in the fourth quarter was approximately $47,500,000 with an adjusted EBITDA margin of 28.3%.

Now I'll turn the call back over to Bob to highlight some of our recent monthly business trends.

Speaker 2

Great. Thanks, Greg. So globally year over year decline in marketing business as we exited fiscal year twenty twenty and entered fiscal year twenty twenty one, the period has stabilized. Excluding new business for RPO, our gold new business measured year over year was down approximately 20% in March and 34% in April. Starting our new fiscal year, May was down approximately 32% year over year and June was down 26%.

Over the past two years, June has been sequentially better than May and kind of in the 5% to 7% range. In the current year, we're obviously seeing the same pattern, low of improvement. And obviously at this point, we still don't know July's new business yet. With regards to RPO, new business in the fourth quarter was once again strong with $109,000,000 of global awards, which was comprised of $72,000,000 of new clients and $37,000,000 of renewals and extensions. In the near term, the new business pipeline for RPO remains strong.

That concludes our prepared remarks. We'd be glad to answer any questions that you have.

Speaker 0

Our first question comes from Tim Mulrooney with William Blair. Please go ahead.

Speaker 4

Good morning.

Speaker 2

Hey, Tim. Given we're two months through

Speaker 4

the first quarter, can you just talk about the recent trends that you're seeing in the consulting business? And can you maybe break that down and what you're seeing by geography and the types of consulting services that are holding up maybe better or worse in this pandemic?

Speaker 1

Well, the consulting side, we've clearly seen an uptick in our D and I business. We've took a pretty proactive stance both in COVID nineteen and with respect to social equality and race. We have definitely seen quite a bit of activity in in the marketplace. When you just isolate, June new business, you would find that the consulting new business just in the month of June is down about 29%. And if you were to look over the trailing four months, you would find that the consulting business is down about the same, you know, approximately.

So, you know, I believe that really up to this point, and don't take this the wrong way, but it's been a bit preseason for companies. I mean, every company in the world is gonna have to change how they do business. Different work needs to get done and work needs to get done differently. And that's essentially the definition of culture, how an organization gets things done. So whether it is looking at their org strategy, whether it's looking at roles and responsibilities, whether it's how they deal with customers virtually, whether it's how they improve sales effectiveness virtually, whether it's m and a restructuring, all of those things play into Korn Ferry's platform today, which is substantially different than twelve, thirteen years ago in the great recession.

The other thing we've seen is a pretty significant uptick in career transition services. Several years ago, we, started a business called KF Advance and the thinking behind KF Advance was to give professionals a gymnasium to work out, to use our IP, to grow, to learn, to develop, to be motivated, to be inspired. And we put over 100,000 people through KF Advance and the thing that we've found, it wasn't the original intent but the technology platform that we've built is incredibly powerful and we're using that platform around career transition. So there's been a number of engagements with the unfortunate decisions that companies have had to make and will probably continue to have to make around what their workforce looks like. They wanna be very sensitive and they wanna treat people the right way.

And and part of that is shepherding their transition. And so we've we've definitely seen an uptick and and some really marquee wins there. So I would I feel really good about where our consulting business is today, despite what I said about new business down in June. I mean, look, the world shut down. But I feel really good about where that consulting business and you'll see when we unfortunately had to right size our workforce, we were very purposeful in how we did that.

And you'll see that the number of consultants really didn't change much. We had a contingency playbook that we dusted out a year ago and part of that playbook we knew what we were gonna do and part of that was driving change within our own organization. And so we were careful about preserving muscle.

Speaker 4

Okay. Very helpful perspective. Thank you. One more from me, maybe shifting gears to your digital business. Can you just talk about the recent acquisitions you completed?

How is this going integration wise? How have they performed during the downturn? And how much did they add contribute to revenue in the fourth quarter? Thank you.

Speaker 1

Well, yes, thank you, Tim. We don't we've integrated that business, so we don't disclose that separately. I will tell you that it's been incredible. The you know, there are at least in The United States 15,000,000 salespeople. Not only that, but what we picked up are tremendous learning capabilities around project management and the like.

So, I could point to a couple wins in career transition where actually that was in part due to the people and the IP that we picked up through the Aspen acquisitions. So as you think about different work needs to get done and how companies are gonna have to engage with customers and what that customer experience looks like and what they do around their sales force, I'm very, very bullish on what we can do with that business. And we're also today bundling our services which I think that's very unique for a professional services firm. So if we are for an example, if we are doing a search for a Chief Revenue Officer, we are bundling in diagnostics that we can do at very little cost around their sales force.

Speaker 4

Okay. Thank you very much.

Speaker 0

And our next question comes from George Tong of Goldman Sachs. Please go ahead.

Speaker 5

Hi, thanks. Good morning. You provided helpful details around new business trends in March, April, May and June. Can you unpack those by executive search, by geography and perhaps consulting, you called out RPO but just a little bit additional detail there by month would be very helpful. Thank you.

Speaker 1

Yeah, let me kind of step back and then Bob and Greg if you can kind of fill in. Let me first say, let me look at trailing four months and I would generally say that the way the business has operated in a crisis that we haven't seen in a hundred years, But as we thought about the company and what we were building, we obviously wanted to create something that had real impact for clients. That number one, to enable people and organizations to exceed their potential but also part of it was to diversify our platform. When you look at the trailing four months and you look at global new business, first of all, it's down 15%. When you unpack that, you'll find that RPO new business is actually up 72% over those four months.

Digital is up 2% and the most cyclical on the other end of the curve which we thought it would be was professional search. That was down 36%. And let me put an asterisk there that we actually saw as you would expect, that was the most cyclical going down. It was also the most cyclical coming up in June. Executive search was next.

It was down 33% and consulting was less cyclical than search at say 27%. So I think that broad thesis and look, this is four months, I'm not gonna sit here and say that's gonna last forever but I do believe that's pretty good evidence that the strategy that we laid forth about diversifying the company not only geographically but by the services we offer holds water and it holds up. When you look at the last three months as we talked about again, June was better than May and May was better than April. When you look at the month of June, just standalone, the first thing I would say is there was no deterioration in the back half of June versus the first half. So all this crap around negative square roots and all these symbols people throw out, we did not see that.

I'm not saying we're not going to see that but we didn't see that within the month of June if you want to be that myopic. In the month of June, global new business was down 23%. When you start to unpack that by region, you'll find that North America was down 24%, EMEA was down 23%, APAC was down 16. APAC went into the crisis earlier, allegedly came out of it sooner, despite all the news that we're seeing today in Beijing. When you look at it by line of business solely on the month of June, you'll find that search was down 33%, consulting was less cyclical at 29%, digital was actually up a few percentage points and RPOPS was down 17% but you really can't look at that 17 because RPO is very lumpy and we had some despite this whole pandemic, we've had some incredible wins in the RPO business.

So Bob and Greg, do you want to add anything to that?

Speaker 2

Yes, just a couple of points. You're right, Gary. The RPO business and those wins that we had in the fourth quarter, a significant percentage of came from the Asia Pacific region itself. One was in Singapore and one was in Australia. The other thing I would add is, we've looked at the new business activities over the past four or five months, the one thing that's clear is there's really no discernible patterns that emerge.

One month we could be doing fairly poorly in new business and then the next month it pops back up again. So it's really choppy, a lot of sawtooth activity which I think is what you would expect in the environment as people are trying to deal with the working from home and the current pandemic and so on. Geographically, again, there's not a lot of differentiation amongst the different geographies. That would be the only other thing I would add Gary.

Speaker 1

Okay. Thanks Bob.

Speaker 5

Great. And just to follow-up on EBITDA, your goal of maintaining EBITDA neutrality, can you talk a little bit more about that over what timeframe you hope to achieve that goal and if that really was a statement around margins or EBITDA dollars?

Speaker 1

Well I would first say we're not providing guidance. That would be my first comment. If you were to tell me when the biology, you know, I really do believe this is a triangulation of cash, biology, and psychology. So to the extent that you're fortunate enough to have cash either as a business or individually, you've got an incredible amount of freedom. Korn Ferry is blessed that we have that financial freedom.

Biology is gonna determine the endpoint The thing that's in the middle, which is really our business that we offer to clients, is really around psychology. How do you get work done differently? How do you motivate? How do you inspire? How do you develop, how do you pay, that's exactly what Korn Ferry is all about.

So I think we are much better positioned today than we were say in 2008 and 02/2009. So to answer your question, I'd first step back and say, you tell me when the humanitarian crisis ends, I could tell you how these operating boundaries shift. Number two, I think the CEO's charge is around stakeholders. So it is a it is again a triangulation of shareholders, employees, and your customers. And I think you've got to walk that balance.

And particularly in a time when a lot of people are suffering, we have to be very, very cognizant of our own colleagues and their well-being. And so we have to balance those constituencies within that stakeholder paradigm. So for this quarter, for the first quarter, the July, we have established a boundary of EBITDA neutrality. How and if that changes will really depend on the humanitarian crisis. And that is something that I just can't predict.

I mean you see it right now. You see the spike up to 50,000 cases. That's hard to predict. So we're trying to run that balance. And we also want to accelerate through the turn.

It's much like driving a car. You brake well ahead of the turn and that's what we did a year ago with our contingency playbook. What you wanna do is step on the gas through the turn and that's why we've got that ample balance sheet. That's why we took the actions that we took.

Speaker 2

Gary, I would just add to that George, our operating boundary is a minimum of EBITDA neutral. So it's not that we're going to operate the business to EBITDA neutral, it's going to be a minimum of EBITDA neutral.

Speaker 5

Got it. Very helpful. Thank you. And

Speaker 0

our next question comes from Mark McConnell Please go ahead.

Speaker 6

Morning and good afternoon, depending on where you are. Gary, really appreciate the thoughtful comments that you had. Just one clarifying statement. When you say EBITDA neutrality, do you mean breakeven or what exactly does EBITDA neutrality mean?

Speaker 1

It means a minimum EBITDA breakeven.

Speaker 6

Okay. And you do have results through June. I know you're not giving guidance and we're not expecting it. But I'm wondering if there's any way of kind of giving a frame for like if, you know, revenue is down by, 29 or 30% on the consulting side, that would typically translate over to blank as it relates to margins. Is there any way of giving some sort of guide rails just with regards to, not necessarily guidance, but just an understanding of like, okay, you know, what does this mean?

Because you've done a great job in terms of managing the expenses thus far. And associated with that, can you talk a little bit about some of the restructuring actions and the cost savings that they will drive on an annualized basis going forward?

Speaker 1

Okay, let me try a couple. Bob can add, then Mark, if I miss something, just come back in again. Bob, you can comment on the revenue to margin. I'll first start with new business to revenue. If you take the search businesses, so both executive search and professional search, those generally so that's 45% of the company today.

Those generally convert to revenue within ninety days. If you take the trailing four quarters of four quarters, trailing four months, those search businesses are down, call it 35%. I think you can reasonably do some mathematics and I tell you that in June, executive search was down 33% although professional search was actually a much different story. That's that piece of it. The I would say on both the consulting and digital business, let me just lump it together for a What you'll find there is that new business generally converts to revenue within the first twelve months, but about two thirds.

So about two thirds of the new business in consulting and digital flow to revenue within twelve months. So again, substantially different than search. The balance goes over probably thirteen to thirty five months. The RPO business, what you would find there is probably less than 50%, but probably more than 25% of new business would get recognized in twelve months. The balance would get recognized over thirteen to thirty five months.

That's one way to kind of think about the mathematics of new business translating to revenue. Bob, do you want to add anything to Mark's question there?

Speaker 2

Yes. Mark, to make sure I understood, you were suggesting or questioning whether incremental dollars of revenue, how that translates to margin?

Speaker 6

Right. So specifically, Bob, and Barry, thank you for the clarity with regards to the revenue flow through. Just thinking about the, let's take the most simple case, you know, in terms of executive and professional search where, you know, roughly the new business trends are basically kind of conferred to revenue over ninety days. So we have a pretty good understanding of where the revenue number is going to be for that. If we're down by 29 or 33, what would that end up doing to EBITDA margins?

Would we stay at breakeven level? Would we be at the 5% level, 10%? How that translate or how should we think about that? I know it's, and I'm not taking it as guidance, I'm just saying if you're framing something like that where it's relatively clear cut of where the revenue goes, how should investors expect the margins to flow?

Speaker 2

Yeah, think that as you think about the revenues going down, there's a couple of things that are complicating, and I'm not trying to skirt the question, but there's a couple of that complicate. Depends on which line of business experiences the worst downturn. As you know, search is profitable at 24%, 25% EBITDA margin. Digital is even more profitable and so on. So a lot of it's gonna depend on line of business, how the revenues fall in and of themselves.

The other thing that complicates it too is Gary talked a lot about the new business and how it translates to revenue. What we're also seeing, Mark, is the new business, We're seeing a real shift in the mix of our new business. Right? So if you look at and you break it up between smaller engagements, you know, say those below 500,000 whether it's in, you know, digital or consulting, We're generally seeing declines in new business at that level. If you go 500,000 and above, we're actually seeing new business growth year over year.

And so you've got not just the overall decline in business, but you have a shift in the mix of the size of the engagements, which makes it even more challenging to step back and say, okay, if we're down 29%, this is what's going to happen to our EBITDA margin.

Speaker 1

I guess, Mark, if your question is, hey, if consulting is down, just take the consulting piece of the business. If it is down 30% or so, would we expect breakeven EBITDA? Yes, we would.

Speaker 6

Okay. And what about on the search side, Gary?

Speaker 1

I would say that that would be positive EBITDA.

Speaker 6

Okay, great. And then can you talk a little bit about on the consulting side, how much of the decline in terms of new business, obviously these are unprecedented times and it's really hard to unpack things. But how much of the decline in consulting do you think is due to the fact that we have to work from home relative to just the financial constraints and the uncertainty that's out there? Is there a sense that you have that from that perspective, in other words, know, if

Speaker 1

you

Speaker 6

in have to a work from home environment for a prolonged period, is that really the constraining factor as opposed to the financial uncertainty?

Speaker 1

Yes, good question. We pivoted hard towards digital. Having said that, when you look at our let me just take the advisory business together, both consulting and digital. The reality is we had a very big and we have today a very big learning business. Assessment and learning is 25% of the company.

And when we candidly look in the mirror, a lot of that delivery of learning was classroom. And so that got devastated. And we made a hard push like we were before. We went to this digital platform. We've incorporated Aspen.

But the reality is we weren't where we needed to be in terms of, nor was anybody, you know, delivering things virtually. So to give you some idea how hard we've pivoted, in April and May, we've done more virtual delivery, development than we did in the prior ten months. So we have gone 180 degrees hard on all of our development capabilities whether that's inclusion, whether it's simulations, the whole thing, we have absolutely gone digitally now. So you're gonna see the impact of that stoppage essentially of the economy for a couple months, you're definitely gonna see that, in our first quarter. There's no question about it.

And when you look at it, that specific question where it really has hit Korn Ferry and I think it would hit anybody that's in the that was in the development or training or learning business for the most part, not everybody, but but that definitely hit us hard because that just stopped. I mean, everything. Sales effectiveness training, you you name it. And so now we are pivoting and we've been pivoting for months now very, very hard. And so when you look at some of these, you know, new wins, marquee wins we have now such as career transition services, all of that's virtual.

I mean, it's absolutely all virtual. I think the other thing that's gonna be really interesting is our assessment. We've assessed 70,000,000 executives and we have an assessment for everything. You know, we have a half a billion profiles on people. And so the thing, you know, the thing that's gonna be interesting is going forward in a more virtual world for sure over the next several months, you know, when it comes to hiring, you know, the the the physical interaction, that's not gonna be what it what it was.

And I think that people are gonna have to rely more on who somebody is and the assessment rather than the personal bias they have when they're actually doing an interview. So that could play really nicely into Korn Ferry's hands.

Speaker 6

That's great. Gary, can I just squeeze one more in? Just with regards to D and I organizational structuring and potentially pivoting sales training to be sales training in a virtual world and how that can be done more effectively. How big are those individual pieces and how would you rank your consulting practices in those areas relative to some of the leaders within the space?

Speaker 1

DNI, we're the best, we're the biggest. It is, I have no question, no doubt. We are, it's eight digits. It's a nice sized business. You know, so we've we've certainly seen some very good activity there.

Our org strategy business is about 10%. That is not as deep as it needs to be for sure. So that is not at all when you look at the bulge bracket strategy firms, doesn't, you know, we've got a lot of opportunity there ahead of us. We've gotta build that. So that's, you know, at least that's those two, how how I'd rank it.

Our assessment and development is world class. Absolutely world class. No question about it. Our rewards business is 10% and I'm going to say that's world class as well.

Speaker 6

Great, thank you.

Speaker 0

And our next question comes from Mark Reynak with Sidoti. Please go ahead.

Speaker 2

Hey, hello everyone.

Speaker 6

Hey Mark. Hey Mark.

Speaker 7

I wanted to start with if you could update our views on use of cash and maybe some of the opportunities that are there. I wasn't sure if you could maybe address acquisition opportunities that may be presented by the business challenges that are in the environment.

Speaker 1

Well, there will be. A year ago when we brought out our contingency playbook, one of the things that actually took an accelerated effort at was meeting a lot of companies and we, you know, in terms of the I think we've done 13 acquisitions over maybe twelve or thirteen years and for most of those, there wasn't a book. Those were those were relationships we developed. So we we went into that pretty hard a year ago. We've already seen a couple, of those come our way.

We passed, on those. So I do believe, that's going to be an opportunity for Korn Ferry, as this pandemic subsides. I think the, you know, triangulation here is cash biology and psychology and you know, cash gives you, substantial freedom and substantial freedom to invest and grow depth and capability. Our first, obviously I think we've had a pretty balanced approach to how we do capital allocation between dividends, stock buybacks, acquisitions and our people. Obviously this pandemic puts a little bit different characteristic.

Now again, we're starting from a position of strength when you look at our balance sheet. So those opportunities will undoubtedly, we're still actively, doing the same thing we've always done which is meeting companies and operating the business to accelerate through the turn. But I think that given what we've seen over the last few days which you know, I mean anybody could have predicted three or four weeks ago, that this thing is gonna come in waves. And that's the reality. And when this thing started, we thought it would be eighteen to twenty four months that it was gonna come in waves and the real endpoint is the biology.

It's when there's either a vaccine or a therapeutic answer that's widely available and that's not happening in the next two or three months. So I think we're going to run that right balance of shareholders, employees, customers. We'll continue that balanced view of capital allocation and we will have opportunities. There's no question about it.

Speaker 7

Okay, great. And then I wondered if you could spend a little time talking about the overall umbrella of the change of culture that your customers are currently embarked on that particular journey. I was wondering if you could share maybe some of the interactions that Korn Ferry has had with them. Do you get the sense that the initial stages of that are now taking place and maybe are they taking place higher up the ladder in the C suites, if you will, more so than it was before. Just wondering if could sort of share what that process looks or feels like to you as opposed to those of us looking from the outside looking in?

Thanks.

Speaker 1

I think that the first few months people were playing defense and cash was not just king, it was God. So everybody was really for the most part, there's obviously some exceptions, but I think when you look at it generally, people were playing defense and trying to protect their employees, get them moved to a virtual environment. And so again, don't take this the wrong way, but that was a bit preseason. I think the regular season will start here and I think there's gonna be advances and there's gonna be retreats. But the great companies are gonna be those that go on the offense.

And that's what great companies do when there's a crisis. That separates great from good. Great companies accelerate through the term. So I think what you're gonna see barring some major lockdown is that, you know, you're gonna have more waves of this virus. That's for sure.

People are going to have to learn with that. They're gonna have to learn to deal with that risk. Governments are gonna be very generous, I think for the most part. And I think companies over a period of time are gonna move to offense. Right now, they still haven't fully, somehow, I'm not gonna say everybody, but people are gonna start to move to offense.

Whether that is in July, whether that's in October, I can't really say. But there's no doubt that that will happen.

Speaker 7

I appreciate the commentary in the call. Thank you.

Speaker 0

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

Speaker 1

Okay. Well, I want to thank you for listening to the call. And I just I've never been more proud of our company and our colleagues and all the things that we've accomplished in, let's face it, an event that hasn't happened in one hundred years, then also with America dealing with the issue of race and I'm proud that Korn Ferry has taken the leading voice in those. So thank you very much for your time and we'll talk to you here in a couple months. Thanks very much.

Bye bye.

Speaker 0

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