Korn Ferry - Q4 2023

Transcript

Operator (participant)

Ladies and gentlemen, thank you for standing by, and welcome to the Korn Ferry 4th Quarter and Fiscal Year Ended April 30, 2023 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 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 we 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 Reform Act of 1995.

Although the company believes the expectations reflect 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 risk factors 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. In the periodic and other reports filed by the company with the SEC, including the company's soon to be filed annual report for fiscal year 2023. 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 measures, is contained in the financial presentation and earnings release related to this call, both which are posted in the investor relations section of the company's website at www.kornferry.com. With that, I'll turn the call over to Gary Burnison. Please go ahead, Gary. Mr. Burnison, please go ahead.

Gary Burnison (CEO)

Okay, we've got Lois, everybody's on the line. Number one, good afternoon, and thanks for joining us. Our team's gonna get into the numbers in a moment, but I first wanted to start by saying how incredibly proud I am of our firm, of our colleagues, of our purpose to enable people and organizations to be more of that, and the results of our diversification strategy, which is clearly working as we had planned. For example, while we've experienced a drop in the search business from post-pandemic highs, the rest of the portfolio performed as expected, with RPO less cyclical, Digital and consulting growing, and our new interim business really blossoming.

In fact, over the last 18 months or so, we've added this new interim capability, which has about $400 million of annual revenue on a run rate basis, bringing our total professional search and interim business to approximately $550 million-$600 million on a run rate basis. That's the direct result of our strategy, anticipating over 3 years ago, a workplace mobility that we thought would emerge post-pandemic, and it has. You know, tectonic shifts are happening everywhere. How we produce and consume, where and how we work, how we're entertained, an ongoing war, shifting trade lanes, inflation, interest rate rises at a rate we haven't seen in a long, long time, and now Generative AI. These mega trends can result in change that's fundamentally good for our clients and for Korn Ferry.

It's interesting to reflect that the foundation of our firm began with IP and science. With the world immersed in Generative AI, we'll continue to invest not only in these technologies, but also in our proprietary data, assessment instruments, and knowledge, and these will be the ultimate differentiators. Amid this transformation and change, I believe we're still at the very beginning of what Korn Ferry will be, with therefore much more tangible opportunity ahead to help our clients be more of that. With that, I'll turn it over to Bob Rozek.

Bob Rozek (EVP, Chief Financial, and Corporate Officer)

Great. Thanks, Gary. Good afternoon or good morning, depending where you're at. As I've said before, despite the substantial progress we've made evolving the business, you know, I really believe that we're still in the early innings of this transformative journey. You know, as Gary mentioned, strategy's working. It's producing the growth and results we set out for, which really are the proof points that the strategy is, in fact, working. With what has become an ongoing backdrop of macro uncertainty, the execution of our strategy has produced another successful year, with organic and inorganic growth, resulting in an all-time high of slightly more than $2.8 billion in fee revenue.

You know, if I go back 2 short years to fiscal 2021, which is the year of the pandemic, our fee revenue has grown by more than $1 billion in that time, and 70% of that growth came organically, with the rest coming inorganically. Our consulting business showed resilience throughout the year, bolstered by the relevance of our larger integrated solutions. Our digital business also showed resilience while continuing its transformation from selling analog point solutions to licensing our digital performance management tools. RPO remains extremely well-positioned, with a strong track record of large new business wins, and I expect that business to return to robust double-digit growth when a lot of the uncertainty that we're seeing today clears.

Demand in exec search and in the perm placement portion of professional search moderated in the second half of last year, at the same time, demand in interim remained steady, that offset some of the transitory softness in the perm placement businesses. Synergistic referrals between interim and perm placement, plus referrals between our other lines of business and our marquee and regional accounts, were significant contributors to the achievement of our FY 2023 annual fee revenue. Again, it's clear to me our strategy is working, we're going to continue driving our integrated solution-based go-to-market strategy, including our marquee and regional accounts, delivering unparalleled client excellence, extending our very strong Korn Ferry brand, advancing Korn Ferry as the premier career destination, and continuing to pursue transformational opportunities at the intersection of talent and strategy. With that, let me turn the call over to Greg, who will take you through some of the overall company financial highlights.

Gregg Kvochak (SVP of Finance, Treasury, Tax, and Investor Relations)

Thanks, Bob. In the fourth quarter, global free revenue was $731 million, up 8% year-over-year and up 12% at constant currency. By line of business, fee revenue continued to moderate from post-pandemic highs for our permanent placement talent acquisition solutions, executive search, professional search, and RPO. However, other lines of business remained stable in the quarter. Measured year-over-year at constant currency, fee revenue was up 3% for consulting, up 5% for digital, and aided by our recent acquisitions of ICS and Salo, fee revenue for our interim services grew $70 million year-over-year. Consolidated new business in the fourth quarter also moderated and was down 4% year-over-year at actual foreign exchange rates, and down 2% at constant currency.

Consistent with fee revenue, new business in the fourth quarter moderated most in executive search and professional search. In line with our guidance, earnings and profitability also moderated in the fourth quarter. Adjusted EBITDA in the fourth quarter was $98 million, with an adjusted EBITDA margin of 13.4%. Earnings and profitability in the fourth quarter were impacted by a number of factors. These factors include the mix shift in fee revenue by line of business, startup costs associated with the ramp-up of newly awarded large RPO assignments, investments in headcount to preserve fee-generating and execution capacity, and product development initiatives for digital. Our adjusted fully diluted earnings per share in the fourth quarter were $1.01, down 74%-- I'm sorry, down $0.74 or 42% year-over-year.

Adjusted fully diluted earnings per share excludes $6.9 million or $0.10 per share of restructuring charges related to the cost true-up of actions taken in the third quarter and integration and acquisition costs associated with our recent acquisitions. GAAP diluted earnings per share in the fourth quarter were $0.91. Our investable cash position at the end of the fourth quarter remained strong at $488 million, and our capital allocation continues to be well balanced. For all of FY 2023, we deployed $490 million of cash, using $94 million for share repurchases, $33 million for dividends, $62 million for capital expenditures, $255 million for M&A, and $19 million for debt service. That'll turn the call over to Tiffany to review our operating segments in more detail.

Tiffany Louder (VP of Investor Relations)

Thanks, Greg. Starting with KF Digital, global fee revenue in the fourth quarter was $91 million, which was up 2% year-over-year and up 5% at constant currency. Digital subscription and license fee revenue in the fourth quarter was $32 million, which was approximately 35% of fee revenue for the quarter. The accumulation of sales of subscriptions over time has created year-over-year growth in subscription-based revenue, with increases in both sales, effectiveness and total rewards tools. Global new business for KF Digital was $101 million, with $35 million or 35% of the total tied to subscription and license sales. For consulting, fee revenue in the fourth quarter grew to $175 million, which was flat year-over-year, although both periods are all-time highs and up approximately 1% at constant currency.

Fee revenue growth was strongest in organizational strategy, followed by assessment and succession in rewards and benefits. Global new business for consulting in the fourth quarter was down slightly, 4% year-over-year constant currency, with mid-single-digit growth in EMEA. The professional search and interim business increased 40% in the fourth quarter versus last year, driven by double-digit strength in North America and aided by the current year acquisitions. Total fee revenue was $152 million, up $51 million or 50% over the same time period. Breaking down the quarter, growth in the interim business was more than enough to offset moderation in the permanent placement portion of the segment. Interim services fee revenue grew to $89 million from $20 million in the same quarter of the prior year, driven primarily by the recent acquisitions.

Permanent placement fee revenue declined by $18 million to $63 million year-over-year, down 23% at actual and down 22% at constant currency. Moving on to recruitment process outsourcing. New business for the fourth quarter was strong once again at $115 million, and total revenue under contract at the end of the quarter was approximately $777 million. Fee revenue totaled $100 million, which was down $13 million or 11% year-over-year and down approximately 9% at constant currency. Although we are seeing notable sequential improvement within life sciences, overall, fee revenue is impacted by a moderation in hiring volume from all other industries in the base and backlog.

We see this slowdown as transitory and believe RPO is well positioned to benefit when hiring returns to more normalized levels in the base and the larger, more recent wins begin converting to revenue. Our pipeline remains strong as RPO continues to win new business, the differentiated service offering in the marketplace. Finally, global fee revenue for executive search in the fourth quarter was $213 million, and as expected, experienced a year-over-year decline of 11% at constant currency. compared to the high growth rates enjoyed during the pandemic recovery last year. Demand continued to moderate, most notably in North America and APAC, followed by EMEA and Latin America. Global new business in the fourth quarter for executive search was down 20% year-over-year and down approximately 19% at constant currency. I will now turn the call back over to Bob to discuss our outlook for the first quarter of fiscal 2024.

Bob Rozek (EVP, Chief Financial, and Corporate Officer)

Great. Thanks, Tiffany. Assuming no new or further changes in worldwide geopolitical conditions, economic conditions, financial markets, and foreign exchange rates, we expect fee revenue in the first quarter of FY 2024 to range from $668 million-$698 million. Our adjusted EBITDA margin to be approximately 13.5%, and our consolidated adjusted diluted earnings per share to range from $0.84-$1.00. Finally, we expect our GAAP diluted earnings per share in the first quarter to range from $0.78-$0.95. In closing, I want to thank all of our colleagues for just an absolutely tremendous year.

We continue to believe our portfolio of distinctive organizational consulting solutions, which are based on our deep, rich, proprietary IP and data delivered by our world-class colleagues, will continue to differentiate Korn Ferry on our journey to become the preeminent organizational consultancy. With that, we would be glad to answer any questions you may have.

Operator (participant)

Thank you. Ladies and gentlemen, if you wish to ask a question, please press one then zero on your touchtone phone. You will hear an acknowledgment tone that indicates that you've been placed in the queue, and you may remove yourself from queue at any time by repeating the one-zero command. If you're using a speakerphone, please pick up your handset before pressing the number. Once again, if you have a question, please press one then zero at this time. Our first question comes from the line of George Tong from Goldman Sachs. Please go ahead.

George Tong (Senior Research Analyst)

Hi, thanks. Good afternoon. The consulting and digital businesses were relatively resilient this quarter, particularly when compared to exec search and perm placement. Can you discuss the broader selling environment across these business lines and walk through where you're seeing the most change and what assumptions you're currently reflecting in your fiscal 1Q outlook?

Gary Burnison (CEO)

you know, the amount of change that is happening is breathtaking. From the days of darkness and COVID to, you know, economic changes, to geopolitical changes, to the fact that you know, the US labor force and other Western economies, the number of people in the workforce really hasn't changed. There, there continues to be, you know, this move towards upskilling, towards retaining, developing talent. If you look at fundamentally what we are doing, we're providing solutions for individuals and organizations to be successful. Whether it's employee fit, coaching, development, methodology, compensation and design, you name it, that's kind of the, you know, where Korn Ferry is playing today. When you look at the results, it's absolutely in line with the very beginning of the strategy.

You're seeing an environment where the world came to a halt. There was incredible demand on all fronts in many industries, and you saw the executive search business, a huge upswing. What we're seeing here is, you know, a significant moderation of search, a decline in volume. It's interesting to note that, you know, basically, where we are today in search was essentially where we were pre-pandemic. You know, revenue is up a little bit more than where we were pre-pandemic. Volume is a little bit down. What you're saying is, you know, the cyclical parts of the business, the search business, are seeing that drop in demand that you would expect, but RPO is less cyclical than search. Consulting, digital and interim are all less cyclical than RPO and search.

It's playing out exactly as we thought. What I've seen over the last few months is a stabilization of search, which is good. In May, we saw a rebound in China. Our May new business overall was up 5%. Search was down about 12%, but consulting and digital were up. You know, essentially, it's playing out as we called for in the strategy. The marquee and regional accounts were almost 40% of our new business. You know, is the market different than it was a year ago? Yeah, absolutely, it's different than a year ago. A year ago, you know, people were coming out of darkness, and there was this just huge amount of activity across industries. It is different than a year ago. I think I'm, you know, I'm really proud of where the organization is, and, you know, the results kind of bear out the strategic thesis. That we had all along.

George Tong (Senior Research Analyst)

Very helpful. Separately, you noted that interim search trends remain relatively steady. If you look at other interim staffing providers, even in the higher-end IT sector, they've been seeing some revenue headwinds and year-over-year revenue declines. Can you discuss what's driving the positive separation of Korn Ferry's interim search business and staffing business compared to competitors?

Gary Burnison (CEO)

Well, I would expect some moderation. I mean, there's no look, you know, we're not gonna be immune, but again, it is a large market, you know, a huge market. You've got people that are changing the way that you work. We saw this, you know, in, you know, we really, in April, May, June of 2020, this was a conscious decision that we're gonna get into this market, in a big way, particularly around finance and accounting, technology, HR, supply chain, that we were gonna go big into it. In a very, very short amount of time, I think we've developed a very, very high-end business with an average hourly rate of $124. I'm not gonna sit here and pretend that we're immune.

I do think one of the things that is helping us is the amount of cross-referrals. I look over, essentially an 18-month period, and what we see is, you know, almost $50 million coming from cross-referrals, cross-sales, whatever words you wanna use, with nearly 700 deals. I think that when you look at maybe some other firms that are strictly in that business, they don't have the wider platform of Korn Ferry. And we'll see if that's gonna continue to be, you know, a differentiator. I personally think it will be. But I'm not gonna sit here and say that we're gonna be immune, from what we're seeing and, you know, what others are seeing when it comes to interim services.

George Tong (Senior Research Analyst)

Thank you.

Operator (participant)

Thank you. Our next question will come from the line of Jasper Bibb from Truist Securities. Please go ahead.

Jasper Bibb (Equity Research Associate)

Hey, good morning. This is Jasper Bibb for Toby. I just wanted to ask how you're thinking about the long-term EBITDA margin targets, just given, as you know, we've seen the mix of lower margin interim and RPO come up, as well as, you know, the company's been able to continue to take fixed costs out of the business. You think that 18%-19% range is still feasible, or would it potentially be lower than that now? Thank you.

Gary Burnison (CEO)

Well, Bob will answer that question directly, but I would just, you know, provide context. When you look at this firm, and I've, you know, I've seen it go from, you know, sub $300 million to $3 billion, that what you would say is peak to peak, cycle to cycle, trough to trough, we've continually gone up and to the right. That is absolute fact, and you can look at it in the data. The other thing I would point out is that we did make a conscious decision to address a large market that we think is going to be quite lucrative for shareholders and our colleagues over the next several years, and that's interim services.

With that and an increasing focus on RPO, you know, when you look back in the past, clearly there's about a 200 basis point difference. I think you really have to factor that in to the modeling. You know, before the pandemic, if I remember right, and Bob can correct me, you know, we were probably running, you know, 15, 14.5, 15.5 EBITDA margins. Then we, you know, we saw a huge upswing a year ago. I would just say that whatever those models and those boundaries, I do think you have to adjust it by 200 basis points for the changing mix of business as we look forward. Bob, what would you say on the specific operating boundaries for the firm?

Bob Rozek (EVP, Chief Financial, and Corporate Officer)

Yeah, sure. Thanks, Gary. I think, you know, as I said in the remarks, you know, Q1, we expect to be kind of 13.5%. I would say for the near term, we would continue to manage the business to about 13%-14%, somewhere in that range, as we're, you know, just continuing to invest in our revenue-generating capacity. You know, if the long-anticipated recession, you know, were to occur, and again, depending on the severity, you know, we would manage the business, you know, kind of mid to high single digits in a more severe downturn, and then low double digits in a more moderate scenario. Ultimately, from a longer-term perspective, a lot of it's gonna depend on, you know, what the business looks like.

You know, if search bounces back, digital, we get digital where we, you know, we think it's capable of going to. As Gary alluded to, RPO is just continuing to win new business and become a larger piece of the pie. There's a lot of moving pieces, but I would say from a long-term perspective, you should expect to see us kind of in the 16%-18% range. Down a little bit from the, you know, 18, 19, where we previously communicated, but I would say 16-18 is probably a good spot to land at this point.

Jasper Bibb (Equity Research Associate)

I think that makes sense. Then, Gary, you mentioned, Generative AI in the prepared remarks. I know it's still early, but, any preliminary expectations for AI risks or opportunities in the business model?

Gary Burnison (CEO)

Well, we've got a threefold plan. We're going at it big time. Let me just first say that nobody knows exactly where this is gonna go. That's number 1, even the so-called leaders in the space. It's gained a lot of attention for very good reason. Could it be to the knowledge worker what, you know, the Industrial Revolution was to manufacturing? I don't know if I would go that far. But clearly, it's an opportunity for us. We're really looking at it in kind of 3 dimensions. 1 is around how we can use it offensively, to drive greater impact with our clients.

Two is around our vulnerabilities, and three, is around the people that we need to partner with, the broader ecosystem, to help navigate that. I would just say that I believe very, very strongly that in this business, and I think what we've proven over the years, is that data and knowledge is everything. We've got teams right now, looking at, are we capturing all the data we can be capturing? Are we putting it in a warehouse? Can we easily access that warehouse to provide insights to our clients? Secondly, our IP and our assessment, is that truly fit for purpose in this world that we're heading into in the next 5 years, where there's tremendous...

There's not much anticipated labor growth, there's gonna be skill shortages, continuing, and, you know, is our assessments and IP fit for purpose for the next 5 years, the next 10 years? I really do believe that those two things, data, insight, knowledge, our assessment and IP, we have to make sure that we're investing in. Because I think that, no matter where this AI conversation goes, that ultimately, I think, will be the winner. Clearly, You know, we've been using AI in, you know, part of our recruiting processes, for some time now. You know, clearly around our learning and development business, there's an enormous opportunity there. That's an area that we're focused in on. I just, you know, practically speaking, you know, you make your path as you walk it. I just think that data, as, you know, our IP, our assessment, the, you know, the knowledge that we have, we have to make sure that we are putting enough capital into the foundation of the firm.

Bob Rozek (EVP, Chief Financial, and Corporate Officer)

Hey, hey, Gary, it's Bob. I would just add to that one point. If you think about where we, you know, Korn Ferry shines relative to our clients, it's helping them work through disruption, right? Like you said, wherever Generative AI is going, nobody knows for sure, but I think, you know, the likelihood of it being disruptive, you know, obviously is there. You think about what we've done during times of social disruption, COVID, remote, hybrid working, and so on, we've been partnering with our clients to help them work through those disruptive periods. You know, as I look at this, I think this is just another step along the way for us to help our clients work through disruption and continue to drive their businesses forward.

Jasper Bibb (Equity Research Associate)

Appreciate the detail there. Last one for me. You mentioned China picked up from a search perspective, a little bit in May. At least domestically, it seems like we've seen capital markets activity start to pick up a little bit off really low levels in June. Maybe it's early, but are you seeing any green shoots domestically for the search business in June, just given, I guess, the rebound in equity markets and maybe the IPO pipeline starting to warm back up?

Gary Burnison (CEO)

When you say domestically, are you talking about domestic China or domestic United States?

Jasper Bibb (Equity Research Associate)

Domestic United States.

Gary Burnison (CEO)

Well, you know, look, one month doesn't make a trend. What we saw in May was certainly good news. You know, when you look month sequential, so not month year-over-year, but if you just look month sequential, and you take April to May, our normal seasonal pattern, we would expect new business to be down 3%-5%. We were up 5% on an organic basis, it would probably be in that down 3%-5%, so right in line. May to June, we would expect to see month sequential, not year-over-year, but month sequential, we would expect that to be up 5%. We haven't closed out June yet.

We have a number of days left, then you've also got the Fourth of July, and we're kind of in line with that kind of number. I think you're right, it may be too early for green shoots, but certainly, it's more encouraging than not, that over the last few months, we've seen a stabilization in the executive search business. In North America, you know, May new business was, you know, the trend was better than it was the previous month or two. But again, you know, with our consulting and digital and interim businesses, you know, those have really held up quite well overall.

Jasper Bibb (Equity Research Associate)

Yeah, that's fair enough. Thank you for taking the questions.

Operator (participant)

Thank you. Our next question is from Trevor Romeo from William Blair. Please go ahead.

Trevor Romeo (Research Analyst)

Hi, thanks so much for taking the questions. First, I just kind of wanted to ask about fourth quarter results relative to your expectations, you know, particularly on margins, since revenue was above the guidance, EPS was kind of more in line. I think Greg's comments had talked about, you know, the mix shift in revenue, startup costs with some RPO engagements, investments in headcount and product development. We're just wondering if you could maybe talk about which of those factors had more of an impact than you might have thought going into the quarter, if any? Just any kind of color on the margin performance in the quarter would be great.

Gary Burnison (CEO)

Well, I'll let Bob comment. I mean, I would just say that, you know, we had guided to an EBITDA margin of, I believe, 14%. And I think where we came out was, you know, 13.5%. It was actually fairly close to what we had expected. I mean, in any given quarter, you could have some unusual items swinging one way or the other. I guess I wouldn't say that, you know, we said 7 months ago that we were going to run the business at kind of 14%. This is pretty close to that. And again, you know, when you see the falloff in search, you see this mix shift that's happening within the organization. I think it was, you know, substantially in line with what we had thought, like seven or eight months ago, and that we told our shareholders. Bob Rozek, you can probably give a better view, I think, than I can.

Bob Rozek (EVP, Chief Financial, and Corporate Officer)

Yeah. Trevor, if you look at whether you go quarter sequential, year-over-year, the mix shift is, you know, likely 80% of the decline that you see in the adjusted EBITDA margin. As Gary said, it's the primary driver of it. In the fourth quarter, because our revenues exceeded the top end of our range, we did have, you know, in our business, when a lot of the bonuses are driven off revenue. We had to book a little bit more bonus in the fourth quarter, to, you know, to satisfy the demand, but the primary driver is just the change in mix.

Trevor Romeo (Research Analyst)

Okay, got it. Thanks. That is helpful. For my follow-up, just kind of wanted to ask about your M&A pipeline. I think we've heard from some other companies about, you know, a tough M&A market with disconnects on valuation between buyers and sellers. Others may be suggesting the pipeline could open up a bit. You guys have obviously done a few acquisitions lately yourselves. Just kind of wondering where your pipeline stands today, which areas you kind of see being attractive right now? Thanks.

Gary Burnison (CEO)

You know, we've always taken a very systematic approach to capital allocation, and we would expect that to continue. At any one given point in time, I don't really say, you know, the pipeline is big or small. I mean, that's not how we're going about it. We're going about it to say, where's the real market opportunity? Where can we have greater client impact? In whatever we're looking at, you know, what does the neighborhood look like at 11:00 at night? You know, what are your neighbors like? It's all about culture fit. You know, you go through cycles, up cycles, down cycles. I don't really look at it that way. We continue to have a very systematic approach, and we continue to meet with companies to get to know them. So I don't think today is any different than it was, say, three or four months ago.

Trevor Romeo (Research Analyst)

Thank you very much.

Operator (participant)

Thank you. Our next question is from Marc Riddick, from Sidoti. Please go ahead.

Marc Riddick (Senior Equity Analyst)

Hey, good afternoon.

Gary Burnison (CEO)

Yeah.

Marc Riddick (Senior Equity Analyst)

I just wanted to touch on a couple of areas that you touched on earlier, but I just wanted to follow up on as far as the opportunities that you see before you. You talked about, you know, being willing to invest and adding talent as we go through the year. Are there any particular areas, either strategically or geographically, that are kind of really sort of jumping out as feelings, though maybe you're understaffed or maybe missing an opportunity at this point?

Gary Burnison (CEO)

Well, there's a couple places in the world where I've asked our team to quadruple our business. I mean, I'm not gonna point those out publicly, but clearly, you know, it's not one size fits all. There's countries that are doing exceptionally well right now, and we have great businesses there, but we're just scratching the surface of what that could be. I'm sure you could maybe guess at what those are, but we've got a, you know, we've got a very aggressive plan in 2 or 3 geographies that we see huge opportunity. Look, the consulting business is a no-brainer. We, despite where we are today, I continue to believe that we can use more colleagues and more resources, you know, in the consulting area.

I just, you know, I don't wanna just say that's the favorite child, because there's a number of opportunities we could pursue, but just broad-based, we've just seen some enormous wins, with our consulting and digital solutions working together. I just, that's a multibillion-dollar opportunity for us, you know, over the medium to long term. That's the thing that would come, you know, screaming off the page. Then I think that, you know, the fact that we have this incredible data, and, you know, how do we, you know, how do we go about, you know, licensing that?

How do we go about using that, either standalone or with consulting, pushing or pulling, and really helping to solve what I think are gonna continue to be, organizational challenges for clients? I mean, in a time of tremendous change in a labor market that's really not moving. You know, I think that's an opportunity for Korn Ferry.

Marc Riddick (Senior Equity Analyst)

That's very helpful. Then maybe you could touch a little bit on maybe what your thoughts are or expectations are on CapEx for this fiscal year, and sort of how that might play into tech spend, and maybe whether that is to some level tied to the AI commentary that you had earlier. Maybe sort of tie some of that a little bit together to sort of give us a sense of sort of where we might be going there. Thanks.

Gary Burnison (CEO)

Good. Bob?

Bob Rozek (EVP, Chief Financial, and Corporate Officer)

Yeah, I'll take that.

Gary Burnison (CEO)

Yeah.

Bob Rozek (EVP, Chief Financial, and Corporate Officer)

You know, our capital spending this year will be relatively consistent with what we saw last year in FY 2023. Figuring somewhere kind of $65 million-$70 million with, like, you know, probably somewhere around $50 million of that going into the Digital business. There'll be some in the Consulting business, the rest would go to kind of making sure that the fort protects all the assets and keeps the bad guys out. I would look at our CapEx this year very consistently with what we did last year.

Marc Riddick (Senior Equity Analyst)

Great. Thank you very much.

Operator (participant)

Thank you. The next question is from Mark Marcon from Baird. Please go ahead.

Andre Childress (Senior Research Associate)

Hello, this is Andre Childress on for Mark Marcon. Thank you for taking our questions. Could you go into some detail about what you're seeing by geography and by vertical? I think it's interesting how well EMEA has held up on the search side, at least relative to North America. I know previously you said industrial was holding up pretty well, but can you give an update on what verticals might be doing well, while which ones may be struggling a little bit more?

Gary Burnison (CEO)

Well, I think so in EMEA, it's more than the search business. It's all of the businesses are doing very, very well. You know, it's fairly broad-based. I mean, there's a couple areas that are really performing extraordinarily well. It's more than search. It's in EMEA, it's across the entire platform. Industrial is, you know, that's important for us. It's almost 30% of the company. It's a big, big part of our portfolio. You know, if you look either, you know, you look at year-over-year, for example, and you're seeing kind of an, you know, 8% lift here. You know, clearly the Infrastructure Act in the United States is having some impact, no doubt about it.

You see it across manufacturing, energy, engineering and construction. Even, you know, sequentially, automotive, you know, held up. It's been fairly broad-based within industrial. I'm not gonna kind of pick on one sector, but overall, that's a positive for Korn Ferry, given the size of industrial relative to the other pieces of the portfolio.

Andre Childress (Senior Research Associate)

Great color. Thank you. Switching over to the interim side, could you talk about maybe what roles or skills you are seeing particular success with, whether it be within cross-sell or outside of that? Also, when you're looking at adding capacity, both organically as well as inorganically, maybe what areas would you be more likely to add to?

Gary Burnison (CEO)

Well, we're going to, you know, we really do believe that finance and accounting, technology, you know, supply chain, HR, those would be the areas that are the natural adjacencies for Korn Ferry, and that we would tend to stay at the high end of those markets. That's kind of our strategic focus. You know what? It is impressive. I mean, I just...

The quality of the people that have joined, the kinds of assignments that we're doing, and, you know, the fit within Korn Ferry, I mean, to think about in a very, very short amount of time, that you've seen, you know, a $50 million revenue lift in about 18 months, maybe it's a little bit longer, but, you know, 700 deals, I mean, that, wow, you start to extrapolate that out and, you know, it's a real positive. You know, that's one of the foundations of the strategy is that, you know, can we, you know, create more impact with clients with a broad platform, that ranges from org strategy to compensation and benefits and developing people and leaders? When you look at the firm overall, you know, our cross-referrals are.

5% to 30% of the overall firm. You know, you look at that, then you look at the marquee and regional accounts, and you think about, you know, that being, you know, 35%-40% of the firm, and you know, it's working. That, you know, is my point. We do believe that with this, you know, high-end interim service that we have, there could be some moderation. I mean, I'm not gonna, you know, how could we be immune? The market potential is enormous.

Bob Rozek (EVP, Chief Financial, and Corporate Officer)

Yeah, Gary, the only thing I would add to that, too, is the, you know, proclivity for executive search to work with the Patina folks on the C-suite, you know, interim placements. It seems to be an area that there's real synergies going on as well.

Operator (participant)

Thank you. That does, appear to be the final question. Please go ahead with any closing remarks.

Gary Burnison (CEO)

Okay, Lois, thank you for moderating this. As Bob said, we're incredibly proud of our team, and we certainly appreciate you listening. We look forward to speaking to you very, very soon. With that, we'll sign off, and have a great day. See you. Bye-bye.

Operator (participant)

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