Korn Ferry Q2 2024 Earnings Call Transcript

The following is excerpted from the question-and-answer section of the transcript.

Question: George Tong - Goldman Sachs & Company, Inc. - Analyst : Hi. Thanks. Good morning. New business ex RPO inflected to a decline in the quarter, but looks like November following normal seasonal patterns. Can you talk a little bit more about new business trends that you saw by month during and exiting the quarter, November trends suggest that we've essentially formed a bottom in terms of new business?

Question: George Tong - Goldman Sachs & Company, Inc. - Analyst : Got it. That's helpful. You additionally talked about increasing cross referrals among large marquee and regional accounts. Can you provide some metrics on the extent of cross selling and where you're seeing the most amount of cross-selling -- which divisions?

Question: George Tong - Goldman Sachs & Company, Inc. - Analyst : Very helpful. Thank you.

Question: Mark Marcon - Robert W. Baird & Co., Inc. - Analyst : Very good morning or good afternoon depending on where you are. Had a couple of questions. One, Gary, you started out by basically talking about, hey, we've got this big reset in terms of getting ready for changes in rates. From your conversations and what your top consultants and the feedback that they're giving you, how are they viewing this reset? Like how long do they think it's going to take? How is that impacting talent plans? What are you just seeing from that perspective? Because things have been stable for the last five months. And in addition to that, we are seeing some chatter about Goldilocks of maybe a soft landing instead of expected recession. So I'm just wondering how that all melds together.

Question: Mark Marcon - Robert W. Baird & Co., Inc. - Analyst : Great. I appreciate the perspective. With regards to capital allocation, so congrats on increasing the dividend. I know that that's been a point of discussion with the Board for quite some time. Can you talk a little bit about the dynamics that led to such a a strong increase in terms of the dividend? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 06, 2023 / 5:00PM, KFY.N - Q2 2024 Korn Ferry Earnings Call And how -- of the top management as well as the Board, what changed in terms of the thinking and how should we interpret that with regards to further investments in terms of areas like interim or professional search?

Question: Mark Marcon - Robert W. Baird & Co., Inc. - Analyst : Really appreciate that. I'm sure the shareholders do as well. With regards to the separation and the restructuring that's occurring, which sections are being impacted the most from that perspective in terms of -- when we take a look at the overall headcount reduction and that $110 million to $120 million in terms of cost reductions, which divisions are being impacted the most there?

Question: Mark Marcon - Robert W. Baird & Co., Inc. - Analyst : Great. I've got lots of other questions, but now I'll jump back in the queue. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 06, 2023 / 5:00PM, KFY.N - Q2 2024 Korn Ferry Earnings Call

Question: Tobey Sommer - Truist Securities - Analyst : (technical difficulty) capital intensity -- over the last few years, your CapEx has gone from like $31 million in fiscal '21. It looks like we're on run-rate for over $80 million this year. Can you talk about that -- what your goals are for -- what it will achieve and if there's a potential for it to normalize down as a percentage of sales and/or operating cash flow?

Question: Tobey Sommer - Truist Securities - Analyst : Yeah, absolutely. So I wanted to ask about capital intensity in recent years and year to date, CapEx has gone up significantly, more than doubled in 3.5 years. So I want to know what the goals are, what you're achieving in or hope to achieve in the future and whether that could normalize down as a percentage of sales and operating cash?

Question: Tobey Sommer - Truist Securities - Analyst : Ok. So does edge down from last fiscal year and last year. REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 06, 2023 / 5:00PM, KFY.N - Q2 2024 Korn Ferry Earnings Call

Question: Tobey Sommer - Truist Securities - Analyst : Appreciate that detail. How do we assess the effectiveness of those investments because they're they're multiyear in nature and it's a process, is it more rapid growth in the licensing piece within digital? Is today also a boost in the medium term growth rate of consulting like sort of from where we sit outside the company, how do we assess the efficacy of those investments?

Question: Tobey Sommer - Truist Securities - Analyst : Sure. Gary, how do we think about -- and how do you think about the internal recruiting capability that your customers have retained during this uncertain economic period of the last seven or eight quarters? And what does it mean to the ability of the company to grow as perhaps marginal demand increases? How much will be retained internally at the customers versus represent --given itself as demands here at Korn Ferry?

Question: Tobey Sommer - Truist Securities - Analyst : If I could sneak one last one. I want to react to something you said earlier. You said perhaps in general deflation. How could that manifest itself in wages? And how does that representation wages impact your growth in a year or two? Thanks.

Question: Tobey Sommer - Truist Securities - Analyst : Thank you for being so generous to with my questions.

Question: Trevor Romeo - William Blair & Company, L.L.C - Analyst : Hi. Thanks so much for taking the questions. First one is just on the revenue guidance. I was just wondering if you could talk about your expectations for each segment and in total, it's maybe a mid to high single digit decline sequentially that's embedded. Kind of on the consolidated basis. Just wondering if you could talk about the various factors for each of the businesses?

Question: Trevor Romeo - William Blair & Company, L.L.C - Analyst : Okay. Thanks, Gary. That's helpful. On the leadership development outsourcing or the coaching at scale business you've been talking more about lately, just wondering if you could talk about how you progressed toward that opportunity the past several months and how significant that can be to the company in the future?

Question: Trevor Romeo - William Blair & Company, L.L.C - Analyst : Great, thanks. And then if I could maybe sneak one more in. Just to follow up on the restructuring, I think the the annual cost savings, I think is about 4% of the current revenue run rate. I mean, just simplistically, would you expect that to have about a 4% positive impact on margins on an ongoing basis? Or would there be some offsets there? And then on kind of the phasing or the timing -- will all of that benefit be captured by the end of Q3? Or would there be some lagging impacts beyond that? Thanks.

Question: Trevor Romeo - William Blair & Company, L.L.C - Analyst : Okay, understood. Thank you very much.

Question: Josh Chan - UBS Securities LLC - Analyst : Hi, good morning and thanks for taking my questions. So just one question on the guidance. You mentioned that in the third quarter you expect about 15% EBITDA margin, which is obviously higher than what you did in Q2. So I was just wondering in what businesses do you expect to see that most of that sequential margin impact?

Question: Josh Chan - UBS Securities LLC - Analyst : Okay. That's helpful. Thank you on. And then just a last follow up, I guess on the restructuring. Could you guys just run through the thought process and timing behind that? Because it didn't seem like any business took a leg down in the quarter really. And so is it more of a catch-up and an acknowledgment that the recovery may may take a little bit of time or I guess what was the thought process behind doing that now?

Question: Josh Chan - UBS Securities LLC - Analyst : Great. Appreciate the color there, and good luck in the second half of the year.

Question: Mark Marcon - Robert W. Baird & Co., Inc. - Analyst : Thanks for taking my follow-ups. Gary, wanted you to expand, if possible, on your last comments. With regards to the rationale for doing it, I think you've always been very clear and it's very thoughtful in terms of the reduction. And it seems like everybody who is with the firm and coming through this on the other side is going to benefit from it. But I'm wondering if you can describe how morale is, how is retention with regards to the consultants that you want to keep, and how -- to what extent do all the consultants appreciate the necessity of doing what you did?

Question: Mark Marcon - Robert W. Baird & Co., Inc. - Analyst : Great. The digital business, despite the economic softness, has been growing and -- modest 2.9% year-over-year growth but strong sequential growth. Can you talk a little bit about the areas that you're seeing the greatest success in the digital business? And then you also earlier referenced bigger projects on the consulting side. And I'm wondering if you can talk a little bit about that. And then just how should we think about the lumpiness with regards to new business trends as it relates to digital?

Question: Mark Marcon - Robert W. Baird & Co., Inc. - Analyst : Can you talk about like on the digital side with your largest client there, how is that progressing? What are you hearing? How referenceable are they going to be?

Question: Mark Marcon - Robert W. Baird & Co., Inc. - Analyst : Yeah. I was just talking about that one contract that -- you know what I'm talking about in terms of how well that's going on. So was curious there. With regards to China, you did mention it's been soft and a big drag. But Gary, you mentioned it's starting to pick up a little bit or stabilize. Can you expand on that? REFINITIV STREETEVENTS | www.refinitiv.com | Contact Us consent of Refinitiv. 'Refinitiv' and the Refinitiv logo are registered trademarks of Refinitiv and its affiliated companies. DECEMBER 06, 2023 / 5:00PM, KFY.N - Q2 2024 Korn Ferry Earnings Call

Question: Mark Marcon - Robert W. Baird & Co., Inc. - Analyst : Great to hear. Thank you very much.