Korn Ferry

Ladies and gentlemen, thank you for standing by and welcome to the Korn Ferry first quarter fiscal year 2020 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 kornferry.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 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 Form Act of 1995. Although the company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, investors are cautioned not to place undue reliance on such statements. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties which are beyond the company's control. Additional information concerning such risks and uncertainties can be found in the release relating to this presentation and in the periodic reports filed by the company with the SEC, including the company's annual report for fiscal year 2019. Also, some of the comments today may reference non-GAAP financial measures such as constant currency amounts, EBITDA, and adjusted EBITDA. Additional information concerning these measures including reconciliations to the most direct comparable gap financial measure, is contained in the financial presentation and earnings release related 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.

Okay, thanks, Greg, and thanks. Good afternoon, everybody, and thanks for joining us. We had a very good quarter. We came in with growth at about 7% constant currency, which is 4% actual. Fee revenue was $485 million. And that growth was clearly driven by our RPO and professional search offering, which grew at 27% constant currency. And that's the 21st consecutive quarter growth. of double-digit growth for our RPO and professional search business. We saw revenue growth in all geographies, again, constant currency. Asia and South America were up 11%. EMEA was up 7%, and North America was up 5%. Earnings remained very strong. EBITDA was about $75 million, and we continued to allocate capital to share repurchases. We bought back almost a million shares to date using about $40 million. Our financial results for the quarter, I think they really demonstrate the durability of our business model and whether that's driving our clients' organizational efficiency or delivering on an M&A integration. Our firm, Korn Ferry, not only helps organizations, but as importantly, teams, leaders, and individuals exceed their potential. That's what this company is all about, enabling people and organizations to indeed exceed their potential. In a couple months here, November 14th, it's going to mark our 50th 5.0 year in business. Out of this five-decade journey, I'm probably, and certainly I haven't been here for all 50 years, but I've been here for a good 17 or 18, and I think out of that five-decade journey, I'm probably more confident today about where we are positioned and our strategy than ever before. I see rich opportunities in our vast IP, which will provide a platform for digital insights, a part of our business that provides more regular durable revenue streams. We have an advisory business today that is twice the size of what the entire firm was a decade ago. I think we've got headroom in the marquee and regional clients. The marquees represent about 21% of our portfolio. And in the first quarter, we expanded this to about 200 regional accounts. I also look at opportunities like KF Advance, which is a business that we've basically just started, but it entails offering career advice to professionals. And in a very, very short time, we've gone to kind of asking, could we do this to a full-fledged offering with 82,000 professionals who are benefiting from to date about 11,000 coaching sessions. And I think we're building the world's career gymnasium for people to exercise their career fitness. And so that single Rolodex that Lester Korn and Richard Ferry started this great firm with many years ago has been transformed into arguably the world's most comprehensive people in organizational databases. I mean, we've got organizational benchmark data on 12,000 entities, 4 billion data points on professionals, 69 million assessments taken, and rewards data on over 20 million people and almost 25,000 companies. Clearly, that's Mr. Inside Baseball. And so that boutique firm of the past with long line of business today puts somebody in a job every three working minutes. Every month we develop over 100,000 individuals, and we've dramatically now shifted to a global firm with solutions that synchronize an organization's strategy and talent to drive superior performance for our clients. That's what it's all about. So more than... organizational strategy or compensation advisory, more than talent acquisition, more than leadership development, Korn Ferry enables people and organizations to be more than, simply put, to exceed their potential. Today's Korn Ferry is instrumental to the growth of organizations, helping them optimize their workforce and driving meaningful outcomes. Business outcomes. So our go-forward strategy is going to, you know, comprise, you know, really five pillars. One, an enterprise go-to-market approach with clients of scale, creating a portfolio of house accounts. We'd like to see them be, you know, 30%, 35%, 40% of our portfolio. Two, developing a more subscription-based revenue stream from our digital insights business, which was formerly called our products business. Three, continuing to create a career destination for our colleagues. Four, a disciplined approach to capital, including M&A, share repurchases, and dividends. And finally, innovating and monetizing our IP. An example would be the Corn Free Advance offering that we've got now. So I'm joined here with our CFO, Bob Rozak, and Greg Kowalczyk. So, Bob, I'll turn it over to you.

Great. Thanks, Gary. And good afternoon, everybody. I would echo Gary's comments on the strong results we had in this quarter. You know, the financial results do remain strong, and we continue to demonstrate the durability of our business model as well as the relevance that our solutions have in driving meaningful business outcomes for our clients. Fee revenue in our just-completed first quarter grew to almost $485 million, which is up 4%. year-over-year in actual dollars, and as Gary indicated, nearly 7% measured at constant currency. Each of our business segments grew in the first quarter, exec search up 2%, advisory up 3%, and RPO and pro search up over 27%. Again, all measured at constant currency. Our earnings remained strong with EBITDA at approximately $75 million, which compared to adjusted EBITDA in the first quarter of fiscal 2019, was up $4 million or about 5.8%. Our profitability also improved with EBITDA margin reaching 15.5% compared to an adjusted EBITDA margin last year in the first quarter of 15.2%. Now turning to new business trends. Globally, new business in search was essentially flat year over year while advisory new business was up 4% at constant currency. For advisory, new business in the first quarter was up 19% year-over-year in North America, but was partially offset by weakness in certain geographies internationally. Demand for RPO and pro-search services remained strong in the first quarter with total new business awards of $97 million, consisting of $31 million of new pro-search assignments, and 66 million of longer-term recruitment outsourcing contracts. Now, of the 66 million, approximately 32 million are new logos or new clients, with approximately 34 million of the extensions and renewals making up the difference. Also of particular note, in the first quarter, we had strong RPO wins in the UK, which is a strong indicator of the secular demand for recruitment outsourcing even in markets challenged by economic and geopolitical turmoil. At the end of the first quarter, total cash and marketable securities were $567 million, and that's up about $67 million compared to the first quarter of last year. Excluding amounts reserved for deferred comp and for accrued bonuses, our investable cash balance at the end of the first quarter was approximately $363 million, And that's also up about $67 million year over year. We had outstanding debt at the end of the first quarter of about $223 million. As Gary indicated, we did stay on path with our balanced approach to capital allocation. The board declared a dividend of $0.10. And as Gary mentioned, we repurchased about a million shares, spending just shy of $40 million dollars. And currently we have about $213 million remaining on our authorization for share repurchases. And finally, fully diluted earnings per share in the first quarter were $0.76. That's down $0.02 or 2% compared to the same number last year in the first quarter. And the decrease is primarily driven by a higher effective tax rate in this year's first quarter versus last year. This year our rate was 24.9%. and last year the rate was 19.6% in the first fiscal quarter. And I'll turn the call over to Greg to review operating segments in more detail.

Okay. Thanks, Bob. Global executive search fee revenue in the first quarter of fiscal 20 was $193.2 million, which compared year over year was flat, but measured at constant currency was up 2%. By region at constant currency, North America was flat, Europe was up 4%, Asia Pacific was up 8% and Latin America was up 3%. By executive search specialty practice at actual rates, growth in the first quarter was led by our financial services practice at 6% and our industrial practice at 4% while life sciences, healthcare, consumer goods and technology practices were flat to down modestly. The total number of dedicated executive search consultants worldwide at the end of the first quarter was 569 up 24 year-over-year, and up four sequentially. Annualized fee revenue production per consultant in the first quarter was 1.36 million, and the number of new search assignments opened worldwide in the first quarter was 1,695, which was essentially flat year-over-year. EBITDA for executive search in the first quarter was $48.9 million, up $2.1 million, or over 4.6% year-over-year. The consolidated EBITDA margin for executive search in the first quarter of fiscal 20 was 25.3% compared to 24.2% in the first quarter of fiscal 19. Now turning to advisory. In the first quarter, global advisory fee revenue was $195.5 million, which grew 3% year-over-year, measured at constant currency. Growth was spread across all regions, with North America up approximately 1 percent, Europe up approximately 2 percent, and Asia Pacific up approximately 9 percent, all measured at constant currency. As previously mentioned, global new business awards in the first quarter for advisory were up approximately 4 percent year over year, measured at constant currency, with double-digit growth in North America being offset by weaker new business in international markets. In the first quarter, EBITDA for advisory was $34.6 million, with a 17.7% margin, both flat year over year. Finally, growth for RPO and professional search continued at a high double-digit pace in the first quarter of fiscal 20. In the first quarter, RPO and professional search generated a record high $95.8 million of fee revenue, which was up 24% year over year and measured at constant currency up over 27%. All geographic regions grew in the first quarter, with North America up 28%, Europe up 33%, and Asia Pacific up 18%. As previously mentioned, in the first quarter, RPO and Professional Search was awarded another $97 million of global new business, consisting of $66 million of longer-term recruitment outsourcing contracts and $31 million of shorter professional search assignments. Earnings and profitability for RPO and professional search continued to grow with revenue in the first quarter. EBITDA grew to $16.1 million, up $3.6 million, or nearly 29% year-over-year, and EBITDA margin improved year-over-year to 16.8%. Now turn the call back over to Bob to discuss our outlook for the second quarter of fiscal 20.

Okay, thanks, Greg. Across all service lines, global new business growth in July and August combined was up 7% at constant currency, led by RPO and professional search. For executive search, new business awards in July and August combined were down about 3% year over year. If historic monthly new business trends repeat, we expect executive search new business to grow sequentially in September and to hit a quarter peak in the month of October. For advisory, new business in the second quarter is typically seasonally strong, led by our digital insights. Globally, advisory new business in July and August combined was flat, measured year over year at constant currency. For professional search, new business in July and August combined measured year-over-year at constant currency was up approximately 5%. For RPO, both business under contract and the pipeline of potential new business opportunities remain strong, and we expect growth to continue in the second quarter. Now, considering these factors and assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, we expect our consolidated fee revenue in the second quarter of fiscal 20 to range from $485 million to $505 million, and we expect our consolidated diluted earnings per share to range from $0.76 to $0.84. That concludes our prepared remarks, and we would be glad to answer any questions you may have.

And ladies and gentlemen, if you'd like to ask a question, please press star then one on your telephone keypad. You'll hear a tone indicating you have been placed in queue and you may remove yourself from queue at any time by pressing the pound key. If you're using a speakerphone, please pick up the handset before pressing the numbers. Once again, if you have a question, please press star then one at this time. And our first question comes from the line of Kevin McVey with Credit Suisse. Please go ahead. Your line is open.

Great, thanks so much. Hey, thank you all. Hey Bob, just looking at the Q2 guide, you know, seasonally, Q2 is typically one of the stronger quarters. Any sense of, and I look back, it looks like typically you have, you know, anywhere from a $30 to $50 million uptick. The kind of lower end of the range would imply kind of flat, higher end a little bit of an uptick. I guess, what's the gaining factors on that, number one? And then, what's the tax rate or is there anything else that's kind of impacting the EPS and Q2, I guess just relative to where the revenue is?

Yeah, so I would say the gating factors, when you look across what's happening in the different geographies, you have trade wars with China, you have Brexit, who knows where that's going to end up, technical recession in Germany. So those are some of the factors that are are weighing a little bit on our Q2 guide. You know, we're experiencing the softness in the geographies or countries where you would expect to see that. You know, in terms of the guidance, the EPS guidance, it's really not the tax rate. The tax rate is really no different than what we had talked about, you know, previously. I think it's going to be 25 to 27 percent in that range generally. But we continue to be very bullish on our business. We believe deeply in our strategy. And we're just continuing to execute on our balanced approach to capital allocation, which our first priority is to invest back into the business. And so as we expand our base of fee earners, as we expand the marquee account program, introduce the regional accounts, those are areas where we're investing back in at this point. And, Kevin, if you step back and look at our marquee accounts, you know, Gary indicated they were about 21% of our revenue. Well, those accounts in Q1, where it's a more mature program, grew 9% in constant currency. So, you know, that growth rate continues to outpace the rest of the company, and that's where we're making our investments.

Got it. And is that just – I guess the only thing along those lines, too, Bob, was the advisory headcount looked like it was down – quarter-to-quarter, if I picked that up right, anything there looked like it went to 563 from 577. Was that just maybe certain regions that are a little bit weaker?

The advisory headcount actually, I think, went up quarter-to-quarter, Kevin. Greg, do you have the number there?

Yeah. So I'm not sure what you're referring to, Kevin, but in the slides that we posted on our website, we now have County consultants and execution staff in the quarter, and it was 1,758. And in the prior quarter, so sequential quarter, it was 1,699. So it's actually up, yeah.

Yeah, it's up, Kevin. And, Kevin, what we've done is we've really shifted away from just calling out what we call the fee-inners or the consultants in the advisory space. Because that's really taking a look at that business through more of an executive search lens. And what really drives revenue is not just the individuals who sell the work, but you have to have, you know, the staff on hand to execute the work. So we've gone to a different defined number, if you will, in terms of what we're communicating now.

Got it. And I'm sorry, maybe I had the wrong – I was looking at slide number 12 where it looked like it went from 577 to 563, the number of consultants and professional staff.

Kevin, why don't we take that offline? Sorry about that. Maybe I picked it up wrong.

Okay.

Thank you, guys. Talk to you.

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

Hi, thanks. Good afternoon. The advisory business moderated a bit to low single-digit growth on the constant currency basis. Can you discuss initiatives that you have to reaccelerate the growth towards your longer-term growth target of 10% to 15%?

Well, I think you would sit there and you would look at several factors. Number one, when we have built that business, which was $8 million not that long ago, today is over $800 million. When you look at that business, particularly the last investment we made in the Hay Group, a substantial 80% of that business was outside the United States, which was great at that point. Where we are today is the first thing you've got to do is to increase the scale of the U.S. business. So that's something we're working on. very, very hard, and you'll see that Bob commented on the new business that we saw in consulting in North America, you know, with double digit, very, very impressive. So that would be one. Number two is for any professional services firm, you have to have house accounts. You have to have big, loyal clients of scale where you're delivering, you know, multiple services with hundreds of colleagues. So that would be two. The third is around our IP. And we've got to continue to digitize that IP and create that more scalable lift in revenue. So those are really the primary three avenues, excluding M&A, that we're going down.

Very helpful. If we switch gears and look at the RPO business, that segment grew 27% constant currency, very strong. Can you dissect how much of this growth is being driven by an unpenetrated market versus new product and sales initiatives that you're internally executing upon?

I'll let Bob do the numbers. I'm going to say both. I'm going to say the interesting thing about that RPO and the professional search business is I – You know, we made a purposeful decision to go after on the professional search side IT, technical skills. And, you know, we think that market is at least $20 billion, maybe $30 billion. And we're pretty excited about what we can do there. That's just in perm recruiting. That's not in staffing. Not that we get into staffing, but it's an interesting – You know, we've had very, very good results there. And I think back to the RPO business, the combination of our IP that we have coupled with the technology has just been killer. So, Bob, I don't know if you want to put any qualitative stuff.

Yeah, so I think Gary's right, George. I think it's both. As he indicated, you know, the pro-search, the emphasis on IT, on professional sales, individuals, I think those investments are paying off. And listen, on the RPO side, they continue to use, you heard Gary talk about all the IP that we have at the sort of center of our company, and they continue to differentiate their product offering by leveraging that IP into their RPO service offering. And the other folks can generate a lot of resumes, but we can generate resumes that line up with what good looks like in organizations. You know, we can provide people with interview questions. We can provide them with job descriptions, roles, responsibilities. So our service offering goes much beyond what others in the marketplace offer.

And the other thing that's interesting is that I don't like to use the word cross-sell, but I would say, you know, the deeper, multi-lined, offerings to single clients. So I'll just say cross-sell. In this last quarter, so if you look at the cross-sell into our consulting in terms of new business, it was about 20%. So in other words, 20% of the consulting new business revenue came from primarily, not all, but primarily search. If you look at the RPO business, it was 37%. If you look at the professional search business, it was 52%. And then when you look at the other lines of business into surge, it was only six. So clearly there's opportunity there. But I think that one firm's strategy is actually, you know, it's not just a story. It's reality. You know, you'd look at those numbers and say, well, you know, something's working. And you have more opportunity.

Yeah. And George, this is Bobby. And the last point I would add, and the thing that I found very interesting is we were looking at the results for the quarter, and then we started to understand August as it played out. We had RPO, good new business wins in both July and August in China and in Germany. So again, you look at those marketplaces and you expect there to be some headwinds there, but we actually saw the RPO with some strength, which kind of runs through the whole counter-cyclical that we've been talking about. Got it. Very helpful. Thank you.

Our next question comes from the line of Toby Summer with SunTrust. Please go ahead.

Thank you. I was wondering if you could comment on your appetite for acquisitions, capital deployment, the quarter purchased on share repurchase, and if I recall correctly on the last call, Gary, you talked about acting in winter. I don't know if You know, up 7% in constant currency equates to winter, but how are you feeling? I think, you know, we're going to be very active in repurchasing our stock. Just playing out, I think, the value. I think the platform that we have today, and you think about the amount of profit that comes from a product business that's more durable. When I look at comps and I see what they're trading at, it is amazing. substantially above our enterprise multiple of seven. So I look at that business, I look at a consulting business that is not as cyclical, I look at comps on multiples on that, then I go to the RPO business and run multiples, and we're gonna be more aggressive in buying back stock. In terms of the acquisitions, yeah, we are very active. We, you know, this last, you know, three or four months, we had three or four that we were very, very close to, and we decided not to go forward. So we're going to, you know, I do believe in that, and I don't know if it's fall. Clearly there's economic malaise that's going to continue. I'm not going to say it's fall. But we are going to have the orientation of investing into winter, yes. Okay, thank you. Could you talk about and elaborate on, I guess, your strategies to drive the growth in the marquee account base above 30% of the mix? I know you've had some plans, some efforts in recent years, but I was hoping you could kind of update us on how those are going and what future plans levers you have to pull? Yeah, I think it's a couple things. You've got to make sure you're picking the right accounts. You've got to have the right kind of governance. You've got to have the right kind of process. Then you need to have the right kind of people. So we've invested heavily now over several quarters into account leaders where their sole responsibility is is to have two, three, or four accounts. And I think now we don't have 100 of them, but it's close. And so we've made a purposeful effort there. So I think it's kind of will and skill. So on the capability side, I think we have to do – we've got the RPO offering. That's scale. There's no doubt about that working. We can deliver it anywhere. The leadership development, you know, the training area – is a big, big market. And we've got to do a better job there of creating platforms for individuals to grow and learn that can be, you know, sold to those marquee accounts, you know, Now, you may want to call that leadership development outsourcing, but that's actually big dollars and scaled engagement. So one of the things that's interesting about this KF Advanced business, which today is obviously very, very small, but the platform and the technology that we're using can actually be used to deliver broad-based leadership development. So I think that's very tactical, but I think it gives you kind of a practical element of some of the things you have to believe in. Great. Last question for me. Can you talk about what you're hearing from clients? Because on an overall basis, some of the international revenue growth, for reasons I think Bob cited, has been slower then in the U.S., but then you kind of mentioned new business and a couple of sore spots as being fine in August. So what are those conversations like? What are you hearing? I would say in one word, confused. It's an absolute, you know, it's a crazy environment. There's economic malaise and confusion. And, you know, one tweet moves the market. Somebody's comment moves the market 500 points is preposterous. So, you know, you can't undo the relationship with Britain and the EU that was done over 50 years. You don't undo that. Look, it hasn't been done in three years. It's not going to be done in three months. You could make the same argument around, you know, the trade issues, you know, when those get solved. So I would say it is confused. The consumer, though, ultimately in the United States seems to be very, very strong. Productivity is okay. Rates are going lower. That will help people that have mortgages. They'll be able to spend more money. So there's no – I haven't seen – You know, real talk around downsizing or things like that. Over the last, you know, several months, have clients taken longer? Yes, they've definitely taken longer to make decisions and sign things. And so confused would be the one-word answer. Okay, thank you. I could sneak one more in. How are you planning on handling your own internal financial revenue-generating headcount growth in the different businesses? Yeah, we're going after revenue producers enterprise-wide, and then on the leverage side of it, we're much more cautious.

Thank you.

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

Please go ahead. Good afternoon. A lot of my questions have been asked already, but I was just wondering, when you talked about the July and August trends, and obviously we saw how the quarter shook out, could you talk a little bit about this? It seemed like the pace of the news flow changed as July and August and here in early September progressed. Did you see any sort of linear relationship there? you know, in terms of that, you know, that flow of news and tweets and confusion and how the business went in a more granular fashion this July and August lumped together?

No, I mean, you know, look, I, you know, July in terms of new business, the year-over-year comparable was, you know, obviously better. The August year-over-year comparable was was slightly lower. I cannot read anything into one month. I tend to look at things in two or three months and try to gather what that really means. So no, the conversations, the tone, nothing like that changed between July and August materially. that would point you to kind of a different conclusion or direction. Yeah.

Mark, this is Bob. I would agree with Gary. I think, you know, we look at July and August. One month was up, one month was down. It's just their data points. And we haven't, as a result of those changes, we haven't decided to do anything differently internally. Right.

And then with regards to, you know, some of the business initiatives that, you know, things that you can control, How would you describe just the brand integration and everybody working together now, Gary, and under the Korn Ferry brand? Is it all completely unified in terms of the advisory business and changing brands at the local basis and just the positioning of the firm?

Yeah, I think we have gone way, way past halfway on that. I think I think that in terms of that one firm strategy that we rolled out, it was about 15 months ago, 18 months ago. I think you look at the data, and it would suggest, wow, something seems to be working. Your marquee account growth is better than the portfolio. The cross-sells from search into consulting, RPO, professional search, that is working. I think that the image of the company over the last several months has changed, too, because a lot of people recognize the brand for what we did 50 years ago, and they don't recognize the brand for what we do today, coaching 100,000 people. And so I actually, I believe that the branding initiative that we did with the PGA around the Corn Fairy Tour, the whole purpose of that is that the tour that we're now sponsoring is all about development. It's all about how do you exceed your potential? Well, you exceed your potential by giving opportunity. And that's fundamentally what Corn Fairy is about. And our capabilities today are well, well, well ahead of sometimes where the brand imagery is. So I think that we have to continue to, on the marketing side, make sure that the persona and the marketing image of the firm truly reflects where we are today. And I think it's still actually quite behind.

It seems like you've made a lot of progress on multiple facets, including handing out tour cards, so that had to be fun. Can you talk a little bit about KF Advanced just in terms of how you're going to monetize that?

Well, we've got – so the thesis was you start out in college and you're going to be a career nomad. You're going to work for a lot of different – companies and nobody's really taking care of you versus you or I where we took our first job and we kind of felt like the company was going to take care of us. So the thought is, you know, people need to be able to exercise and grow. So they need to be assessed, they need coaching, they need development, they need advice, career advice, and maybe they need job placement. And so we think that we've, we think we can actually make inroads into kind of a B to C Having said that, when we're going after that, there's really two or so go-to-market routes. One is B2B2C. So we're going to businesses, to associations that have thousands of members and offering our career services. So that's one go-to-market. The second is direct-to-consumer. Right now, that business is only, you know, look, it's less than $10 million annually in revenue. But I think the thing that's interesting, and I think it was Toby, although I'm not 100% sure, I think we can actually use that platform for our leadership development offering because that's one, like, where the RPO market is, There's scale. I mean, it's a big market. Well, leadership training, you know, training and development is also a big market where you could have really big scaled engagement. So we're looking at that platform as a way, and look, this isn't going to happen next quarter by any stretch, but over a series of quarters, I think you could do leadership development outsourcing, LDO. Now, again, we're a long ways away from that. But that would be the vision.

Good vision. And then with regards to just the advisory business and what you ended up seeing in some of the markets where, you know, obviously the headlines are a little bit more challenging. What's the scale of what you're seeing just in terms of the decline in terms of the business, whether it's Germany or China, just on the advisory business?

So, Mark, this is Bob. On the advisory business, again, I'll just focus on the big countries. Like in the U.K., we're actually seeing Q1 this year to Q1 last year. It's kind of low, low single-digit growth. U.K. overall is up, but, again, a lot of that's driven by the RPO that we talked about. You know, Germany, looking at in Q1, advisory was down, you know, a couple percentage points. France was a large area for us in terms of being negative. Year-over-year was down like 21%. You know, looking at China, China was down year-over-year, low single digits. So it's not like we're seeing significant erosion in any of those markets, but we are feeling the headwinds.

Got it. And then on executive search with regards to just the practices, you mentioned financial services and industrial were up. What's the opposite side of the scale there in terms of the – Obviously, everybody's curious about some of the macro headwinds and the impacts.

Well, we've seen for some time the impact on supply chains in China and the carry-on effect to industrial in North America. So that's been going on now for six or seven months. So, you know, when you look at the industry and financial services was good. When you look in that, obviously, investment banking, as you would guess, was down significantly, but that was more than offset by, you know, commercial banking and private equity and real estate. Technology was very good. This last quarter, life sciences and health care enterprise-wide was down a few percentage points, but I don't, you know, I'm not going to, that's probably not going to be I don't think there's anything, you know, underlying that. Consumer has been, you know, flat or so. So, you know, it's really been a mixed bag when you look at it.

And then with regards to just two more questions, if I may. One, on the IT professional search, how big is that for you now? And how quickly can you expand that?

It's less than, yeah, that's a very, very good question. It's certainly less than, you know, way less than $100 million. And we think that market, you know, it's always an art sizing these things, but, you know, we think that could be a $20 billion market. And so, you know, can that be seized in a quarter? No. But could that be seized over four to six quarters? You could make some real headwind there because there's not a lot of, We've got the technology. We've got the process. It's pretty easy to get your mind around that.

Yep. And then with regards to just the RPO business continuing to ramp, it sounds like from every data point that we have, the market's not growing as quickly. I mean, you're clearly gaining share. Do you say that's a fair assessment?

I think that's right.

Not only are we gaining share, Mark, but when you look at when we come up for renewals, it's, you know, to quote the leader of that business, you can count on one hand the number of times when we've lost a renewal. So I think we do a good job once we get in of being very, very sticky.

Excellent. And then lastly, buyback, you know, it sounds like you're clearly going to do that. What's the authorization now and when's the next board meeting?

I think we've got a couple hundred left. Last authorization was 250. I think we spent almost 40 in the first quarter then to date. So we've got a couple hundred million left for it.

Gary, would the intent be to actually shrink the share count in a material way?

Yes.

Because in the past it's been kind of offset by option grants and things of that nature.

I think where this company is today and what we've got, yes, we will absolutely. Now, again, we're also looking at acquisitions. So we've got to have a balanced mindset here. But today... September 5th, if this is September 5th, we're going to have more of an orientation towards share repurchases and continue to look at acquisitions.

Makes sense. Great. Thank you.

Our next question comes from the line of Mark Riddick with Sedoti. Please go ahead.

Good afternoon. I wanted to sort of continue on that vein a little bit and wondering in the context of some of the things that you've looked at, can you sort of give some parameters or thoughts around the scale that you're comfortable with as far as potential acquisitions and maybe what you're seeing out there? Certainly it's been a few years since Hey Group and I just wanted to get a sense of comfort level as to size and scope of potential acquisition targets.

You know, I think it's always dangerous to kind of talk about that. I would say that we've looked at things that would have grown our top line by 50%. And we've also looked at things that would, you know, grow our top line by, you know, 5%. So, we've had a pretty, you know, we've had a pretty wide screen. in terms of size, and as you said, it has been three and a half years. But you don't want to do something just to do it. It needs to fit culturally, and it needs to make sense in the context of our overall strategy.

Okay, great. That makes sense. And then I just wanted to follow, because a lot of my other questions were answered, so I just wanted to touch a little bit on the marquee accounts and then the expansion into the regionals. I sort of wanted to get a sense of maybe the receptivity of those, I guess it was 200 regional accounts, and if there was any particular mix that we should be thinking about about the regionals, if they were heavily weighted in any particular way. How we should be thinking about that and the initial thoughts on how that part of it's gone.

Thank you. I would say we're not even out of the first inning on the regional account. So the marquee account, it really took us a college degree. I mean, it took us four years, I think, to kind of really get that right. And not that we have it right. We can continue to improve on it. But I think you've really got to look at this. as a two-, three-, four-year endeavor on the regional accounts. The way that we did those, we put a top-down screen on it, and then we did it, obviously, bottom-up by region. And the geographic dispersion kind of is reflective of Corn Ferry today. So you're going to find 40% in the United States and, you know, 30 or so in Europe. And then we did overweight Asia. We purposefully overweighted Asia just because of the size of some of those companies that are in China and the like. But it's early days for sure. But I think that if you look at any world-class professional services firm, an anchor of that strategy is would be having a proactive, go-to-market approach around real, scaled, loyal, repeatable clients where you can deliver impact, where you can have hundreds of people working on the account and have real impact on those clients.

Okay, great. And then the last one for me, I was wondering, you did mention on this, but I wanted to touch on it a little bit as far as the when you look at the marketing, the go-to-marketing approach and the global branding effort and how far along you are with that, including the tour. And I was wondering, are there any particular pieces that you would like to see fill in the remainder of that global branding effort? Or are there any types of things you feel so that you're missing now that you don't currently have?

Thanks. The way that you market, there's a couple things. One is our digital insights business. That has a different cadence and a different marketing strategy. You have to be way more digital. You have to do a lot of SEO. And so we've got a whole path that we're going down there. I think, secondly... We have capabilities today that completely outstrip what most people think of us for. So when you think about having the kind of data that we have, 12,000, you know, organizational benchmark data, you know, 69 million assessments, rewards data, you know, 20 million and counting, you know, you kind of look at those numbers and what we're doing And the market in general doesn't know that. So I think we have to continue top down to message that purposefully. And the Corn Fairy Tour is clearly a big piece of that. The B2C business, or the B2B to C business, the KF Advance also requires a different market strategy that is going to look a little bit more like our digital insights or our formal product business. But, you know, fourth ultimately is, you know, good work begets good work. And so the quality of what we deliver has to be top rate, and it has to be top rate. from CEO succession work that we do to the digital insight business to the RPO business, and there's no, nothing, nothing that's better than doing high-quality work.

Okay, great. Thank you very much.

We have a follow-up from the line of Kevin McVeigh with Credit Suisse. Please go ahead.

Great, thanks. Gary, just any thoughts? You know, would you expect the U.S. to kind of re-accelerate and kind of help kind of the germany's frances of the world china were you starting to see any type of shift of capacity out of china into other areas where there could be some incremental demand given you know obviously it feels like a lot of countries companies are starting to plan away from china are you starting to see any early signs of that and then just again with the u.s kind of moving along any re-acceleration that helps kind of stabilize the business? Or, you know, how are you thinking about it from a planning perspective?

I think the current president has 10 or 11 months. And it's going to be, you know, that stance versus China. And I don't know who's going to win, self-interest or national interest. That's very hard to call. So I'm really thinking there's going to be some malaise for a while. And the supply chain decoupling that people have been going after now for six, nine months, it's easier said than done for sure. And it's just like trying to unwind a union that's been in place for 40 or 50 years. You can talk all you want, but then actually trying to do it becomes very, very difficult. So I think the good news is that, as we've said, central banks will become more accommodative. I think that will probably hopefully be good for the U.S. consumer that drives this economy. So it's not necessarily seeing a cliff, nor are we seeing a sudden 30-mile-an-hour tailwind. I just don't think that's realistic. in the socio-political environment we're in right now.

That's helpful. And then, you know, again, not so much on the size of deals, but would you expect them, given their success in the RPO, would they be along those lines or maybe something that would diversify the business a little bit more, similar to what Hay or just any thoughts around how you're thinking from a strategic perspective as it relates to the core business? Yeah.

Well, I think that there certainly is a question around whether you want to add more capabilities. I would kind of call it more general management consulting capabilities. That could be a question, but it's probably not a question that's executable in the shorter term. But I think longer term, that is a strategic question for the company. I think in the shorter term, There is, you know, there is a, the leadership development is a, you know, training and development is a big share of the market of spend. And so I think that, you know, if you could do something there to bolster what you have today, that would probably be a very good thing. I don't think in assessment and succession, we really need much. I think we've got tremendous IP, and it's just us figuring out a way to gamify it or make it more interesting. So I think in terms of our current capabilities, organizational strategy, which tends to then get into general consulting, could be interesting, and leadership development is interesting.

Thank you. Then we have a follow-up from the line of Toby Summer with SunTrust. Please go ahead.

Thanks. Gary, I understand that you commented about having a few opportunities that you were pursuing that you didn't transact and that transactions can change or not be consummated for a myriad of reasons. Any kind of unifying factors there in terms of multiples or anything like that that that kept those from going across the finish line? And have they transacted away from the company, or are they still out in the market? One was never for sale, so it's still in the market. Another one transacted away from the company. And I would say that, you know, a unifying factor is always good. It's always culture. We very much look at culture. But in this case, it was price. And price, particularly given where our valuation is today. Thank you very much for the call.

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

Okay, well, look, like I said, it's going to be 50 years on November 14th, and the company that Lester Korn and Richard Ferry started in Los Angeles, California, are in many respects the same firm but actually quite different. So we're excited about what we can do. We're confident in our strategy, and we thank you for your support, and we'll talk to you next time. See you. Bye-bye.

Ladies and gentlemen, this conference call will be available for replay for one week starting today at 6.30 p.m. Eastern Time, running through the day September 12th, ending at midnight. You may access the AT&T Executive Playback Service by dialing 1-800-475-6701 and entering the access code 470-062. International participants may dial 1-320-365-3844. Additionally, the replay will be available for playback at the company's website, www.cornferry.com, in the Investor Relations section. That does conclude our conference for today. Thank you for your participation and for using AT&T Executive Teleconference Service. You may now disconnect.

Okay, Greg, thank you.

You're welcome, Mr. Burnison. Have a great day.