Earnings Call Transcript - KFY Q3 2020

Operator, Operator

Ladies and gentlemen, thank you for standing by and welcome to the Korn Ferry Third Quarter Fiscal Year 2020 Conference Call. We've made a copy of the financial presentation we'll be reviewing today available in the Investor Relations section of our website at kornferry.com. Before I turn the call over to our host, Mr. Gary Burnison, I would like to read a cautionary statement to the investors. Certain statements made on the call today, particularly those regarding future performance, plans, and goals, are considered forward-looking statements under the Private Securities Litigation Reform Act of 1995. While the Company believes that the expectations reflected in these forward-looking statements are based on reasonable assumptions, investors should not place undue reliance on them. Actual results in future periods may differ significantly from what is currently expected or desired due to various risks and uncertainties beyond the Company's control. Additional information regarding these risks and uncertainties can be found in the release related to this presentation and in the periodic reports filed by the Company with the SEC, including the annual report for fiscal year 2019 and the quarterly report for the quarter ending January 31, 2020, which will be filed soon. Additionally, some comments today may mention non-GAAP financial measures, such as constant currency amounts, EBITDA, and adjusted EBITDA. Further information about these measures, including reconciliations to the most comparable GAAP financial measures, is included in the financial presentation and earnings release related to this call, both of which are available in the Investor Relations section of the Company's website at www.kornferry.com. Now, I will turn the call over to Mr. Burnison. Please go ahead, Mr. Burnison.

Gary Burnison, CEO

Okay. Thank you, David, and good afternoon, everybody. Thank you for joining us. I'm sure that you, like everybody around the world, have been captivated by this humanitarian crisis that we have with COVID-19, and I'm certainly going to comment about that. But I do think it's important to set the stage for our Company today, and the ability to navigate through uncertain times, and clearly there is no doubt about it, this is an uncertain time. So let me first comment on the quarter that finished at the end of January. We delivered 9% constant currency growth, $515 million in fee revenue, solid profitability. I would say the quarter was very good. Our most recent acquisitions that we did have really added tremendous capability to us around learning and development. And I think we've got the opportunity to take those acquisitions, combine with our own IP, and really tap a multi-billion dollar long-term market opportunity. The Digital business, as we indicated a quarter ago, we thought it would be $100 million for the quarter; it was. That's up 61% at constant currency. But again that's benefited by the recent acquisitions, but organically it was up almost 4% at constant currency. The foundation for this Company's strategy has been knowledge; it has been IP. Whether that has been organically developed or through M&A, we really are the bellwether mark around being the experts on human and organizational performance. Every year we develop and train nearly 1 million professionals. We have rewards data on 20 million people. We've done 69 million assessments. We've got thousands of organizational benchmark data. Every three minutes, each business hour, we put somebody in a new job. So I think when you understand the difference between great and good when it comes to organizational performance, and the difference between good and great when it comes to individual roles, with that richness of our IP and our global capabilities, we believe there is an opportunity to create a $10 billion firm focused on the execution of a client strategy by optimizing its most powerful lever, which is its people and the organization that surrounds those people. And so today, we've got a much more diversified and balanced firm. That includes almost $1 billion in revenue coming from Consulting and Digital solutions. That alone is substantially bigger than our next Executive Search competitor. But when you look at those Consulting and Digital solutions, it really breaks down into four areas: One is organizational strategy; two, assessment succession; three, learning and development; and finally, rewards and benefits. So I think this diversification strategy is going to ultimately provide the most important benefit of tapping larger addressable markets that I think are going to have more potential, more durable and visible revenue streams. And for us, the ultimate goal is to have a bigger impact on clients and what really drives their performance. And so when you look at the data, the strategy is working. I would just point out that when you look at the results of our inside sales, or in other words, the percentage of revenue that’s driven from referrals between lines of business, it's 24%. We certainly want to see that higher, but I think that's a demonstration that we're going to market as one, which we set as a goal now a couple of years ago when we sunsetted a lot of the legacy brands that we had. So, I believe we're redefining an industry. I think we've got the right know-how of science, data solutions to help companies deliver superior performance. And so with that context, let me make a few comments about the coronavirus. At this point, the magnitude of the threat to both human health, which is the most important, and the global economy, is unknown, and it’s uncertain when there will be meaningful control of this outbreak. So this situation demands continued vigilance and preparation. So let me first comment on what we've done. The number one priority continues to be the health and safety of our colleagues. So we've put protocols in place, whether that’s social distancing, we have established a corporate emergency team, we have limited travel, we've limited internal meetings, and office visitors, we've closed a selected number of offices, we have some employees working from home, and we are in daily communication with our colleagues. That is by far my biggest priority. And as a CEO, I think that it's not just a question of shareholders, it's a question of stakeholders. And stakeholders are comprised of your employees, your customers, and your shareholders. So our first priority has been our colleagues, and we're doing everything within our power to keep them safe. But when we look at our business, I would also point out that many months ago, as I told you we would, we took actions to position the Company for the future. Those actions included the creation of a regional account program, the continuation of the marquee program, account program, that we have, the One Korn Ferry activity that I referenced earlier, moderating our execution and support head count, rebranding the KF Digital platform and starting to create something that we could actually monetize our IP through the technology platform, orienting our Professional Search toward knowledge-based assignments, and strengthening our balance sheet. All of those things we've done and we've continued with the aggressive recruiting of account leaders. The uncertainty that the coronavirus has presented to all of us has clouded the near-term predictability of our business. And so, even though February new business was solid, it was up 6% year-over-year—we can certainly get into that on the call—in recent weeks and days, we've seen selected governments and companies implement social distancing actions that are similar to ours, either limiting travel, or group face-to-face interaction. We've all seen that. These actions are unlike what you'd expect in a normal economic contraction. In other words, you haven't seen across-the-board cost-cutting along with job eliminations. So these actions are different. And as we sit here today, the extent to which further incremental social distancing actions are put in place or additional authoritative bodies adopt such measures and for what time remain substantial unknowns. So the measures taken to date will almost certainly impact our business for the fiscal fourth quarter and potentially beyond. Due to the rapidly changing - situation is fluid. Given that and combined with a lack of visibility with respect to further actions, it's just too difficult for us to accurately assess and quantify the impact at this point; that's just the truth. Consequently, we're not going to issue any specific revenue and earnings guidance for our fourth quarter, and we're going to reassess the suspension of our guidance once we're comfortable that this humanitarian crisis has passed. I would just point out one other thing: We always do contingency planning, and as part of that, we look back at what happened during the SARS outbreak in late 2002 through the midpoint of 2003, when I had just started with the Company. When we look back at that time, and I'm not suggesting it's analogous, but I think it's helpful to look back in history, our global fee revenue was down about 9% over two quarters. Once the crisis was contained, which was about the middle of 2003, fee revenue rebounded sharply. It was, in fact, what happened was the revenue surpassed the peak of the immediately preceding pre-epidemic quarter. It's difficult for us to predict if our business today is going to react in a similar way to the current crisis because the world looks different. The Chinese economy is four times the size it was, and there is no question if you look at how interdependent the world is today just by looking at the news. More importantly, Korn Ferry is substantially different. Back then, we were $300 million, and today we're $2 billion. Back then, we did just one thing; now we do many things. We've increased the scale, we've increased our financial position, and we've enhanced our liquidity. There is absolutely no comparison of today's Korn Ferry to the 2002 Korn Ferry. This significantly increased scale and the stronger financial position will allow us to withstand a near-term revenue decline similar to what we experienced back during SARS while maintaining a 10% to 11% adjusted EBITDA margin on a trailing 12 basis without taking any restructuring actions. Again, I think that coming back full circle, our overall priorities for our colleagues. We are taking a balanced approach to these crises, which is really anchored around three things: One, safety; two, caution; and three, agility. That last part will be incredibly important. I think we've positioned this Company to be very, very agile. I am more bullish today than I have been about the opportunity for Korn Ferry in the future.

Bob Rozek, CFO

Great. Thanks, Gary, and good afternoon, everyone. I'm going to start with a few highlights. So in the third quarter, we reached another milestone as our quarterly fee revenue eclipsed the $500 million mark for the first time in our history. As Gary indicated earlier, our fee revenue in the third quarter was $515 million, that's up about 9.4% year-over-year at constant currency. Growth in the quarter was driven primarily by our new KF Digital segment, which at $99 million was up $37 million or 61% year-over-year at constant currency, and RPO and Professional Search which was up $12 million or 17% year-over-year at constant currency. I'll talk a little bit about the integration of the recent acquisitions. That activity is on plan as are the cost savings associated with the rationalization of the combined cost base. In the third quarter, we recorded charges of about $21 million for the elimination of redundant positions and facility rationalization. Our third quarter cost base reflected savings of about $6 million, and because those actions took place over the course of the quarter, some in fact happened in late January, we expect an additional savings of about $3 million in the fourth quarter. As previously disclosed, and Gary talked about, we've now divided our legacy Advisory segment into two components, KF Consulting and KF Digital. The results of the recent acquisitions are reported within the new KF Digital segment. We continue to execute on our policy of maintaining a balanced approach to capital allocation. For all of fiscal year '20 through today, we have now repurchased about 2.1 million shares using total cash of about $80 million. Currently, we have about $171 million remaining on our authorization for share repurchases. Additionally, today, our Board declared a 10% per share dividend payable on April 15, 2020, to shareholders of record on March 26, 2020. And finally, I'll just comment that our balance sheet remains very strong. We have approximately $420 million of investable cash at the end of the third quarter. I'm now going to comment a little bit on new business trends. Globally, new business in the third quarter was up about $25 million or about 5% at constant currency. We're also continuing to see differences in the trends of new business within our lines of business. If you look at what Executive Search did in the third quarter, that business was down 6% year-over-year. However, our Professional Search business on a global basis saw new business up about 20%. So again, we continue to see data points that demonstrate the diversification in the business is really starting to take hold. In the third quarter, RPO was awarded $58 million of new business, consisting of $32 million of new clients, we call new logos, and $26 million of extensions and renewals with existing clients. Our Consulting new business in the third quarter was up 2% year-over-year, led by North America, which had a very strong quarter, up 9% year-over-year. Finally, excluding recent acquisitions, the Digital new business was up 9% year-over-year at constant currency, and that was also driven by North America, which saw a 21% increase year-over-year. Lastly, our adjusted diluted earnings per share in the third quarter was $0.75, down about $0.06 or 7% year-over-year, driven in part by the change in our revenue mix, a little bit higher net interest expense, and a higher effective tax rate, which was about 26.5% in the quarter compared to 25% in the third quarter of fiscal '19. I'm now going to turn the call over to Gregg to review our operating segments in a little bit more detail.

Gregg Kvochak, COO

Okay. Thanks, Bob. Starting with our new Digital segment. Global fee revenue for KF Digital was $99 million in the third quarter and up approximately $37 million year-over-year, driven primarily by our recent acquisitions. The subscription and licensing component of KF Digital revenue in the third quarter was approximately $21 million, which was up $7 million year-over-year. Adjusted EBITDA in the third quarter for the Digital segment was $25.9 million with a 26% adjusted EBITDA margin. Now turning to Consulting. In the third quarter, Consulting generated $141 million of fee revenue, which was up approximately 2% year-over-year at constant currency. Consulting fee revenue growth was strongest in North America, which was up approximately 6% year-over-year. Adjusted EBITDA for Consulting in the third quarter was $18.7 million, which was up $1.7 million or 10% year-over-year. Adjusted EBITDA margin was 13.3% in the third quarter, which was up 110 basis points year-over-year. RPO and Professional Search generated global fee revenue of $92 million in the third quarter, which was up approximately 17% year-over-year at constant currency. All geographic regions grew in the third quarter. By component, Professional Search was up approximately 9% year-over-year, and RPO was up approximately 20%. Earnings and profitability for RPO and Professional Search continued to scale in the third quarter. EBITDA in the third quarter was $15.2 million, up $2.1 million or 16% year-over-year, and EBITDA margin improved to 16.6%. Finally, for Executive Search, global fee revenue in the third quarter of fiscal '20 was approximately $183 million, which compared year-over-year and measured at constant currency was down approximately 4.6%. The total number of dedicated Executive Search consultants worldwide at the end of the third quarter was 582, up 30 year-over-year and essentially flat sequentially. Annualized fee revenue production per consultant in the third quarter was $1.26 million, and the number of new search assignments opened worldwide in the third quarter was 1,565, which is down approximately 3% year-over-year. Adjusted EBITDA for Executive Search in the third quarter was approximately $41 million with an adjusted EBITDA margin of 22.1%. That concludes our prepared remarks, and we'd be glad to take your questions.

Gary Burnison, CEO

Okay, David, we'll open it up for questions.

Operator, Operator

The first question comes from George Tong with Goldman Sachs. Please go ahead.

George Tong, Analyst

You indicated that your February new business is up 6% year-over-year. Can you break that down by business line and talk a little bit about the trends that you're seeing leading into early March?

Gary Burnison, CEO

Daily life has come to a halt, it certainly appears if you are a human being on this planet. I would say that February new business was up constant currency 6%. That's benefited by our most recent acquisitions. So, on a same-store sales basis, it probably was up about 2% or so. Regionally, including the most recent acquisition, I'll just do it by region: North America was up 7%; Asia was up 7%; ironically, in February, China was up 17%; EMEA was down 3%; Latin America was up 6%; and Search in North America was very good in February. It is just way too early to call March, and you can't take one data point from the first few days into account, actual mileage may vary, but thus far, in North America Executive Search, it's the best start we've had in months. So I think that just makes it too early to predict what’s in store.

George Tong, Analyst

Right, that makes sense. And just to follow up on that, as it relates to the potential impact from the coronavirus, I know it is too early to tell, but can you talk about how conversations with clients are progressing? Is it more of a push out? Is it an elongation of the sales cycle? Or is it more of a contractionary tone where people are looking to reduce headcount? What kind of - what's the tone that you're sensing?

Gary Burnison, CEO

Too early to tell.

Operator, Operator

Our next question comes from the line of Tobey Sommer with SunTrust. Please go ahead.

Tobey Sommer, Analyst

If we could ask a few questions about the Digital segment. How much of that segment is recurring? If I heard you correctly, I think you mentioned new business in North America was up. And if I'm right about that geographic comment, does that imply International was down? And if so, by how much?

Gregg Kvochak, COO

I think, Tobey, that's related to Consulting, you asked about Digital, right?

Tobey Sommer, Analyst

Yes. So, maybe I'll stick with that. How much of it is recurring? And do you have any kind of wallet share kind of metrics you can share with us?

Gregg Kvochak, COO

Yes. If you look at the deck we posted, Tobey, we now started to present separately the license and subscription revenue, and that was - in the quarter, it was $21 million. So roughly, out of the $100 million or so, it's about 20%. Those represent engagements where people sign up to have access to either what we call our Talent Hub, where the assessment science resides, and then the Pay Hub, which is where our pay data resides, and they are generally at a minimum one-year contracts; some could be two or three years, and associated with those contracts, there are different service levels.

Gary Burnison, CEO

So when you look at the business, so it's $400 million in the third quarter annualized. Let me point out a couple of things. The recent acquisitions that we did have a little bit heavier weighting in that quarter as we've come to understand that business. So that’s number one. But when you kind of look at that annualized number of $400 million, there is $100 million of it that essentially comes from pay. So companies, we have pay data on 20,000 companies over 20 million people. Companies around the world license our IP around that. A substantial part of that is repeat. They may come in for different things year in, year out, but very, very high percentage of repeat. The next biggest piece that we really want to grow is learning and development, which would probably be around $150 million to $175 million. That also has a relatively high return percentage, not quite as high as pay, but pretty high. The remaining pieces are where people license our IP could be around organizational strategy: how do you set up an organization, spans, layers, roles, responsibilities, job profiling, and then assessment and succession. We want to move that business as a whole, so that it looks more like a SaaS business. Today, about 20%–21% would fit that. We obviously want that to be higher, and that's where we're trying to take that business.

Tobey Sommer, Analyst

Great. And how much higher and in what time frame?

Gary Burnison, CEO

We definitely want to at least double it. We'd love to make that 50% of the business. But, we've been investing money now over several quarters to make sure we've got the platform now with - the real opportunity there when you look at Korn Ferry, it's really around learning and development. That is a massive market. With the recent capabilities that we've added, we want to add to that. So the timeframe? That's going to be hard for me to pin down particularly when people are worried about their own survival.

Tobey Sommer, Analyst

Okay. Well, I'll ask you the question again hopefully when corona isn't front and center. What - how much does the Miller Heiman acquisition expand your addressable market?

Gary Burnison, CEO

It expands it quite considerably. When you look at it, there are really two or three pieces we pick up. One is around sales professionals. The second is around project management training capabilities. The third is technical. In each of those, before we did this acquisition, we probably had about $175 million of leadership development. This adds—what we said when we announced the deal—will add $120 million of revenue in the quarter, it definitely contributed a little bit more than the $30 million pro-rata. So it's a $300 million business. So, before we did these recent acquisitions, our leadership development was at the high end. It was teams, it was individuals. What this does is open us up to where the substantial part of the market opportunity is. For example, just in the United States, there are probably 15 million sales professionals. We place thousands of sales professionals every year. We have profiles of what great looks like for sales professionals. We can combine there the assessment of sales professionals with their organizational development to help them along the journey. So that does expand the addressable market.

Bob Rozek, CFO

Yes. And Tobey, this is Bob. The other thing I would add to that is, as you think about bringing all of our assets together, Gary mentioned a couple of times the various amounts of data that we have, which we then bring back into whatever solution we deliver to a client, and that data cuts across geographies, companies, industries, and so on. This provides us with a very, very unique opportunity to have an informed point of view that others just can't have.

Tobey Sommer, Analyst

Thanks. I'll ask one more question and I'll get back in the queue. When you look at your different segments now, which ones of them do you think are gaining share and which ones are losing market share?

Gary Burnison, CEO

Sizing the market, I'm always - in my whole career, I've always been - it's a bit of an art and not science. I think there is - I'm not so much worried about share, I'm worried that we capture the - the market opportunity is big. The Executive Search business is critical strategically for the Company, no question about it, because it provides tremendous access. We have demonstrated now that it's not talk; we can actually do something with that access. But let's face it, the Executive Search market is a small market. The much bigger markets are around recruiting for professionals, knowledge workers. That is a market that is several times the size of the Executive Search market. When you look at the market opportunity around Org. Strategy, assessment and succession, learning and development, and rewards and benefits, depending on how you want to do the artwork, that could be a $100 billion to $200 billion market. I mean that could be really substantial. The biggest piece by far will be training, learning and development. So I am not so caught up in the market share gain; I'm focused on creating a new company that goes after a much bigger market.

Operator, Operator

Yes. Our next question comes from the line of Mark Marcon with Baird. Please go ahead.

Mark Marcon, Analyst

One thing, just with regards to Miller Heiman, how did you say it contributed more than $30 million this quarter?

Gary Burnison, CEO

The acquisitions, when we announced it, we said that they would contribute $120 million—the three would combine—would contribute $120 million of fee revenue to the Company, although we've integrated the businesses. When we look at it, it appears like it contributed somewhat north of $30 million in the quarter for all three.

Mark Marcon, Analyst

And then with regard to—and that all fell into digital, correct?

Bob Rozek, CFO

Correct.

Mark Marcon, Analyst

And then when we take a look at the adjusted EBITDA margins regarding digital, it went from a year ago where it was Miller Heiman wasn't included, it was at 33.8% and went to 26%. How should we think about the trajectory regarding the adjusted EBITDA margin on that part of the business?

Bob Rozek, CFO

Yes, I think you'll see adjustments going forward. By the time we get done with all of the integration activities, some of which are going to go into Q1 of next year solely because we have to pick them up and put them into our systems, that’s not going to happen until May 1. There will be further position eliminations occurring after that happens. We could wrap that up to 28%, 29%, 30% as we go forward, and then obviously as the business grows and we get more leverage, we could easily be north of 30%.

Mark Marcon, Analyst

Great. And then how should we think about the consulting business now that some portion of that has been stripped out? It looked like it had some good progress going from 12.2% to 13.3%. How should we think about that going forward?

Bob Rozek, CFO

Yes. I think the consulting business, as we look at it from a long-term perspective, the EBITDA margins would be sort of in the 12% to 15% range. We probably have another couple of hundred basis points of areas that we can continue to improve.

Mark Marcon, Analyst

Great. And then with regards to just from a geographic perspective, just drilling down a little bit more. Gary, you mentioned China is actually up. Can you talk about the rest of what you're seeing in terms of Asia, whether it's Singapore, Hong Kong, Japan? What are you seeing there? And I know it's just going to day to day and then I have another follow-up.

Gary Burnison, CEO

It's surprisingly positive when you look at Asia overall. Trends in many of the countries you cited are positive. Just to pick Japan because you commented on it, it’s up 10% in February over the prior year. If you were to go to Singapore as an example, it's up 60%. When we look at trailing four months new business, it looks pretty good in Asia, which seems very counterintuitive to what we've discussed.

Mark Marcon, Analyst

Yes. I mean, including, if you take a look at Q4 Japanese GDP, which was recently released, that was down like 7%. So beating up 10% is pretty darn good. Is that because you’re gaining share there? Or do you think some of the things that we’ve heard are exaggerated?

Bob Rozek, CFO

We have an extremely good leader who came on board about 18 months ago, and I think he is having a real impact on the business over there. In fact, Gary talked about some of the actions that we've taken in terms of moderating headcounts. That's one area we continue to invest in off the back of this individual.

Gary Burnison, CEO

Bob's comments are spot on. What I'd add is that you've got aftershocks. In Los Angeles, we're accustomed here to earthquakes and then the aftershocks. With this crisis, you will see aftershocks. If you take China, it has really taken about eight weeks. There was a new year in there, too. But eight weeks for things to get back to kind of the new normal; and I’ll say the new normal is not the old normal. If you consider whether it’s a V or a U or any other alphabet letter, what you’re seeing is the concept of aftershock. So what you may be seeing in new business reflects discussions that were going on for a long time.

Mark Marcon, Analyst

I appreciate it.

Gary Burnison, CEO

This isn’t our first rodeo. Just I would say, regardless of what’s happening today, we are going to commit to the operating boundaries that we've discussed with our investors. As an example, if you look at SARS, back in 2002/2003, today’s Korn Ferry could operate this business without taking any action at about a 10%, maybe 11%, trailing 12 EBITDA margin. In any kind of environment, we’ve told investors we want to operate the business with mid-single-digit EBITDA margins, obviously after taking into account any restructuring on an adjusted basis. We are absolutely committed to that.

Operator, Operator

The next question will be from the line of Marc Riddick with Sidoti. Please go ahead.

Marc Riddick, Analyst

I wanted to touch a little bit on some of the investment spending and planning that have been worked on for some time, whether it was branding initiatives or investing in personnel. I wanted to get a sense of where you are, and whether what we've seen over the last few weeks has altered kind of your near-term plans on that.

Gary Burnison, CEO

The first thing we are concerned about is the health and well-being. I know all of us as citizens of the world share that concern. It is hard to think about anything else quite candidly. But we have a track record, the past actions speak for themselves. Many months ago we indicated we are taking actions to position the company for the future, and we have done so. The market opportunity for us is worth billions of dollars and we will continue to look for it, whether that means organically or inorganically. We have a stated goal of driving our Marquee and regional account plans. We will continue to look for people who can build that out. Our Consulting business, when you look at it, is globally probably $600 million annualized; the US business is only $200 million, that’s a huge market opportunity. We will continue to operate. Our strategy has grown the company; it has changed completely. We have won substantial business over the last week, that’s breathtaking. When I think about Korn Ferry in 2002, multi-million dollar Consulting engagements around organizational strategy competing against the big four strategy firms. It’s just a different Korn Ferry today. Right now, we are mainly concerned about how we can protect human life.

Marc Riddick, Analyst

From an offensive standpoint, are there areas that can sort of point to anecdotal evidence or what have you where the uncertainty is something that may lead to greater engagement, particularly with some marquee customers?

Gary Burnison, CEO

Yes, there is an area of the world that went through this very early. They are now talking to us on how to restructure their company. Yes, absolutely those situations will develop here over time.

Operator, Operator

The next question will be from the line of Tim Mulrooney with William Blair. Please go ahead.

Tim Mulrooney, Analyst

So back to Digital, within the $400 million Digital business, it sounds like about 20% of that revenue stream is subscription-based right now. What do you think the Digital business is capable of generating long-term? Could this get up to 30% or even 50% and what would be the implications to your margins?

Gary Burnison, CEO

Yes, we do think that's what we want to capture, would it double where it is today in terms of the subscription offering? Today it's 20%, could it be 40%? Certainly. The long-term margin in that business can be high; it could be 33%, 34%. That’s not necessarily in the next quarter or two, but there is no question, that's one of the lynchpins of our strategy, tremendous IP, insights around what makes an organization great. We started the KF Advance business 18 months ago; the initial vision was a B2C revenue stream for the company. That business is still relatively small on its own. The technology platform we’ve developed is powerful, and we recently got a $5 million assignment from a major life sciences company where they want training for 4,000 first-time managers. That platform is going to sit on KF Advance. There is significant opportunity for us.

Bob Rozek, CFO

Yes. And Tim, this is Bob. The other thing I would say is that if you think about our RPO business, they've built a platform to deliver RPO services that make that business extremely sticky. As you think about the platform we have for Digital, we are working on how to integrate their platform into the delivery of our Consulting services on the same premise: that once you do that, it becomes very sticky.

Tim Mulrooney, Analyst

So this is early innings, but still evolving where we might be a year from now could look a lot different from where we are today?

Bob Rozek, CFO

Yes, I would say it's very early innings.

Gary Burnison, CEO

Yes, we are just taking the field. We’ve hit some balls and now we’re going to take the field.

Tim Mulrooney, Analyst

Okay, all right. That's really helpful, thanks guys. Staying within Digital, if I look at your customer base within your Executive Search and KF now what's called KF Consulting businesses, what percent of those customers also use your Digital products? I'm trying to understand the attachment rate?

Gary Burnison, CEO

It's very, very high. That's the opportunity. If you look at the inside sales, 24% of the revenue is actually coming from referrals from other lines of business. The referral into Consulting is at 27%. It's moving up, and we’re going to find that with Digital as well.

Bob Rozek, CFO

Yes, I think today attachment rate or kind of pull-through is probably in the 35% to 40% range. As Gary indicated, that’s where we’re doing a lot of work with the folks in Digital and the folks in Consulting to educate everyone on the new platform.

Tim Mulrooney, Analyst

And vice versa.

Bob Rozek, CFO

Yes.

Tim Mulrooney, Analyst

Yes, that makes sense. Along those same lines, if I think about after a Consulting engagement ends within the KF Consulting business, how often does the customer continue to use those Digital products even though you may not be working with them in a formal Consulting engagement?

Bob Rozek, CFO

They would absolutely continue to use them on an ongoing basis. If you think about—we might do an engagement with you can do with the Board, the comp committee, or management around pay—but if they are using our database, they are going to use that on a continuous basis. That’s the whole theory with the leave behind, it becomes embedded into whatever HR process the company has engaged us for. What we do operates along every aspect of an employee’s engagement with their employer. We provide a common language across—everything we do uses common science, common language. If you’re a consumer of our services, if you are not using Korn Ferry, you are using company A for pay, company B for assessment, letting you cobble it together. If you do that with Korn Ferry, everything is common, and we do the knitting together for you.

Tim Mulrooney, Analyst

And I know we're butting up against the hour mark here, but I do have to try to fit in one coronavirus question. How should we think about the segments? Are there some segments that you view as being more susceptible or perhaps more resilient to this type of macro uncertainty?

Gary Burnison, CEO

My honest answer is that I can’t predict that; who would have predicted a week ago that the Indian Wells tennis tournament would be cancelled? I mean, I think we have to see what happens with this health crisis. That's why we’re not providing guidance.

Operator, Operator

And there is a question from the line of Tobey Sommer with SunTrust. Please go ahead.

Tobey Sommer, Analyst

What’s your posture toward hiring revenue generators at this point across your business?

Gary Burnison, CEO

We're going to continue. Without talent, there is no show. We are going to continue to bring in talent, and more importantly, promote talent. Last year we promoted over 1,000 colleagues. We are on campuses recruiting, so we will continue to do that.

Tobey Sommer, Analyst

In your business that has a longer lead time like some of the Consulting engagements, what’s been the responsiveness of customers where they have to open a rack or actually onboard someone in the case of an RPO or move a Consulting engagement forward?

Gary Burnison, CEO

Let me, yes, Bob can comment on the revenue recognition by solution, but I would say, the RPO business has the longest tail. Generally speaking, the mean of the bell curve for the RPO engagements would have the longest tail. What we're winning today is complex, large, global or multi-region deals. So long-term, that's incredibly healthy for the company. Of course, this environment may make that a little more challenging. Our backlog in that area has never been stronger. The next thing I would look at is learning and development. Those would register a little quicker than RPO engagements. Finally, there’s assessment and succession, where someone may sign to do assessments for a company over multiple months. I hope that helps.

Bob Rozek, CFO

Tobey, as we think about RPO, Gary commented on the large global complex. Those engagements, by definition, are going to take longer to set up. We have smaller regional ones, where we stand them up quickly and start recognizing more revenue earlier in the contract. Those complexities affect our early sort of quarters revenue recognition, although I’ll still get it as it gets pushed out.

Tobey Sommer, Analyst

That makes sense. Last question from me. What percentage of revenue does the company have with oil, airlines, travel and leisure, restaurants—those kinds of things?

Gary Burnison, CEO

Yes, relatively small. Energy, strictly upstream or downstream is probably about 4% or 5% of the company. Airlines have been relatively small for sure, less than that.

Operator, Operator

Our next question will be from the line of Mark Marcon with Baird. Please go ahead.

Mark Marcon, Analyst

Thanks for taking some additional follow-ups. Just on the verticals. Financial services, where do we stand now in terms of percentage of business?

Gregg Kvochak, COO

If you look at the slides we posted, you'll see that financial services is about 17% to 18% of the business.

Mark Marcon, Analyst

And then with regards to the Digital solutions, there are lots of different sub-segments you're in. When we take a look at organizational strategy versus assessment and succession and leadership development, which area are you most excited about long-term, Gary?

Gary Burnison, CEO

The idea is to have an integrated platform. We would love for that to happen, but it's still unproven if customers are going to buy that way. The size of the market for learning and development has to be the biggest prize. Where we have the capability is on assessment and succession, and we can marry that. We’ve done 69 million assessments, we can identify a sales person's traits for example and how that ties into their development. Assessment and learning and development work hand in hand; organizational strategy and rewards and benefits make sense together but are not as tightly linked.

Mark Marcon, Analyst

Can you give a little granularity with regards to that contract you mentioned in terms of how structured, how priced?

Gary Burnison, CEO

This is a life sciences company with thousands of first-time managers. I don’t want to get into how it’s priced, but it will be delivered over a couple-year period of time. The underlying competitive difference we have is our IP. We’ve built and acquired databases to distinguish great from good, which is an incredible differentiator.

Mark Marcon, Analyst

And then, hate to ask another virus question, but just in terms of organizationally, what percentage of your consultants are not traveling now?

Gary Burnison, CEO

Yes, well, we have about 8,600 colleagues in the company. We've indicated at this point that we shouldn't be traveling essentially; it has to be mission-critical. Non-essential travel has been curtailed for quite some time. We are trying to communicate daily with our workforce, and in different parts of the world, we've gone through this process differently. In China, many weeks of this, in Italy a few days. It varies by country and office.

Bob Rozek, CFO

With what our folks are doing in order to conduct business, we’re seeing the same thing—our clients. To the extent that we're not traveling, they’re not traveling. We’re working with clients to find alternative ways to deliver those services they need.

Gregg Kvochak, COO

But at the same time, I will say a couple of things, and Bob is spot on, he is absolutely right. We have clients that are visiting us all over the world every day. We have our offices in New York or San Francisco people are coming in, we're trying to take the right precautions. The other thing we're doing is pivoting to a more virtual setup; I'm sure every company in the world is doing that.

Operator, Operator

And there is a question from the line of Kevin McVeigh with Credit Suisse. Please go ahead.

Kevin McVeigh, Analyst

Your thoughts are with all your folks from a safety perspective. Wanted to talk, Gary. You framed out you're good enough to frame out kind of the source—do you think this sits somewhere between source and after the global financial crisis in terms of the level of uncertainty or just from a client positioning perspective?

Gary Burnison, CEO

This is different than October of 1987, different than March of 2000, and in 2006 we got very concerned before the turn. Several months ago we also took actions. Nobody could have foreseen this. This is a humanitarian crisis, let's be honest. When people are worried, we see panic buying and selling, and so our priority has been around the safety of our colleagues. Strategy doesn’t shift left to right, right to left—it has to be anchored around purpose. We're maintaining a balanced approach to capital allocation. We have $1 billion of available debt, we could stand with $400 million in cash now—plenty of runway for the company. It’s hard to compare because this is not comparable. Our company is incredibly different today.

Kevin McVeigh, Analyst

And then just real quick, any impact from AON Towers? How should we think about that across the business or even just from a competitive perspective?

Gary Burnison, CEO

Not really. I think it’s early days. So there’s not an impact to our business—if anything would be positive.

Operator, Operator

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

Gary Burnison, CEO

Thank you for your time. Certainly, these are unprecedented times. We've tried to have a playbook here around safety, caution, and agility, and most importantly, a common purpose: to enable people and organizations to exceed their potential. We are now the world leader in Executive Search, and it's about how we can synchronize a client's talent strategy so the individuals, teams, and the entire organization can be more than they currently are—that's our purpose. Thank you very much for your time and we'll look forward to speaking next time.

Operator, Operator

Ladies and gentlemen, this conference call will be made available for replay for one week starting at 8:30 PM Eastern Time today, running through today March 17, ending at midnight. You may access the AT&T Executive playback service by calling 866-207-1041 and entering the access code 293-446-3. International participants may dial 402-970-0847. Additionally, the replay will be made available for playback at the company's website www.kornferry.com in the Investor Relations section. Thank you. You may now disconnect.