Earnings Call Transcript - KFY Q1 2022

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Korn Ferry First Quarter fiscal year 2022 Conference call. At this time, all participants are in a listen-only mode. Following the prepared remarks, we'll 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 webcast 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 Reform Act of 1995. Although the Company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, investors are cautioned not to place undue reliance on such statements. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties which are beyond the Company's control. Additional information concerning such risks and uncertainties can be found in the release relating to this presentation and in the periodic and other reports filed for the Company with the SEC, including the Company's annual report for fiscal year 2021 and in the Company's soon to be filed quarterly report for the quarter ended July 31st, 2021. Also, some of the comments today may reference non-GAAP financial measures such as cost and currency amounts, EBITDA, and adjusted EBITDA. Additionally, information concerning these measures including reconciliations to the most directly comparable GAAP financial measures is contained in the financial presentation and earnings release relating to this call, both of which are posted in the Investor Relations sections of the Company's website. With that, I will turn the call over to Mr. Burnison. Please go ahead, Mr. Burnison.

Gary Burnison, CEO

Okay. Thank you, Cynthia. And good morning, and thank you, everybody for joining us. I guess I’d first say that it’s pretty clear the diversity and the relevancy of our offerings, as well as the outstanding efforts from our colleagues has resulted in another great quarter. Our strategy and efforts are clearly yielding results as we delivered a 70% increase in fee revenue with really strong profitability EPS of $1.37 and an adjusted EBITDA margin of 20.7%. And these results are the continuation of our momentum over recent quarters and our performance speaks to our agility and importantly, to the purposeful decisions and deliberate actions we've taken, not only over the last few quarters but over the last several years. And now they've come together in a critical mass of opportunity. As a result, today’s Korn Ferry is poised to seek the opportunities of tomorrow. And those opportunities begin with a world of work that’s in a massive state of transition and maybe always will be. Companies are reimagining their businesses from strategy to people, to culture, career nomads, aging demographics, the real war for talent, work from anywhere, anytime. And last but not the least, the digitization of everything. These are the features of our new landscape of work. And we don’t see that changing anytime soon. In response, companies are rethinking their old structures, their roles, responsibilities, how they compensate, engage, motivate, and upskill their workforce, as well as the type of agile talent they hire and how they hire that talent. And they're all going to need to lead differently. And as I said, this new world is creating opportunities for Korn Ferry. The mega changes that I described aligned very nicely with our businesses. Today, wherever and whenever leadership meets talent, Korn Ferry is at that cross-section, enabling agility in a world in transition and driving performance for our clients. To position our Company for long-term success, we remain relentlessly focused on this dynamic world of work. Our scaled capabilities include org strategy, leadership and professional development, assessment, succession, and rewards in talent acquisition and of course, the judgment and expertise from decades of experience and insight into the questions companies are grappling with across industries. We’re going to continue to drive an integrated go-to-market strategy through our marquee and regional accounts, which represent about 35% of our portfolio. And this facilitates not only growth and enduring partnerships but also is key to more scalable and durable revenues. In the quarter, about 30% of our revenue was driven by cross-referrals at an all-time high, which I think demonstrates the effectiveness of our go-to-market strategy. Today, the fight for talent is absolutely more profound than we’ve ever seen. This new world is driving a robust market for talent acquisition expertise. From executive search to pro search to RPO, we’re helping companies find the right talent that fits the right needs. And looking at our digital and consulting businesses, we’ve been actively marrying our capabilities with today’s megatrends. The result is larger projects with greater sustainability and more durable revenue. In areas such as D&I and organizational transformation, as well as core solutions, such as assessment, pay and governance, and leadership, and professional development. Looking ahead, I truly feel we have the right strategy with the right people at the right time to help our clients drive performance in this new world and our results are clearly affirming this belief. With that, I’m joined by Gregg Kvochak and Bob Rozek and Bob, I will turn it over to you.

Robert Rozek, CFO

Great. Thanks, Gary, and good afternoon or good morning, depending on where you’re calling in from. Our financial results in the first quarter were outstanding and they continue to push to new highs. Our unique mix of organizational consulting solutions continue to grow in relevance and that gives us a greater share of strengthening global markets. Clients are embracing our solutions to help them navigate today’s unprecedented and rapidly changing work and social environment. And that’s driving our fee revenue and profitability to new heights. Let me touch on a couple of highlights from the first quarter. As Gary mentioned, fee revenue in the first quarter was up $241 million or 70% year-over-year and $30 million or 5% sequentially. And it’s reaching an all-time high of $585 million. Now, that’s quite an accomplishment, hitting consecutive highs in only the third and fourth quarters removed from the trough. Consolidated fee revenue growth in the first quarter measured year-over-year was up 81% in executive search, 103% in RPO and pro search, 50% in consulting, and 44% in digital. Also, our new business growth in the first quarter was very strong. Our results continue to demonstrate the success of our go-to-market strategy. Revenue generated from our marquee and regional accounts continues to steadily grow. In the first quarter, revenue from our marquee and regional accounts was up 70% year-over-year and 4% sequentially. And as Gary mentioned in the first quarter, over 35% of our consolidated fee revenue was generated from these accounts. In addition, cross-line of business referrals continue to grow. In the first quarter, about 30% of fee revenue was generated from cross line of business referrals, which is up from 25.5% and 28.5% in the first and fourth quarters of fiscal '21, respectively. Now, earnings and profitability also reached new highs in the first quarter. Adjusted EBITDA grew $111 million year-over-year and $8.5 million or 7.5% sequentially to $121 million with an adjusted EBITDA margin of 20.7%. Now, that’s our third consecutive quarter with an adjusted EBITDA margin over 20%. Our earnings and profitability continued to benefit from higher consultant and execution staff productivity and lower G&A spend driven by virtual delivery processes and reduced levels of related business development spend. Fully diluted earnings per share also reached a record level in the first quarter, improving to $1.37, which was up from $1.56 compared to adjusted fully diluted earnings per share in the first quarter of fiscal '21 and up $0.16 or 13% sequentially, I would like to point out that in the first quarter, our fully diluted earnings per share benefited by $0.07 to $0.08 from a lower tax rate of 23.8%. Now, currently, we don’t believe that this rate is sustainable. And for all of fiscal '22, we’re projecting an effective tax rate in the range of 26% to 27%. Now, turning to new business, which also grew to record levels by accelerating each consecutive month of the quarter. We’re pleased to share that our new business generation in each of the last six months is in our top 10 ever, with three of the months occupying spots 1, 2, and 3. Now, that’s a clear demonstration of the relevance of our solutions in the world today. Now, more specifically, on a consolidated basis, new business awards, excluding RPO, were up 59% year-over-year and up approximately 2% sequentially. New business growth was strongest for professional search, which was up 14% from the fourth quarter of fiscal '21. RPO, new business had another strong quarter in the first quarter with $113 million of total contract awards. Our investable cash balance also improved. At the end of the first quarter, cash and marketable securities totaled $904 million. Now when you exclude amounts reserved for deferred comp arrangements and for accrued bonuses, the global investable cash balance at the end of the first quarter was approximately $614 million, which is up $103 million or 20% year-over-year. Now, of that amount, approximately $220 million was in the U.S. It continues to be our priority to invest back into our business, and that’s to maximize our future growth. This includes the hiring of additional fee earners and execution staff. Over the last quarter, total new fee earner consultants grew by 127, which includes both new hires and recent promotions. Additionally, consistent with our balanced approach to capital allocation, we repurchased approximately $3 million of stock in the first quarter and paid a quarterly cash dividend of approximately $6.9 million. With that, I will turn the call over to Greg to review our operating segments in more detail.

Gregg Kvochak, CFO

Thanks, Bob. Let’s start with KF Digital. Global fee revenue for KF Digital was $81 million in the first quarter, which was up nearly 44% year-over-year and flat sequentially. The subscription and license component of KF Digital fee revenue continues to steadily improve. In the first quarter, subscription and license fee revenue was $24 million, which was up approximately 14% year-over-year. More importantly, global new business for KF Digital in the first quarter was $108 million, with 36% of this new business related to subscription and license services, up 69% year-over-year. Earnings and profitability remain strong for KF Digital in the first quarter with adjusted EBITDA of $25.6 million and a 31.8% adjusted EBITDA margin. Now, turning to consulting, in the first quarter, consulting generated $148.5 million of fee revenue, which was up approximately $49 million or 50% year-over-year. Fee revenue growth was broad-based across all solution areas and strongest regionally in North America, which was up over 70% year-over-year. Consulting new business was also very strong in the first quarter, growing approximately 36% year-over-year and 2% sequentially to a new all-time high. Additionally, while the volume of engagements over $500,000 has remained strong, in the first quarter, the volume of smaller assignments, those under $500,000 in value, grew sequentially potentially signaling a rebound in demand and spending by our smaller regional clients who tend to buy focus point solutions. Regionally, new business growth was broad-based in the first quarter with both EMEA and APAC having the best quarter of new business in over two years. Adjusted EBITDA for consulting in the first quarter was $26.8 million with an adjusted EBITDA margin of 18.1%. Growth for RPO and professional search continued to accelerate in the first quarter. Globally, fee revenue was $139.3 million, which was up 103% year-over-year, and approximately $19 million or 16% sequentially. Both RPO and professional search continued to take advantage of the surge in demand for skilled professional labor. RPO fee revenue grew approximately 98% year-over-year and 11% sequentially, while professional search fee revenue was up approximately 112% year-over-year and up 24% sequentially. New business wins for both RPO and professional search were also extremely strong in the first quarter. Professional search new business was up 14% sequentially, and RPO was awarded $113 million of new contracts consisting of $45 million of renewals and extensions, and $68 million of new logo work. Adjusted EBITDA for RPO and professional search continues to scale in the first quarter, improving to $34 million with an adjusted EBITDA margin of 24.4%. Finally, in the first quarter, global fee revenue for executive search reached a new all-time high of $217 million, which was up 81% year-over-year and 8% sequentially. Growth was also broad-based led by North America, which grew 100% year-over-year and over 6% sequentially. Our international regions continued to accelerate sequentially. Fee revenue in EMEA and APAC were up approximately 4% and 22% respectively. We continue to aggressively invest in expanding our network of consultants in the first quarter. The total number of dedicated executive search consultants worldwide at the end of the first quarter was 565, up 55 year-over-year, and up 41 sequentially, including 22 colleagues who were recently promoted. Annualized fee revenue production per consultant in the first quarter improved to a record $1.59 million. And the number of new search assignments opened worldwide in the first quarter was up 57% year-over-year and 2% sequentially to 1,745. In the first quarter, global executive search adjusted EBITDA grew to approximately $61.6 million, which was up $53.5 million year-over-year, and up $11.7 million or 23.5% sequentially. Adjusted EBITDA margin in the first quarter was 28.4%. Now, I’m going to turn the call back over to Bob to discuss our outlook for the second quarter of fiscal '22.

Robert Rozek, CFO

Great. Thanks, Gregg. As I mentioned, new business in the first quarter grew to a new all-time high. So we’re really starting the second quarter with a strong backlog of work. August is historically a seasonal month influenced by summer vacations. But new business for August was up approximately 41% year-over-year and was in line with our expectations. Now, if monthly trends in each of our lines of business are consistent with historical patterns and market conditions remain strong, we expect demand to continue to accelerate with new business up sequentially in September, peaking at a quarter high in October. Additionally, as previously discussed, we are going to continue to make near-term investments in consultants and execution staff to fuel future growth. And we do expect employee productivity to remain strong and G&A spend to remain at or near current levels in the second quarter, keeping both earnings and profitability strong. Now, assuming no major delta variant-related lockdowns or changes in worldwide economic conditions, financial markets or foreign exchange rates, we expect our consolidated fee revenue in the second quarter of fiscal '22 to range from $585 million to $615 million. And our consolidated diluted earnings per share to range from $1.30 to $1.44. as we've begun our new fiscal year, we continue on a path of strong financial performance, leaving no doubt about our strategy or the durability of our business model. Today, we stand alone in the industry of one going to market with unique end-to-end organizational consulting solutions that continue to grow in relevance. A robust new business generation over the past six months is a true barometer of marketplace recognition. Korn Ferry has never been better positioned to serve all of its constituencies: colleagues, clients, candidates, and shareholders for years to come. With that, we would be glad to answer any questions you may have.

Operator, Operator

Ladies and gentlemen, if you would like to ask a question, please follow the instructions provided. You will hear a tone indicating that you've entered the queue. You can exit the queue by pressing the same 1-0 command. Again, it’s 1-0 for any questions or comments. Our first question will come from George Tong with Goldman Sachs. Your line is open.

George Tong, Analyst

All right. Thanks. Good morning. Hey, so you've delivered strong quarter-over-quarter growth in all of your business lines. With consulting being the exception, we saw a little bit of quarter-over-quarter moderation in revenue trends there. And also consulting new business growth was strong in the double-digits, but did decelerate in the prior quarter. So I just wanted to see if there were any notable trends that you would call out in the consulting business that may be a little bit different from the rest of the business that you're seeing?

Gary Burnison, CEO

No, I wouldn’t say so. One of the good problems to have is capacity. And we are working very hard on ensuring that we have the appropriate level of capacity. Not only for years to come but over the next few quarters. So it’s a bit of a balance. And then the second thing is to make sure that we’re continuously repositioning solutions, trying to anticipate what’s on the horizon over the next few quarters. One example may be ESG, where we have a brand new offering that we’re taking to market right now and you will see more of that in the next few weeks. So it’s really those two things. Our rate per hour was very strong and our utilization was very good. And our DEI work continues to flourish.

Robert Rozek, CFO

And George, the other thing I would say that we saw in consulting was we saw the smaller engagements actually start to accelerate. We have been talking over time about the large engagements and that’s where we were seeing the real growth. For kind of the first time, we saw the small engagements also accelerating in terms of growth. So I think that’s good news going forward as we think about the smaller engagements, especially internationally, we feel very positive about the growth potential there.

George Tong, Analyst

Now, that’s very helpful. And then on margins, you delivered a very strong flow through in fiscal 1Q EBITDA margins. As you look ahead, how is your outlook for margins changed over the next 1 to 2 years? Previously, you had said 17-18% with 18% plus achievable. How has that changed? Have you been outperforming your expectations with respect to profitability?

Gary Burnison, CEO

Bob, do you want to handle that?

Robert Rozek, CFO

I believe we have been surpassing our profitability expectations. Our new business is performing strongly, and as mentioned, we are working to increase our capacity to deliver. At some point, the costs related to compensation will align with this growth, which may exert some downward pressure. We are still navigating our real estate challenges, which are complex due to the number of offices we operate in various cities around the world. This involves negotiating with landlords and exploring sublet options. However, we anticipate achieving savings in real estate over time. Additionally, I foresee business development and travel expenses returning to more moderate levels, although still below previous highs. We remain committed to our long-term goal of achieving a 17% to 18% profitability rate as we continue to expand the organization.

George Tong, Analyst

Got it. Very helpful. Thank you.

Operator, Operator

Thank you. Our next question comes from the line of Tim Mulrooney with William Blair. And your line is open.

Tim Mulrooney, Analyst

Hey, this is Sam on for Tim. Thanks for taking our questions here. Your guidance for the first quarter was for revenue of $535 million to $555 million. And you beat that estimate by about 7% here. I guess I’m wondering which pieces of the business exceeded your internal expectations and which pieces of business were more or less in line with your own projections.

Gary Burnison, CEO

In general, the businesses performed better than we anticipated. We were concerned about the impact of the virus, particularly the Delta variant, but it seems we have successfully navigated through that challenge. Additionally, the RPO and professional search segments are performing exceptionally well. RPO has shown a strong track record of consistent high-quality organic growth over multiple years and quarters, which certainly surpassed our expectations. The professional search sector, a market worth twenty to thirty billion dollars, is also one where Korn Ferry is positioning itself to be increasingly significant.

Tim Mulrooney, Analyst

That's helpful. With more than $600 million in investable cash, could you provide an update on your capital allocation priorities for fiscal 2022? Besides a small repurchase and the dividend, how do you view your appetite and pipeline for mergers and acquisitions?

Gary Burnison, CEO

I would say, number one, that we have a very balanced and systematic approach to capital deployment. And so that’s a combination of number one, investing in the business, and number two, balancing that desire with shareholder returns. And part of that game plan is clearly inorganic growth. And I would say that the pipeline is good. We don’t feel compelled by any sense of timing that we have to do something. But I believe we’re at the beginning of a journey here. And years ago, I said this will be a multi-hundred-million-dollar organization, then it was multi-billion. I mean, we’re really just at the beginning, and M&A is going to play a very important role in that.

Tim Mulrooney, Analyst

Great thanks for the answers there.

Operator, Operator

Thank you. Our next question comes from the line of Mark Marcon with Baird, and your line is open.

Mark Marcon, Analyst

Hello, everyone. Congratulations on an excellent quarter. Can you discuss the opportunities in professional search? It's a large market, and I'm curious about your capacity. How are you planning to expand your staff this year, and where are you sourcing new team members from?

Gary Burnison, CEO

You're correct that it's a significant addressable market for us, and there might even be opportunities in staffing. We have aggressively increased the number of consultants in that area, enhancing our revenue-generating capacity by about 50% since January, and we plan to continue this expansion. However, it needs to involve more than just increasing headcount. Our RPO businesses have indicated that combining intellectual property with exceptional talent can drive substantial organic growth. Therefore, it's crucial to integrate our IP into our offerings. Most of our consultants are coming from smaller, specialized recruiting firms, although there could be a few larger ones as well. Additionally, mergers and acquisitions need to be part of our strategy; we can't just grow one person at a time. While having strong IP is important, an inorganic strategy is also essential. We are actively pursuing all three of these strategies.

Mark Marcon, Analyst

Right. How would you anticipate ramping the capacity over the next 6-12 months, Gary?

Gary Burnison, CEO

I would continue at this pace. Mark, you see it, but it’s unlike anything I’ve ever seen. The megatrend and the changes happening right now, from baby boomers to career nomads to upscaling talent to technology and digitization, represent a massive shift. The increasing desire from clients to hire individuals with those kinds of digital skills is something I haven’t witnessed before. This is combined with the significant transformation happening in the world of work. I genuinely believe this will persist for the next couple of years as not only companies adapt, but also individuals reevaluate their life choices regarding what they want to do or where they want to live. It’s a challenging time for many, but it’s also a thrilling period.

Mark Marcon, Analyst

What percentage of the positions that you're filling is available on a work-from-home basis at this point, whether it's in a professional or an executive search? How would you quantify that?

Gary Burnison, CEO

It’s a significant amount, definitely over 50%. Looking ahead two years, I believe the environment will be clearly hybrid and flexible. Of course, some positions won’t follow this trend, but it’s a considerable percentage.

Mark Marcon, Analyst

And that should actually increase your competitive advantage, particularly relative to more regional firms given your wide database, no?

Gary Burnison, CEO

I would think so. I mean, I would absolutely think so. And change is really good for a consulting business. And, man, we are in the middle of a tsunami of change.

Mark Marcon, Analyst

Great. And can you just talk a little bit about what you're seeing on the consulting and the digital side, particularly as it relates to sales training, and to what extent that may have picked up?

Gary Burnison, CEO

Yes, it has increased. We have put significant effort into this area. A couple of years ago, we made an acquisition focused on two main aspects: project management training and sales training. We've certainly noticed an increase in this quarter. As Bob and Gregg mentioned, much of the rise in subscription sales was driven by our sales training capabilities. Organizations are reassessing their strategies and contemplating how to enter the market and understand the customer journey. I believe that a substantial portion of our professional and leadership development will focus on driving revenue growth and enhancing customer experience through sales training.

Mark Marcon, Analyst

Great. And then one last one if I could just squeeze it in, Gary, while we have you. You've been through many cycles. Obviously, there’s some discussion about, is this as good as it gets, or are things peaking? How much of the activity that you're seeing is basically just a surge to make up for COVID versus some of those bigger, longer-term trends, whether it's selling to marquee accounts, cross-selling, the baby boomers retiring, the work-from-home options? How would you characterize that?

Gary Burnison, CEO

If you had asked me five or six months ago, I would have said that about 50% of the activity was due to pent-up demand or companies potentially cutting back too much. However, I don't feel that way now. The current environment of change is unprecedented. Whether it's about career nomads or the digitization of everything, I believe we are about to experience a significant period of transformation and change over the next few years. Therefore, the megatrends are truly a major part of our current narrative, compared to five or six months ago when I would have suggested they represented only half of it.

Mark Marcon, Analyst

It’s very helpful. Thank you.

Operator, Operator

Thank you. Our next question will come from the line of Marc Riddick with Sidoti. And your line is open.

Marc Riddick, Analyst

Hey, good morning.

Gary Burnison, CEO

Hey, Marc. Good morning.

Marc Riddick, Analyst

I would like to know if you could provide some further insights, and I appreciate all the information you've already shared. Could you discuss the progress you've observed in the broad-based recovery among smaller clients? Specifically, are you sensing an increase in activity from those clients recently, and what factors are contributing to that? Are there certain industry sectors that have increased their activity, which previously lagged behind others, and how should we interpret this variation in activity levels that you are now witnessing?

Gary Burnison, CEO

Well, Bob, feel free to add to my commentary here.

Robert Rozek, CFO

We aim to focus on larger engagements for several reasons, along with our marquee and regional accounts. This remains our strategic goal, although we are open to pursuing smaller engagements below $500,000. Our preference is to secure more significant multi-regional projects, as we have a global platform with intellectual property that spans across the world. Across various industries, we have observed an increase in consumer activity over the past few months, which aligns with our recovery from the first wave. This observation holds true for sectors such as travel and hospitality, fashion, and retail, as well as across technology. That sets the overall landscape, and Bob could provide more insights on the smaller engagements. Sure. Marc, if you look at the engagements under $500,000, we basically break them up into three buckets: less than $100,000, $100,000 to $250,000, and $250,000 to $500,000. And we actually saw in total for that low street category in excess of 50% growth year-over-year, and each category was roughly in line with that growth. What we’re seeing is what Marc talks about filling up the jar with big rocks but you still need to sand and the sand is what he refers to as a smaller engagement. Is what we’re seeing, particularly overseas in Europe and Asia-Pac, is where the smaller engagements are picking up. And as I think about the business historically, we had strength in those regions, in-country dealing with some of the smaller clients. And that was spending that had really been impacted by the pandemic. The dynamic is shifting, and now we’re starting to see that rebound which we think is a good signal. Again, we still had, as Gary said, our emphasis is on engagements above $500,000 and we saw strong continued growth in those engagements. But this is the first quarter where we really saw the small stuff start to bounce back. So I would say it's just more on a regional basis if you will.

Marc Riddick, Analyst

Great. And then my next question and I will preface this by saying I admit this is a bit of a squishy question, but I just wanted to get your thoughts on it. You go back a few years ago to when you made commentary in investment, you made the decision to brand everything, Korn Ferry. You made the decision to step up your branding efforts pre-pandemic. You’ve made the decision to move forward with the Korn Ferry brand across the board. You made the decision to do the golf tour, and what have you. All of those things, I was wondering if you could spend a little bit of time on what your thoughts are there as to the effectiveness. I know it’s — I’ve covered advertising before, so I know it’s always difficult to ask somebody to what the ROIC is above branding exercise. But I was wondering if you could spend a little bit of time on the sort of where you are today versus when you made those initial decisions and how you think about it currently.

Gary Burnison, CEO

In professional services, knowledge, expertise, and insight are irreplaceable. That’s the foundation of our business. Over the years, we have been consistently focused on our branding strategy. We see a tremendous opportunity to develop an organization that focuses on talent strategy. Our success hinges on knowledge, insight, and intellectual property, which is the basis of our mission. Reflecting on our branding and thought leadership decisions, I believe these have been transformative for Korn Ferry. In the past two years, we have enhanced the Korn Ferry brand more than in the previous 52 years combined, and this is supported by the data we collect, including social media metrics. As we pursue growth through both organic and inorganic means, there may be times when we invest and operate a company without a brand for a period, and I wouldn’t be surprised if Korn Ferry takes that path in the future. Nonetheless, our investments in thought leadership and our social media efforts have significantly impacted Korn Ferry. Additionally, our consistent stance on critical issues such as gender and race has established us as a strong voice in the marketplace. Looking forward, ESG will remain a prominent concern for organizations, and we have been diligently working to create integrated solutions for companies facing this challenge, along with the transition to horizontal leadership, as traditional vertical leadership models are becoming outdated in today’s hybrid work environment.

Robert Rozek, CFO

I would add, Gary, you have an outside-in perspective. But from an inside-out view, I see a significant change in the organization as I interact with people across the company. The divisions have truly been broken down. There is much more collaboration among the different lines of business. Internally, I believe the employees present themselves as one Korn Ferry compared to four or five years ago. Gary is absolutely correct about how we appear in the outside world, but I also see a remarkable difference in how people interact and engage today.

Marc Riddick, Analyst

Excellent point. Thank you very much.

Operator, Operator

Thank you. Our next question comes from the line of Tobey Sommer with Truist Securities. Your line is open.

Tobey Sommer, Analyst

Thank you. I had a question about ESG and, I guess, DE&I if you consider that a part of the same team. What percent of sales is generated from that currently? And could you talk about the opportunity and what it may be in the future and how your current offerings map against that opportunity or maybe need to be refined to fully capitalize? Thanks.

Gary Burnison, CEO

I would describe those businesses as being in the nine-digit range in total. This could represent 8, 9, or 10% of the Company, depending on how you measure it. It’s certainly not a dominant portion of our portfolio at this time. However, the ESG opportunity and DEI are interconnected issues that relate to a broader approach to enterprise leadership. This is characterized by more inclusive leadership, which we support through our digital offerings. This approach spans the entire organization rather than just focusing on vertical leadership. The opportunities extend beyond governance, where we have a strong presence, to include strategies for organizational transformation and the success profiles required for different roles. It's about ensuring the compensation system aligns with the organization’s goals. So, ESG and D&I are not standalone issues. We are looking at them through the lens of horizontal and enterprise-wide leadership. Over the past several months, we have focused on integrating different parts of our organization to create a cohesive offering. I can’t specify the size of this opportunity, but I am confident it’s not a passing trend. It aligns with the major shifts prompted by the changes we've experienced recently.

Robert Rozek, CFO

Tobey, it’s Bob. One of the things that Gary mentioned earlier is that we will be launching a new ESG solution. As part of this rollout, when we are ready to go live in the next couple of days, we will have a slide that is broader than just ESG. It will cover ESG, workforce transformation, and more. This slide will align our solutions across nine different categories, from board capability and governance to integrating ESG into the operating model, executive goals, and reinforcement mechanisms. We will share this with you as soon as we are ready in the next couple of days. It provides a clear understanding of our solution sets and how they connect to the broader megatrends that Gary referred to.

Tobey Sommer, Analyst

Thanks. I appreciate that. If it is around 8 percent today and I mentioned that I believe it could double in four years, would that raise any concerns or do you see that as a possibility?

Gary Burnison, CEO

We are very cautious about rapid leadership changes during this significant transition period, and we’re not simply moving from one positive state to another. It’s challenging to make any definitive statements right now because the world is undergoing changes. If you suggested that there might be a high possibility for growth, I would say that while it's certainly conceivable, it largely depends on the ongoing developments related to the virus and the global political situation. It’s undeniable that we are experiencing significant changes in various areas at this moment.

Tim Mulrooney, Analyst

Okay. Some of all other questions have been hit. I just wanted to touch on, Gary, capital deployment. How do you balance having flexibility, which you had ample liquidity net cash?

Tobey Sommer, Analyst

You're likely aware that leaving stranded capital can hinder your long-term goal of driving returns. How do you manage that conflict? Are there specific liquidity thresholds you would establish to determine when it's too inefficient to exceed? Thank you.

Gary Burnison, CEO

I can let Bob discuss the metrics. First, actions speak louder than words. If you’re a shareholder in Korn Ferry and believe in our strategy to align talent with organizational needs and strategy, that’s important. Secondly, you should consider your confidence in the leadership team. This includes looking at our track record and asking if the company has consistently delivered on its commitments over time. I think the answer is a strong yes, though I acknowledge my bias. Clearly, we have a challenging situation, as you pointed out, and we are aware of it. However, we won't rush into decisions that could be detrimental to Korn Ferry's brand in the long run. We value flexibility, but we recognize there comes a time when efficiency becomes an issue. Bob, perhaps you can elaborate on how we view operating and shareholder boundaries.

Robert Rozek, CFO

So Tobey, regarding our cash reserves, we don't have a specific limit in mind. We've discussed our balanced approach to capital allocation. Our investable cash balance is increasing, though some of it is not easily accessible depending on its location. Currently, we have $220 million available in the U.S. We're considering various opportunities for this cash, including investing more in the digital business, hiring additional fee earners, or, as we did last year, increasing our dividend. This quarter, our buybacks were less significant than in previous periods. We evaluate all options, and depending on our situation and the need to achieve returns greater than our cost of capital for shareholders, we will make decisions accordingly. If we don't have an M&A opportunity, as Gary mentioned, we’ll focus more on returning value to stakeholders.

Tobey Sommer, Analyst

Okay. We'll be watching for that. Thanks.

Operator, Operator

Thank you. And we will take the final question from Tim Mulrooney with William Blair. And your line is open.

Tim Mulrooney, Analyst

Hey guys, thanks for letting us hop in the queue here again. Just a quick one around marquee accounts and that’s been a big topic of discussion. You’ve mentioned over the last few quarters here that marquee accounts have outperformed the rest of your portfolio. I guess I’m wondering if that dynamic occurred in previous recoveries or if this is really due to the extra focus you’re giving to these accounts now.

Gary Burnison, CEO

Certainly, Bob can add to this. I would say that yes, over the last few quarters, that portfolio has definitely outperformed. The reality is when you look back at the last major recession, which was the Great Recession, our account strategy was not nearly as strong as it is today. So it’s really not comparable. I can’t specifically answer that question. It's not just the marquee and regional accounts that are crucial to Korn Ferry’s story. We also monitor cross-referrals, which won’t increase every quarter. This is something we focus on and consider together with the other metrics. It’s more than just a KPI; we actually reward our colleagues for achieving those cross-referrals. Looking at them together over several months or quarters indicates progress. It’s challenging to compare this with the past since we were not at the same maturity level 13 years ago, and we are still at the very beginning of our account strategy for regional accounts.

Robert Rozek, CFO

Gary, you only I would add you just mentioned the word that I was going to say. I think it's really just the maturity of the program. When you think about the number of account leaders we have on hand, you think about the organization's recognition of the program. You think about the cross line of business referrals that you mentioned. It's really just the maturation of that program. And as Gary said, I would say the marquee accounts are further along that spectrum. The regional accounts are much more immature if you will. They've been in existence for 2 or 3 years now. And so, we expect the performance on the regional accounts to overtime to catch up and mirror what we're seeing on the marquee costs. But definitely, I don't think it has anything to do with the recovery. I think it's just the program maturing itself.

Tim Mulrooney, Analyst

Great. I appreciate the color there, guys.

Operator, Operator

Thank you. And Mr. Burnison, I'd like to turn it back over to you for any closing comments.

Gary Burnison, CEO

Well, thank you, everybody, for joining us and recognizing that the world, in many respects, is still going through hardships. And our hearts go out to those that still are experiencing this. And to some extent or another, we all are. But with that also, with crisis comes opportunity, and those tend to come in times of great change. And that is the period that we're in. And we're very, very hopeful about the megatrends that are playing out. So I want to thank our colleagues again for their resiliency, for the outstanding effort, and for our shareholders for listening. Thank you very much. And we'll talk to you next time.

Operator, Operator

Thank you. This conference will be available for replay for one week starting today at 3:00 p.m. Eastern Time, running through September 14th at midnight. The replay will also be accessible on the Company's website in the Investor Relations section. That concludes your conference call for today. You may now disconnect.