Earnings Call Transcript - KFY Q4 2022

Operator, Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Korn Ferry Fourth Quarter and Full Fiscal Year 2022 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 Web site at kornferry.com a copy of the financial presentation that we will be reviewing with you today. Before I turn the conference over to your host, Mr. Gary Burnison, let me first read the 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 by the company with the SEC, including the company's soon to be filed annual report for the fiscal year 2022. 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 GAAP financial measure is contained in the financial presentation and earnings release relating to the call, both of which are posted in the Investor Relations section of the company's Web site at www.kornferry.com. With that, I'll turn the call over to Mr. Burnison. Please go ahead, Mr. Burnison.

Gary Burnison, CEO

Thank you, Tahnee. Good afternoon, everybody, and thanks for joining us. As I look back on the last 12 months, our vision to become the premier organizational consultancy is clearly working. And for that, I'm incredibly proud of our company, of our colleagues and all of our accomplishments. Our performance has been outstanding. During the fourth quarter, we generated 721 million in fee revenue, a new high, up 33% at constant currency and our profitability was also very strong. Our performance has been consistent. For example, our 10-year CAGR has been 13% while our 20-year CAGR has been 10%. During this time, we've seen our top line grow by more than seven-fold. A major account strategy that now represents 36% of our portfolio, consulting, and digital capabilities that represent 38% of our firm, and an integrated go-to-market strategy One Korn Ferry that has resulted in almost 30% of our revenue coming from cross-line of business referrals, a new Korn Ferry that trains and develops over 1 million professionals a year, a compensation and rewards advisory, digital offerings, with comp data on more than 25 million executives, a new interim transition management and staffing capability with over 110 million of annual revenue on a run rate basis, and the continued execution of our balanced, disciplined approach to capital allocation. And yet with this transformation, we're still at the very beginning of what Korn Ferry will be and therefore with much tangible opportunity ahead. The world and our clients have entered a new reality, a fight for not only growth but relevancy and profitability. Faced with this reality, clients will have to rethink all aspects of their strategy, including their organizational leadership and talent components needed to drive success. We're also in an era in which shortages of skilled labor are projected to persist. If history repeats itself, the labor participation rate will unlikely reach the level it was before the pandemic, thereby compounding the current supply/demand imbalance. We've also used this time of change as an opportunity to continue to evolve our strategy and re-imagine our business. This includes broadening the scope of our offerings in professional search and interim services, with two strategic acquisitions in the last six months alone. Today, boomers are retiring and career nomads are looking for change early and often. Our strategic moves, approach, and offerings reflect this dynamic. We're going to continue to invest heavily in expanding our suite of technological and digital capabilities, helping to transform the way our clients succeed in this new world. To fulfill our vision and further position our company for long-term success, we remain relentlessly focused on meeting the evolving needs of our clients, which includes continuing to drive an integrated go-to-market strategy through our marquee and regional accounts. This not only facilitates growth, but it's also the key to more scalable and durable revenues. Our 350 marquee and regional accounts continue to demonstrate the power and value of these relationships, generating more than 950 million in revenue last year utilizing our global capabilities, even during differing economic periods. Looking to the fiscal year ahead, I truly feel we have the right strategy with the right people, the right time to help our clients drive performance in this new world. Korn Ferry is indeed poised for even greater things to come. And before I turn the call over to Bob Rozek and Gregg Kvochak, let me just say that our thoughts continue to be with those in Ukraine, including our colleagues as well as those that have been impacted by the senseless and tragic shootings over the last several weeks. With that, Bob, I'll turn it over to you.

Bob Rozek, CFO

Great. Thank you, Gary, and good afternoon or good morning, depending on where you are in the world. As Gary said, we've entered a new reality in the world of work, an era where social, political, and demographic shifts have created what are projected to be permanent shortages in skilled labor and really changing attitudes towards how and where work gets done. The reality is in the post-COVID economy, regardless of the level of economic activity, we anticipate many of these changes are here to stay and will force organizations to reevaluate all aspects of their talent strategy. And as I like to tell everybody, this is not our 15 minutes of fame. The changes that I'm speaking about are real and they're here to stay. And with our unmatched collection of talented colleagues, intellectual property, data, and other assets, we are uniquely positioned to partner with our clients and lead them through their talent transformation journey. Our portfolio of solutions has never been more relevant and our top line more durable. We are thriving in today's new world, harvesting years of investment in intellectual property, people, data, and processes. And we're well positioned for sustained future success backed by a powerful brand and a proven operating model. I often say the best way to measure success is through performance. And when you look at our Q4 and full year FY '22 performance, it really is the definition of success. It's indisputable proof that we are executing the right strategy and that it's a winning strategy. Now in the fourth quarter, we once again achieved new highs for new business, fee revenue, adjusted EBITDA, and adjusted diluted earnings per share. Fee revenue reached a new high of $721 million, net was up $166 million or 33% year-over-year at constant currency and up $40 million or 6% sequentially. Nearly every line of business achieved a new fee revenue high, led by RPO and professional search and executive search, which grew 77% and 22%, respectively. Growth for our consulting and digital businesses was also strong year-over-year at 13% and 11%, respectively. For all of fiscal '22, our consolidated fee revenue grew over 45% to a new high of 2.63 billion. New business also reached the new quarterly high in the fourth quarter for the whole company, as well as for nearly every line of business. By month, strong new business in February was actually followed by an all-time record month of March and a very strong but sequentially lower April, which is our normal seasonal pattern in the fourth quarter. Our RPO new business remained exceptionally strong in the fourth quarter with $213 million of new contract awards, easily the best performance to date. Our earnings continued to scale with the revenue growth. Adjusted EBITDA grew over $31 million or 28% year-over-year to $144 million with an adjusted EBITDA margin of 20%. Our earnings and profitability continue to benefit from both higher consultant and execution staff productivity as well as our disciplined G&A spending. These efficiency drivers throughout fiscal '22 helped grow our adjusted EBITDA to $539 million with a 20.5% adjusted EBITDA margin. Finally, our adjusted fully diluted earnings per share also reached a new high in the fourth quarter and for the full year of fiscal '22. Fourth quarter adjusted fully diluted earnings per share grew to $1.75, improving $0.54 or 45% year-over-year and 10% sequentially. For all of fiscal '22, adjusted fully diluted earnings per share grew to $6.23, which was up $3.72 or nearly 150% year-over-year. Our investable cash position remains strong. At the end of the fourth quarter, cash and marketable securities totaled about $1.2 billion. When you exclude amounts reserved for deferred compensation arrangements and accrued bonuses, our global investable cash balance at the end of the fourth quarter was approximately $605 million. Our capital deployment in both the fourth quarter and for all of fiscal '22 continues to demonstrate the disciplined execution of our balanced capital allocation policy. Now in the fourth quarter alone, we repurchased 1,035,000 shares of stock and used about $67 million to do that, paid a cash dividend of about $6.8 million, and we deployed $42 million for the acquisition of the Patina Solutions Group. For all of FY '22, we repurchased about 1.47 million shares of stock using about $99 million in cash, paid cash dividends of almost $27 million, and deployed about $134 million for M&A. Additionally, we funded $46 million of capital expenditures, most of which was directed to development activities for our emerging digital business. Finally, I'm pleased to announce that our Board of Directors has recently approved the authorization of an incremental $300 million for share repurchases and a 25% increase in our quarterly dividend, raising it to $0.15 per share. Continued investment in the business, effective deployment of cash, strong cash generation, and a resilient balance sheet positions us extremely well for the future. With that, I'll now turn the call over to Gregg to review our operating segments in more detail.

Gregg Kvochak, COO

Thanks, Bob. Starting with KF digital, global fee revenue for digital was $89.5 million in the fourth quarter, which was up 11% year-over-year. The subscription and licensed component of KF digital's fee revenue continued to grow in the fourth quarter, reaching $29 million, which was up nearly 21% year-over-year and was approximately 32% of revenue for the quarter. Global new business for KF digital was approximately $107 million, with 36% or 38 million of the total coming from subscription and licensed sales. Earnings and profitability also remained strong in the quarter, even as investment in hiring dedicated sales professionals and other product development initiatives accelerated. In the fourth quarter, digital generated adjusted EBITDA of $27.7 million with a 31% adjusted EBITDA margin. For all of fiscal '22, digital fee revenue grew 22% to $349 million and generated $110 million of adjusted EBITDA with a 31.5% adjusted EBITDA margin. Now turning to consulting. In the fourth quarter, consulting fee revenue grew to a new high of approximately $174 million, which was up approximately $20 million or 13% year-over-year. Fee revenue growth continued to be broad-based across all solution areas and strong regionally in North America and EMEA, which were up 24% and 11%, respectively. Consulting new business also reached a new high in the fourth quarter, growing approximately 13% year-over-year. Regionally, new business growth was strongest in EMEA and APAC, which were up 37% and 9%, respectively. In the fourth quarter, adjusted EBITDA for consulting grew to $30.7 million with an adjusted EBITDA margin of 17.6%. For all of fiscal '22, consulting fee revenue grew 26% to a new high of $650 million, with adjusted EBITDA growing over 42% to approximately $116 million, with a 17.9% adjusted EBITDA margin. The growth of our RPO and professional search business remained extremely strong in the fourth quarter, driven by the widening supply/demand imbalance for top skilled professionals in the post-COVID environment. Globally, fee revenue grew to $213.5 million, which was up 77% year-over-year and up approximately $25 million, or 13% sequentially. RPO fee revenue grew approximately 43% year-over-year and 14% sequentially, while professional search fee revenue was up approximately 142% year-over-year and up 12% sequentially. In the fourth quarter, we began the integration of Patina, a provider of senior-level executive professional talent on an interim or project basis. Patina was acquired on April 1st and generated approximately $4.1 million in the last month of our fiscal fourth quarter. New business wins for both RPO and professional search were also very strong in the fourth quarter reaching new highs. Professional search new business was $108 million and RPO was awarded $213 million of new contracts consisting of $44 million of renewals and extensions and $169 million of new logo work. Adjusted EBITDA for RPO and professional search continued to scale with revenue improving to $50.8 million with an adjusted EBITDA margin of 23.8%. For all of fiscal '22, RPO and professional search also achieved new highs for revenue, earnings, and profitability with $692 million of fee revenue, up 87% year-over-year and $165 million of adjusted EBITDA with a 23.9% adjusted EBITDA margin. Finally, fourth quarter global fee revenue for executive search grew to $244 million, which was up 22% year-over-year to a new quarterly high. Growth was also broad-based with North America up 20% and EMEA and APAC up 20% and 28%, respectively. Global new business for executive search was also strong in the fourth quarter, up 19% year-over-year to a new high. We continue to invest in expanding our team of consultants in the fourth quarter. The total number of dedicated executive search consultants worldwide at the end of the fourth quarter was 587, up 63 year-over-year and up six sequentially. Annualized fee revenue production per consultant in the fourth quarter remained strong at $1.67 million and the number of new search assignments open worldwide in the fourth quarter was up 8% to 1,851. Fourth quarter global executive search adjusted EBITDA grew to approximately $64 million, which was up $14 million or 29% year-over-year with an adjusted EBITDA margin of 26.3%. For all of fiscal '22, Korn Ferry became the first firm ever to generate $900 million of annual executive search revenue. In fiscal '22, global executive search fee revenue was $936 million, up 47% year-over-year with an adjusted EBITDA of nearly $258 million with an adjusted EBITDA margin of 27.5%. I'll now turn the call back over to Bob to discuss our outlook for the first quarter of fiscal '23.

Bob Rozek, CFO

Great. Thanks, Gregg. As previously discussed, our consolidated new business grew to a new high in the fourth quarter with strength across all lines of business. Our backlog of revenue under contract exiting the fourth quarter was the highest in company history and May new business, although down sequentially from April, was in line with both our expectations and our normal historical monthly seasonal pattern. Additionally, new business for June month-to-date is also in line with our expectations in the normal monthly seasonal patterns as well. Evolving mega trends in workforce disruption are driving more consistent demand and regardless of economic headwinds presenting new areas of opportunity across One Korn Ferry. Ongoing changes in the workforce, such as more broadly skilled labor shortages, continued competition for talent, people working differently, and a growing focus on ESG and DE&I means our synergistic portfolio of offerings is more relevant today than ever. Now even with these favorable trends, it is difficult for us to quantify the risks associated with economic factors like global inflation, rising interest rates, supply chain disruptions, and escalating geopolitical tensions. With all this in mind, however, assuming no new major pandemic-related lockdowns or further changes in worldwide geopolitical or economic conditions, financial markets, foreign exchange rates, we expect our consolidated fee revenue in the first quarter of fiscal '23 to range from $680 million to $710 million and our consolidated adjusted diluted earnings per share to range from $1.42 to $1.58 and our GAAP diluted earnings per share to range from $1.35 to $1.51. Now as I previously mentioned, we deployed about $134 million on the acquisitions of the Lucas Group and Patina Solutions Group in the last six months. These acquisitions are currently being integrated into the professional search portion of our RPO PS segment, and really will provide new scale and a new interim service offering, which we really believe is a tremendous opportunity for growth. Now these acquisitions serve as the catalyst for repositioning our existing RPO PS segment into two separate reporting segments, the first being RPO on a standalone basis and the second obviously being professional search on a standalone basis, and these will both be effective starting May 1 of 2022. In closing, we're very optimistic about our future. FY '22 was just a phenomenal year for us that we achieved tremendous success, numerous new financial and operational highs. But as Gary said, we believe our best performance is yet to come. Our solutions are highly relevant in today's business environment. They're aligned with long-term secular trends that will drive strong, durable growth combined with sustained profitability for years to come. Korn Ferry has never been better positioned to serve all of its constituencies, colleagues, clients, candidates, and shareholders. With that, we would be glad to answer any questions you may have.

Operator, Operator

Our first question will come from George Tong with Goldman Sachs. Please go ahead.

George Tong, Analyst

Hi. Thanks. Good morning. Monthly new business reached a new high in March but decelerated in year-over-year growth in April with a particularly sharp slowdown in consulting. Can you discuss whether you expect the deceleration in April to continue and how the consulting business is positioned to perform in the current macro environment?

Gary Burnison, CEO

I believe the consulting business is currently in an excellent position. It encompasses a wide range of areas including organizational strategy, learning and development, compensation, rewards, and succession planning. This function is central to a leader's role, which is to align the company's strategy with its organizational structure and talent. Looking at the new business, what we have observed aligns closely with our historical performance. Our fiscal year ends on April 30, and we generally see a slowdown in May, which historically averages around 12%. We experienced that trend within the firm overall. For June, based on historical data, we anticipate new business will remain stable or potentially increase slightly. However, it's still early in the month, and there are several days left. As Bob mentioned, we are essentially tracking our anticipated historical patterns. It's clear that the market was exceptionally strong, and while it has moderated as we expected, I believe we remain very well positioned.

Bob Rozek, CFO

George, this is Bob. The only thing I would say that what we're seeing is exactly what we expected. It's exactly what we've done historically. If you go back and look at all of FY '22, Q1 was our fourth-best new business quarter ever, Q2 was number three, Q3 was number two, and Q4 was number one. So we continue to progressively get better and exited the year with our best quarter ever.

George Tong, Analyst

Got it. Digital new business trends were relatively anemic in the fiscal fourth quarter. Can you discuss the factors weighing on digital growth, and whether you expect those factors to persist beyond 4Q?

Gary Burnison, CEO

Well, generally speaking, the biggest quarter for growth in the business is our October quarter. So we would expect to see that again. I would expect the growth to be very much tempered in the first quarter. What we've done is really reposition that business. We've brought in a lot of new sales professionals, and we're going to continue to do that over the next quarter or two. Just this last quarter, we've added an additional 30 to 40 sales professionals. We're going to continue that. So we've certainly re-imagined that business as we have the rest of the firm. In this first quarter, I expect that new business would be low or lower than it's been. And again, I don't think that's particularly unusual with historical trends. But I would expect the October quarter is always the best quarter in that business.

Bob Rozek, CFO

George, if you caught my commentary where I talked about the $46 million that we deployed, a significant portion of that was put into place in the digital business to continue to try to accelerate the product development and our go-to-market offerings.

George Tong, Analyst

That's helpful. And then lastly, can you provide an update on progress with your cross-selling initiatives including the amount of fee revenue coming from cross-line of business referrals and how quickly large marquee and regional accounts are growing?

Gary Burnison, CEO

Bob can talk about the marquee and regional accounts. Cross referrals have continued despite the increase in scale of the business. The cross referrals were about 28%, almost 30% in the quarter. So that's one data point that you can look at and say, is this strategy working? Are you having a deeper impact with clients? Are you integrating the organization across solution lines? That's one of the things that I'm most proud of. That number is not going to get to 50% or 60%. I don't foresee that. But I do believe that it's a positive reflection and a data point that certainly supports the strategy. In some parts of the business, that cross referral percentage is actually materially higher than 28%.

Bob Rozek, CFO

George, this is Bob again. One of the things that maybe is underappreciated is how much connective tissue exists between our core solutions and how easy it is to move across those core solutions. When you're dealing with a client, if you place the CEO, you can help that individual accelerate performance. You can help them get the right team in place, and you can help them put in place an incentive compensation program to motivate and reward the team for driving his or her strategy and so on. As Gary mentioned, we're almost at 30%. I think there's room to grow there based on how much interconnectivity there is between our solutions and how easy it is to walk across all of them when you're facing off with your client.

George Tong, Analyst

Very helpful. Thank you.

Operator, Operator

Thank you. Our next question comes from Tobey Sommer with Truist Securities. Please go ahead.

Jasper Bibb, Analyst

Hi, everyone. This is actually Jasper Bibb on for Tobey. Thanks for taking my questions. Just on exec and pro search, I want to ask there are certain industry groups that are trending better or worse here. I was kind of thinking of some of the headlines around tech companies instituting hiring freezes or doing layoffs, and was wondering if that was having any impact here?

Gary Burnison, CEO

Our tech business was up sequentially 6%. So it's not having an impact. The professional search, we've been in the business for some time, obviously, with the RPO offering, but this is a really renewed focus on the part of Korn Ferry. When you look at our market opportunity, it's probably 300 billion, 350 billion. There are a couple of really big aspects. One is around learning and development. That's an enormous piece. Today, learning and development is about 10% or 11% of the company. We develop over 1 million professionals a year. The opportunity around LDO, Learning Development Outsourcing, is big for Korn Ferry and it's kind of what RPO was many, many years ago. We're going to continue to put emphasis there. The second part is knowledge workers and professional search and interim services. The megatrend of work anywhere anytime has only accelerated during the pandemic. We don't really see that going away. This idea of flexibility in a hybrid work and what I would call career nomads is going to continue. We're putting a new focus around interim services with seasoned professionals to help drive an initiative or lead a business and that business has gone from almost zero to today a run rate of about $110 million. You look at all that in the professional search segment, it's about $400 million. Why shouldn't we quadruple that business? I think we really do have that kind of opportunity. In terms of industry trends, we haven't seen anything that would sound an alarm bell. It was good to see that the technology business actually grew sequentially.

Jasper Bibb, Analyst

Thanks. It makes sense. I was just hoping you could speak to your thinking around the Patina deal growing in the interim executive market, and how you are thinking about the opportunity for revenue synergies and putting that business beside the core executive search brand?

Gary Burnison, CEO

We've already seen that all of our efforts begin and end with quality, which applies to every aspect of our business. We monitor this daily in areas like assessing and developing people and placements. We pay very close attention to this. The interim market presents a unique opportunity for us, especially considering the brand we have and our relatively new presence in this field. Currently, it's a $110 million business, but I believe it has the potential to grow to a $1 billion business due to strong market demand. Right now, our offering is mostly focused in the United States, with some global capabilities, but there's significant potential for us to explore internationally. We will continue to invest in this segment of our business.

Jasper Bibb, Analyst

Last question for me, just how should we think about the durability of margins if a recession were to occur here? Do you think there are potential offsets to think about as far as consultant productivity or some of the real estate cost reductions you've made in the past two years relative to the experience of the last two recessions? Thanks.

Gary Burnison, CEO

Look, I'll let Bob comment in more detail. But I think this is my 80th earnings call with the firm. You'd find our 20-year CAGR is 10%, our 10-year CAGR is 13%, our cross referrals are almost 30%, and we've got a marquee and regional account, go-to-market strategy that's 36%, 37% of the portfolio. The other thing is that peak to trough looks significantly different over time. That even bore out in this COVID experience where there were parts of the business that were more cyclical and others that were less cyclical. So I think there's a thesis around tamping down cyclicality, and that's actually borne out in the data. You do have a consulting business that can over time tend to ebb and flow. But for Korn Ferry, it's been up into the right.

Bob Rozek, CFO

Yes. One of the things that we constantly assess is what the world looks like. Going into the COVID pandemic recession, our operating boundary was to make sure that we were cash flow neutral in a particular quarter and on a trailing 12 basis. What we experienced was that we were well above cash flow neutral. We've reassessed our operating boundaries now, looking at the business from the perspective of maintaining nothing less than a 5% EBITDA margin on a trailing 12 basis, which puts us in a cash-positive position. Your point on real estate is actually very good. We’re tracking attendance in offices, seeing how many people are coming in, how frequently and so on. I believe there will be a second wave of real estate reductions.

Jasper Bibb, Analyst

I appreciate the color, guys. Thanks for taking the questions.

Operator, Operator

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

Mark Marcon, Analyst

Good afternoon and congratulations on the strong year. Obviously really strong particularly in terms of RPO. Can you talk a little bit about how much of the new logo wins on the RPO side you would expect to spill into the first quarter of this year from a revenue perspective?

Bob Rozek, CFO

Yes. Mark, I would say there's probably very little in the first quarter that was spilling. Essentially, when you stand up an engagement, it takes time to get it operational. When you sign up a large engagement, the contracts are written in a way that we get an upfront implementation fee, which is a very small percentage of the total contract value. As requisitions start to open, that's when you'll see the real impact from the revenue side. I would say probably very little in Q1, and then we'll see it more hitting in Q2 and beyond.

Gary Burnison, CEO

That's consistent with how large engagements have always operated.

Mark Marcon, Analyst

Could you clarify your response to George's question regarding the percentages for May being at 12% and June being flat? Are you referring to new business on a year-over-year basis? So, does that mean May has increased by about 12%, and June is flat compared to June of last year, or is June flat in comparison to May?

Gary Burnison, CEO

No, we're talking sequentially.

Mark Marcon, Analyst

Okay. So May would be up 12% compared to April?

Gary Burnison, CEO

Down positive. As a result, May relative to April down 12% sequentially, on a year-over-year basis, though, May is actually up 13%.

Bob Rozek, CFO

We look at new business every day and we manage the business with looking at current data and we have certain goals and targets each month.

Mark Marcon, Analyst

Okay, great. That's super helpful. And then regarding executive search, any sense of what percentage of the business is coming from relatively new entities that might still be private?

Gary Burnison, CEO

No, we don't know the specifics, Mark. It's a pretty balanced portfolio. It mirrors the global economy, and I don't think there's anything that's particularly out of balance.

Mark Marcon, Analyst

Okay, great. And then how about what percentage of searches? We obviously are all aware that there are cyclical factors and demographic factors. From a demographic perspective, the boomers are retiring. Any sense of what percentage of the searches are basically due to retirements where somebody needs to be replaced and it's not necessarily because of churn and hopping?

Gary Burnison, CEO

I'm not going to give you a specific percentage, Mark, but it's a decent ratio. I've thought a lot about June of '07 and compared that to this June, so 15 years ago. Did we see the great recession coming, and what were we paying attention to, what were we ignoring, where were the blind spots? We had actually started to cap down hiring and ensured our balance sheet was bolstered. The labor force participation rate was lower, and there’s been little growth in the labor force. The workforce is older. Millions of people have left the workforce. The labor force growth is 35% slower than the population growth. College unemployment rate is still very low. There are definitely people retiring, but the demographic trend of 55 and older is at 38%. A completely different labor force dynamic today than it was 15 years ago. There are literally millions of people who have left the job market at least in the U.S. and the same is true for other Western economies.

Mark Marcon, Analyst

Gary, you've always been very thoughtful about economic cycles. Some people believe we are heading into a recession, while others feel it may just be a soft landing. If we do experience a recession, how much do you anticipate revenue could decline in a typical recession scenario?

Gary Burnison, CEO

It's very difficult to predict those kinds of things. The huge wildcard is inflation. That is a huge issue for Americans and for others in the world. The labor market is substantially different than it was during the financial crisis, and there is still a shortage of talent. The data points in '07 were significantly different. I believe there is a buffer when it comes to the labor market that maybe wasn't there 15 years ago.

Mark Marcon, Analyst

Okay. And in terms of hiring over the next 12 months, how are you thinking about hiring? Where would we see the strongest levels of growth?

Gary Burnison, CEO

We have 11,000 colleagues. Out of those, there's probably about 1,800 what we would call partners and principals, people that have responsibility for originating business. We're looking for talent everywhere. We're as aggressive today as we were six months ago. We’re very mindful of costs. We’ve taken a measured approach over the last several months on that. But the demand has continued to be there. We have to add more commercial capability in our digital business. We need more of them, but we're continuing to look across the board from organizational strategy consultants to comp and benefits consultants, executive search. We're still continuing to do that. This story of Korn Ferry has to be about growth for the long term.

Mark Marcon, Analyst

Terrific. Thanks a lot, Gary.

Operator, Operator

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

Gary Burnison, CEO

Okay. I just wanted to again thank not only our shareholders and those following us but our Board and most importantly our colleagues. It's been an incredible show of resiliency. I really do believe the best is yet to come. Thank you very much for listening, and we look forward to speaking to you again. Thank you. Bye-bye.

Operator, Operator

Ladies and gentlemen, this conference will be available for replay for one week starting at 3:00 PM Eastern Time running through the day, June 29, 2022, ending at midnight. You may access the AT&T Executive Playback Service by dialing 866-207-1041 and entering the access code 3513063. International participants may dial 402-970-0847. Additionally, the replay will be available for playback at the company's Web site www.kornferry.com in the Investor Relations section. That does conclude our conference for today. We thank you for your participation. You may now disconnect.