All right, good morning, everybody. My name is Mark Marcon. I call human capital technology and solutions for FAIRD. With us today, we have Korn Ferry. Korn Ferry, as I think most of you know, is really well known as being the world's leading executive search firm. But increasingly, and more importantly, it's really an organization that's helping organizational consulting on talent, as well as talent acquisition, and getting the most out of your talent. With us today, we're very pleased to have Bob Rozak, the Executive Vice President, Chief Financial Officer, and Chief Corporate Officer of Korn Ferry. We also have Tiffany. For those of you that follow the company, you all know what a terrific resource she is with regards to the company. Bob, I can't believe that, you know, I was looking back, and it's like, you've been the CFO since 2012. And I remember when you first joined, and it's like time really does fly, and the organization has really changed a lot. So I've got a series of questions, and I want to discuss both the financial metrics as well as what your view of the state of the labor market is, but also some of the big initiatives that you guys have in place right now.

Sure.

And so I want to start with, there's one question I'm asking literally every company that I cover and I'm hosting 15 companies at this conference. And one question is just your view of the state of the U.S. labor market. And not specific to you because I'm going to come back to you in terms of like your performance has been exceptional. But relative to what you see and what you're hearing from corporate executives What's your view of the state of the labor market Both from a cyclical but also from a structural perspective as it relates to AI Okay, a lot to unpack there I have one question and then it goes for five minutes I think the labor market's tough right now in the U.S.

Yeah, there's no doubt the job creation has tamped down. Unemployment's kind of hanging in where it's at. The participation rate continues to decline. So I think there's multiple factors, but it's a pretty challenging environment. What's interesting to me is I see every day you pick up the journal and you read, and one day AA's taking away everybody's job, and the next day we're hiring more college grads than ever. And so there's a lot of confusing data points out there. And obviously you pay attention, you read that stuff. What I really look at, Mark, is our business and how we're behaving in this particular environment. And so for us, again, we're going to announce our fourth quarter in a couple weeks, so there's not a lot I could say in the fourth quarter itself.

But I haven't seen any real change in our business performance. that's great that's great well let's let's delve into your performance um because what's what's really interesting is you know it is it has been a well publicized challenging labor market most of the companies that you get the public companies that you get comped against fairly or unfairly haven't been doing as well but you've been growing and actually accelerating the growth yeah and so So, I'm wondering if we could start with executive search. What do you attribute the strength? Because you're seeing both volume growth and fee per engagement growth, which has been really impressive. And so, what I'm wondering is, what do you, and I'm talking about North American executive search specifically, what do you attribute that to?

Yeah, I think it's the continuing bringing on of better talent, right? The elevation of the brand in the world, and we're just playing in a much I love. If you go back over the past couple years, and it's hard because when you look at C-suite engagements, a number of them come in, and they're confidential, so it's marked confidential, so you don't really get the full effect. But if I go back over the past couple of years, from an average fee perspective, we're up about 9.5%. From a volume perspective, about 6.5% for what we identify as C-suite, the ones I can specifically look at. And I think it's just the elevation of the brand and just the talent we have in this place is incredible.

Yeah, and I mean, one stat that I read was that of the last seven, you know, well-publicized CEO searches, you ended up doing six of them. Yeah, that's right. Which is pretty amazing. When I first started covering Korn Ferry back in, well, I guess it was 2000, you basically had Heydrich and Struggles, you had Russell Reynolds, you had Spencer Stewart, and they were all viewed as being higher brands than Korn Ferry. And now it seems like you've surpassed them.

No, we absolutely have. And I think a lot of it is the evolution of company. Mark talked about me joining in 2012. At that time, we were about a $700, maybe $750 million business. 85% of that was exec search. Today, our executive search portion of our business is about 30%, and it's close to a $950 million run rate. So the business is bigger, but we've grown. And I think as you think about looking to somebody to help you with talent, I mean, Hydric, Russell, those are all good firms. But if you're looking for somebody who's a more holistic talent partner, that's really where we come in. We touch every aspect of an employee's engagement with his or her employer. And if you're a consumer of that, you can go to Firm A for rewards, Firm B for development, Firm C for talent acquisition. Then you have to cobble all that together yourself for us was kind of one-stop shopping that's great and then one thing I was wondering about is you know to what extent do you think you know either it's going to come or you're already starting to see a benefit from it just peak 65 and thinking about the retiring baby boomers I think we're definitely seeing a benefit from it right now in fact it's benefiting us in in my view in two areas one is obviously an exec search so as you get that turnover but there's a lot of people who are still at a point where they may not want the daily grind but they still want to stay relevant so they come in and will work on projects so that helps our interim our interim business member we bought patina and I know but you know well yeah they're focused on c-suite project or interim type work that's great and do you think it's going to become a bigger deal as we start going towards peak 65 or not? I think we're probably in the second or third inning of that cycle. I think the other thing that's kind of interesting is clients are now coming to us and looking at our PO business and they're basically saying, hey, you guys are managing all this perm. Why wouldn't you manage all this temp? And they're even stepping back and saying, you know what before we get there we really need your help in thinking through what does my workforce of the future look like is it 70 30 80 20 right and so doing a lot of consulting work around just structural how do i bring together a workforce for the future great um and then just staying on the labor force for one last question but i mean how do you view ai as impacting the roles that you place, is that going to be an aid or is it going to be a headwind? I think ultimately, and if you think about AI and again, all the rhetoric, so if you go back six months, nobody was going to have a job ever again, right? And that pendulum is starting to swing over now. What we're seeing with our clients is they've gotten themselves what I'll call AI ready. so tools in people's hands. But as I step back and think about it, like if everybody in this room had AI and we said, okay, now go use it, it's really hard to collect any productivity because you'll use it differently. Tiffany, you'll use it differently. I'll use it differently. And so what we're focused on with our clients is not so much, well, it's two things. One, do you have the right skill set in your employee base? But to us, it's AI plus humans. So how are you deploying AI? and I'll give you an example, we're using it on ourselves. And my view with our folks is we have to go and figure out where we've got critical mass, where there's redundant, repetitive activities, and we're running pilots now, so how do you get organized use of that tool to really drive productivity? I'm doing it within the corporate functions, and the one area for me that was kind of an easy one to get my head around was order to cash. And as I sat with a guy named Daniel who's doing it for me, He actually took me through the whole workflow process in these 15 steps. And he said we can use AI here, here, and here, but the rest is human. So I think once companies start to really get granular and understand that, it's really going to be, and this is what our philosophy is, it's AI plus human. It's not AI or human.

And then you have to be really smart about what you do with the productivity that you gather from that. right you can it's easy to fire a bunch of people but if i have two billion dollars in backlog why wouldn't i take those resources put them against that backlog and grow faster right well said so i'm glad that you so bob just came back from uh from london and um and one of the topics that you know a lot of people who aren't familiar with corn ferry don't really fully appreciate is the the wide scope of the services that they have and historically people had been siloed um you know in terms of their roles but now you've got this we are corn fairy um and where

you're basically teaching people to cross sell everything and i'm wondering if you can talk a little bit about um you know the we are corn fairy strategy so it was probably about a year and a half ago i was talking with gary and he asked me the question what does success look like five years from now and i said gary for me it's really simple i go out and introduce myself as being from corn ferry and i stop i'm not consulting i'm not digital i'm not executive search i engage my client in the conversation uh understand their business talent issues and not that i'm an expert in everything we do but i'm conversational competent to the point when i walk out they're saying to themselves well these guys can really help us and i said back then today we probably have 60 70 people that can do that we need 1500 that can do that if we do that we'll be wildly successful and so we started on this journey of we are corn fairy and you're right the way that we've managed this business historically is by each of our solution areas and so if i had a problem in consulting i'd call leslie year and say hey leslie what are you doing about this or digital matias what are you doing about this and so we did create this siloing and so right now what we're doing is we're trying to break all that down right and have it's not so much what I would call cross on it's more collaborative selling so how do we come together around our clients so everything is client centric at this point right we start with the client and you meet clients locally where they're at right so we're bringing teams together to help solve our clients business and talent issues rather than in the past we were opportunistic phone ring and somebody would react this is much more intentional right and we're actually seeing it was interesting mark we you know we have that business referral program so first quarter 25 percent of our revenue was referred across the firm if you go back the prior five or six quarters it was 25 percent we started this we are coin ferry back at last may one and And what we're seeing is in Q2, we saw that go up to 27%. Q3, it was 27.5%. Q4 is going to even be better. So we're starting to see some cause and effect of bringing everybody together and coming together. Our next step, and that's why we're doing all these sessions, we have Gary's leadership team now functioning that way. But now their team and their team's team has to do that. And so that'll be the next leg of our journey is to really roll it out much deeper in the organization. And the other thing I tell Gary all the time is this is, I mean, it's absolutely right thing to do, but it's not a light switch. Like I grew up at Price Waterhouse, and I observed partners doing, interacting with their clients and bringing the resources of the firm to bear.

And so when I made partner, it wasn't like I had to do any, it was part of my DNA. that's what we need to get to so it's going to be kind of a top-down bottoms up approach or journey that round over the next couple years to really embed that mindset in the organization now you guys are really analytical and you've got a lot of data you know is there a way to measure you know what the level of productivity is as people are fully engaging in this in other words from a investor perspective it's great that you're doing this what sort of revenue lift should we expect relative to a baseline if you weren't doing this how

do you think about that yeah I would say that as we've gone through the various stages of our journey we've we've grown revenue somewhere around 10 11 percent on the CAGR I think you'll see us continue you'll see us continue to do it I think bringing the forces of the firm together to face off of clients is going to help us continue to extend that. And then obviously there will be some M&A that we'll throw in there. But you can't, people go into market by themselves, you can't scale it. You've got to bring teams together, and that's the only way you're going to scale what we do. And given the solution sets that we have, all the data, intellectual property, science, that's the only way we're going to continue to scale those places by facing off with clients in a much more collaborative fashion.

Great. And then, you know, one of the things that's interesting about that is you do have a wide scope of solutions. And I'm just curious, by show of hands, how many people here are really familiar with Corn Fairy and have a good sense for all of the various divisions if you if you feel like you've got a really good sense of that so the majority don't right um so why don't we that's why we're doing this yeah so why why don't we cover some of the areas yeah but you know one of the things that's kind of interesting is that you've got a wide you know a wide set of solutions um that cover everything related to human capital and there's very disparate you know and distinct margin profiles for some yeah and so one of the things that I'm

excited about with regards to we are corn fairy is you know if we can get digital going as an example which is your highest margin business but can we go through just a really quick description of each one of the areas I think most people are familiar with executive search yeah why don't I start with all of our talent acquisitions so we do executive search professional search which is the levels right below executive we don't go deep into an organization everything we do is at a professional level and above and then we have what we call recruitment process outsourcing that's where we'll hire thousands of people annually for for very large companies you saw our new business last quarter was over a couple hundred million dollars we just re-signed honeywell so we're We're doing like 25,000 hires a year for them. And then we have interim, which is we're newer into that, but that would be taking advantage of some of the secular changes out there with contract labor or temporary help or the peak 65 folks who don't want to retire and still want something to do. So that's kind of all the talent acquisition that we do. Then we have what we call org strategy, and it's not like a business strategy. Think about McKinsey or Bain. it's what happens after that strategy is developed so we would come in and help companies execute and implement that strategy through their people and so think about organizational design roles responsibilities job descriptions success profiles let me layers and spans of control things like that helping companies get themselves set up with job architecture in fact that's an interesting area now for us with pay transparency people are looking at jobs and say, well, I'm not just going to increase everybody's pay. Let's make sure we have really different jobs or the same job before we make that call. Then we have what we call assessment succession. So we're the largest assessment shop in the world, and it's our own assessments, our own science. We have about 35 or 40 behavioral science PhDs, and we've created an assessment that looks at you, not just from competencies and experiences, but traits and drivers. So what makes you up as a human and we really believe that when you're putting somebody into a role it's not just their capabilities, but that whether they'll fit as a as a human being in your organization That's really important. We have leadership and professional development And so we'll coach and we've got very large Tech firms that have come to us and said hey, we love your coaches. We love your science can you develop my next level of leadership and then we do total rewards so we have actually that's in two segments so executive paying governance right where you're consulting with comp committee chairman or chairwoman and more broad-based managerial reward consulting and so we think about every aspect that you experience with your employer where we cover all of that and when you think about the we are corn fairy and getting everybody to be collaborative what areas do you think would see the biggest lift I would I would say it's probably going to be more in the ultimately in the consulting and digital area and just to give you an example like I I look at our organization and we have so much connective tissue across those solutions so let's say i i'm a search partner mark and i get you a ceo job and so we're talking you say hey bob i've got this leadership team and my strategy goes this way and they're taking me that way can you guys help so first thing we do is we sit down and say okay mark here's our 38 characteristics you tell us what's important to you and we create a success profile for your organization, we would build the assessment off of that and go and we'd assess your leadership team. And you'd have some folks that would line up well. You have some that would line up okay, but they have some derailers so we can develop them to overcome that. And you have some that are never going to get you there, so we'll find you new talent. And then we help you get organized boxes on a page, roles, responsibilities, all that. And then when we're all done, we'd say, okay, Mark, here's an incentive program to incent your team to drive your strategy. So right there in one sentence, I kind of walked across everything that we do. And again, in my view, I think the connective tissue is so strong, and that's why I think we do a great job of selling across the organization. And do you think like digital, for example, would get a decent lift off of this? i think ultimately but the way that our thinking on digital continues to evolve right okay and so digital i keep harping on digital because it's the highest margin yeah it is but digital is really houses all of our what i would call our talent intelligence so all of the data ip content right behavioral science all that and digital actually elevates the whole firm so by definition of The rest of the firm because all that fits into and permeates Our solutions. Digital by definition should Be elevated as well.

Great. What's interesting is it should elevate also your Revenue lift.

If we think 90% of your Business comes from 4,500 clients and the average of Those basically only use one and a half to two of your Solutions, we should have a huge uplift from that perspective over time and it's our focus right now we're not like we can go out and chase new clients all we want but it's a long sales cycle high cost of sale to your point mark we have forty five hundred clients ninety percent of our revenue that whole group on average uses one and a half solutions as we went in and stratified it the first thousand or so or a couple thousand do one and a half and it's like a hundred and seventy thousand dollars per client you go to two solutions, and it's $350,000 per client. Two and a half is $750,000 per client, and then it's like three or four million from there. So our focus right now is, and obviously we'll take new clients when the opportunity arises, but our focus is on deeper penetration of our existing client base because of the shortened sales cycle and the lower cost of sale.

And we're talking about 150 000 300 000 750 000 but you actually have some contracts with some extremely well-known companies oh yeah that are going up in eight figures yeah we've got uh uh i would say probably five client relationships now that are at or slightly above or below 40 million dollars a year yeah i mean that's the level of scale that we can get off of some of these um I've only got six and a half minutes left, so let's move to TalentSuite. How would you explain TalentSuite to somebody who doesn't know TalentSuite?

Yeah, again, this is something that our thinking on this has kind of evolved. You know, when we started down this path, as we thought about TalentSuite, we were kind of thinking, like, you know, this is TalentSuite, you buy this. But really what it is, it's a platform that enables effective and efficient access to all those data points, the assets that we have at the center of firm. We call them our foundational assets, and it allows us to bring those up into our solutions. And to give you an example, like RPO, our RPO business wins more than its fair share, and I believe a lot of it's because of the platform that they have. So they bring our assessments into their platform. They bring our pay data into their platform. They bring our success profiles into their platform. And that's part of their delivery platform that they go to market with. It's very differentiated. So to me, TalentSuite is, again, a platform that gives access, and our folks are going to use it to deliver their solutions. And if you have a client who's a bit more sophisticated, they can actually license access to it for some period of time if they want to do pay or they like the assessment tool. And where we're focused now is we have about 6,300 clients on TalentSuite. 75% of those use one of the, there's 10 apps on it, use one app. So again, it's no different than the 4,500. It's land and expand within that client base.

There's a lot of room for opportunity there. Why don't we shift over to the financials in terms of the margins. I mean, you've done a great job in terms of, you know, bringing discipline to the organization, you know, managing to the margins. You know, even during the challenging time, you've maintained the margins in that 16%, 17% range in terms of EBITDA margins. With all of the initiatives that you have in place, which, you know, should end up lifting revenue, you know, at a continued pace, combined with, you know, some of the automation initiatives, how should investors think about the margin profile? And obviously you've got, you know, some businesses that are well below 17%, and then you've got some that are well above, but how should we think about that?

I think you'll see us, you know, right now we're sticking to our 16% to 18% range, and a lot of that's going to depend, to your point, on the mix at any one point in time. But I think over time, you know, we run a really tight ship, so we don't have a ton of corporate people. So as we continue to grow, we'll get leverage out of that. For us, using the AI tool is going to drive productivity. Again, that may not necessarily shrink all of our headcount, but it'll give us freed up capacity to throw against that. I think over the long haul, I would be disappointed if we're not breaking through the top end of that range, especially if we get digital to where we believe it can be. What sort of time frame? It's probably a two- or three-year, four-year journey. It's not a light switch. We're on a journey. We continue to evolve the company and complement the service offerings that we have. So I would say, you know, over the next three to five years, you'll see that.

And then what do you think the upper limit is?

On the margin? In my mind right now, it could be 19%, 20%.

Okay.

Which, you know, that's best in class.

And the overall revenues could be multiple.

Oh, yeah. I mean, if you look, Gary tells everybody in these We Are Corn Ferry sessions, you know, he's up in front. We are going to be a $10 billion organization, and he really believes that. Again, it would be obviously a combination of M&A.

And nobody would have believed back when I first started covering you that you'd be at this size.

Oh, I can't. I'd be honest with you, Mark. I look back, again, when I started, and I didn't even, when I got the opportunity, I first said no to it because it was kind of small and as I'm really not interested and then when I went out and met with Gary and I understood the opportunity I was like okay this could be kind of cool to be part of a company that you're got your fingerprints on growing and I have to be honest with you if I go back and put myself in my mindset about the opportunity back then and where I am today it were light years beyond whatever I thought we'd be capable of and right now we're you know over the next five years you're gonna see some very interesting things coming out of this company that's great let's let's go

to capital allocation and the balance sheet and free cash flow so balance sheets in great shape free cash flow has been really good you've raised the dividend seven times in the last six years you're buying back stock talk a little bit about capital allocation you know priorities and particularly visa v your valuation because relative to your performance your your valuations quite low yeah i think i think too many people still look at us as it as executive search i mean we saw the show hands yeah right so we've got work to do to get the corn fairy story out there so people really understand and the thing i always tell our board uh because we talk about say i tell a story different tell it better because i can tell nursery rhymes but the

performance has to be there that's what we're doing right now we've got three or four quarters where, to your point earlier, our competitors are kind of doing less, worse. We're growing. So we've got the track record now showing that this company is different. And on the capital allocation front, we've been very consistent. Our first priority is always to put the money back into the business. So you're going to hire individuals, teams. We'll invest back into our employees from a development perspective and so on. we'll do M&A. We're not what I would call serial acquirers. And so, number one, it has to align to the strategy. Two, you obviously have to make the math work. But the most important thing is cultural fit. And Gary, when we do do deals, he spends an enormous time with the leadership teams of those companies to make sure that day two they show up at work. And so M&A is going to continue to be an important part of what we do going forward. And then, to your point, we're not serial acquirers and we have capital that we do return to shareholders. Dividend right now is about a 3% yield. We're comfortable at that range. And then on the buybacks, when we don't have a good deal to do, we lean more heavily into buybacks and we'll continue to do it.

And actually shrinking the share count. Yeah, we'll continue to do that. Unfortunately, we're out of time. Please join me in thanking Bob for a thorough discussion. Thanks, everybody.