Korn Ferry

NYSE:KFY

Earnings Call Analysis

Stabilizing Performance with a Positive Outlook

In the challenging landscape, global fee revenue decreased by 3% to $704 million, yet consultancy segments showed resilience, with consulting and digital revenues growing by around 3% each. Adjusted earnings per share dipped to $0.97, a drop from $1.21 in the previous year due to $70 million in restructuring charges. Despite a GAAP diluted loss per share of $0.04, noteworthy improvements include a 10% rise in consulting new business and a digital revenue climb. For the upcoming quarter, a more upbeat tone sets in, expecting GAAP diluted earnings per share to range from $0.87 to $0.95, signaling potential stabilization and growth ahead.

Resilient Performance with Steady Profitability Amidst Economic Challenges

Despite facing an uneven economic landscape, the company showcased its robust business model, achieving $704 million in fee revenue, marking a slight decline of 3% year-over-year. Nevertheless, the resilience of the company allowed it to maintain steady earnings, delivering a consistent adjusted EBITDA margin of 14%. This performance underscored the company's ability to withstand the unpredictability of global markets, keeping profitability at its core.

Substantial Contributions from Consulting and Digital Segments

The consulting and digital businesses flourished, comprising nearly 40% of the total revenue, with digital services reaching a record high during the quarter. This growth trajectory confirms a significant transformation from the company's humbler origins to a multi-billion-dollar revenue-generating firm, displaying a remarkable 40% increase in the top line since before the pandemic.

Strategic Workforce Optimization for Improved Margins

In efforts to align its workforce with current business realities and capitalize on productivity, the company undertook rightsizing measures expected to yield annual cost savings between $110 million to $120 million. This strategic move is anticipated to support continued improvement in adjusted EBITDA margins.

Segment Performance Insights and Declines in Talent Acquisition

While the consulting and digital segments each saw a 3% increase in the second quarter, talent acquisition, particularly permanent placement, experienced a notable decline, with executive search, RPO, and Professional Search revenues decreasing by 7%, 18%, and 29%, respectively. This moderation from post-pandemic highs suggests a shift in the demand landscape for these services.

Digital and Consulting Segments Show Promising Growth

The digital segment recorded $32 million in subscription and license fee revenue, achieving a 12% rise compared to the same quarter last year. The company's emphasis on multiyear subscriptions demonstrates resilience and a strategic direction towards sustainable revenue streams. Consulting services also performed positively, with a 3% year-over-year increase to $178 million, displaying strength in organizational strategy and assessment and succession segments.

Diverging Trends in Professional Search and Interim Services

The combined revenue for Professional Search and Interim Services went up marginally by 3%, totaling $138 million. Interim Services grew, which compensated for a decrease in permanent placements, illustrating the dynamic nature of demand between temporary and permanent talent solutions.

Recruitment Process Outsourcing and Executive Search Experience Downturns

Recruitment Process Outsourcing (RPO) saw fee revenue drop by 18%, totaling $88 million, a decrease resonating with a broader hiring slowdown. Meanwhile, Executive Search's fee revenue diminished by 9% at constant currency, reflecting a moderation of demand across the global market, except for Latin America.

Outlook for the Third Quarter Paints an Optimistic Picture

The company has set its third-quarter revenue projections between $645 million to $665 million, targeting an adjusted EBITDA margin improvement to roughly 15%. Adjusted diluted EPS is expected to range from $0.96 to $1.02, demonstrating a positive trajectory as the company moves forward.

Investor Considerations and Forward Guidance

Investors can appreciate the company's strategic direction, focusing on generating tangible returns from previous investments and moving towards a more profitable margin range of 14.5% to 15.5% for the near term. The emphasis remains on achieving financial flexibility to pursue opportunities in the multibillion-dollar market while ensuring shareholder value is enhanced through prudent capital deployment and a robust investable cash position.

Earnings Call Transcript 2024-Q2

[Operator]

Ladies and gentlemen, thank you for standing by, and welcome to the Korn Ferry Second Quarter Fiscal Year 2024 Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. We have also made available in the Investor Relations section of our website at kornferry.com, a copy of the financial presentation that we will be reviewing with you today. Before I turn the call over to your host, Mr. Gary Burnison, let me first read a cautionary statement to investors. Certain statements made in the call today, such as those related to future performance, plans and goals, constitute forward-looking statements within the meaning of 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 the 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 of the SEC, including the company's annual report for fiscal year 2023 and in the company's soon to be filed quarterly report for the quarter ended October 31, 2023. Also, some of the comments today may reference non-GAAP financial measures such as constant currency amounts, EBITDA and adjusted EBITDA. Additional information concerning those measures, including reconciliations to the most direct 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 section of the company's website at www.kornferry.com. With that, I'll turn the call over to Mr. Burnison. Please go ahead, Mr. Burnison.

[Gary Burnison, executive]

Okay. Good afternoon, everybody, and thank you for joining us in season's greetings. The team is going to get into this in more detail, but there's no doubt that the strategy is working. Despite a softer labor market, our results demonstrate the resiliency of our business through a marquee and regional account strategy, multiple talent product offerings and cross referring those solutions to our clients, we generated $704 million in fee revenue in the quarter, which was down about 3% year-over-year. Despite a persistent uneven economic environment, earnings and profitability held steady sequentially as we delivered a 14% adjusted EBITDA margin. And also, we announced this morning reflecting that we've got a much different company today and the confidence that we have in our organization, we increased our dividend by 83%. I'm proud of our phone and of our colleagues. We continue to develop increasingly relevant solutions in a rapidly changing world. In particular, our consulting and digital businesses now generate almost 40% of our top line. And in fact, digital achieved an all-time record revenue at constant currency during the quarter. To put all this in perspective, I want to take a step back for a moment. When I started with our firm, we were a couple of hundred million dollar company. Today, our firm generates several billion dollars in revenue. In fact, our top line today is about 40% higher than pre-pandemic levels. And now we're at the threshold of even greater opportunity. More importantly, we have the possibility of accelerating the trajectory of thousands of organizations. At the same time, we have to acknowledge that most of the business world is in the midst of a multi-quarter cyclical reset. -- has become clear that the economic environment will continue to be challenging in the months ahead. Countries have been transitioning from almost 3 decades of cheap money to substantially higher interest rate. This reset will require companies and our clients to not only adapt but adjust, optimize and innovate, which creates opportunity for Korn Ferry. We have a proven proven track record of accelerating through many economic terms. The crucial aspect is breaking before the turn and accelerating through it. In times like these, that's how great companies make their best moves. And Korn Ferry is a great company.Our vision to become the premier organizational consulting firms working and our diversification strategy continues to positively influence our performance. We have a household brand operating in every major geographic region of the world with world-class IP and talent, unparalleled client access and a pristine balance sheet with substantial financial muscle. We power through cycles and are poised to seize opportunity with a 3-point strategy. Number one, optimize; number two, innovate and number three, consolidate. I'll now turn the call over to Bob, who will cover all of this in more detail. Bob?

[Robert Rozek, executive]

Great. Thanks, Gary, and good afternoon or good morning. Similar to Gary, I'm very pleased with our performance this quarter. It clearly demonstrates that our broader diversification strategy and investment thesis continues to play out. Our consulting and digital businesses both grew year-over-year and our recently acquired interim businesses were more durable than our permanent placement talent acquisition solutions. Now this intentional diversification into strategically aligned capabilities provides additional cross-line of business referral opportunities and more relevant scalable solutions for our marquee and regional accounts. It also contributes to not only more durable fee revenues, but to increased earnings stability, as shown in the company's sequentially stable adjusted EBITDA despite an increasingly complex and uncertain macroeconomic backdrop. I'm also pleased with our cost management as the company's adjusted EBITDA margin marked the second consecutive quarter of continued sequential improvement. Additionally, at the end of the second quarter, we took actions to rightsize our workforce capacity to better align it with current business realities as well as to take advantage of productivity gains we're realizing in this new world of work. These actions will help us to continue with our adjusted EBITDA margin improvement by driving approximately $110 million to $120 million in overall annual cost saves.Finally, and going back to the point Gary ended with, we do plan to continue to seize opportunities in the current environment with our 3-point strategy. He said optimize innovate and consolidate. Let's start with Optimize first. We're going to continue to drive productivity by leveraging our cost base. In fact, if you take Q2 of FY '24 and compare that to Q3 of FY '20, and that was a quarter right before it before the pandemic. Our fee revenue per employee is up 23%. And if you were to pro forma a full quarter of the impact from our recent restructuring actions, it would actually be up 33%. Now let me turn to innovate. We will continue to build moats around our solutions and services using our proprietary data content and IP, which truly differentiates us from our competitors who generally have to rely on third-party data and insights. We are also actively embedding AI into our existing solutions and services to drive greater delivery efficiencies along with greater client impact. Last, we'll continue with our investments to monetize our data content and IP through our digital business. Now I'll touch upon consolidate, where our efforts are going to be focused on continuing our investment in strategically aligned less cyclical, faster-growing and largeable addressable markets. With all of our recently acquired interim businesses now being fully integrated and the increasing relevance of our services and solutions in the world today, we will continue to leverage our existing client relationships and our colleagues across all lines of business will drive top line fee revenue synergies through expanded client penetration.Lastly, we will continue to expand our leadership and professional development business by replicating our success in delivering leadership coaching at scale and an increasing number of clients and leveraging this success into a broader leadership development outsourcing offering. Now let me turn the call over to Greg, who will take you through some overall company financial highlights.

[Gregg Kvochak, executive]

Okay. Thanks, Bob. In the second quarter, global fee revenue was $704 million, which was above the high end of our guidance range and down 3% year-over-year or down 5% at constant currency. By line of business, consulting and digital, which combined were approximately 40% of consolidated revenue continue to be stable, each growing approximately 3% in the second quarter. For Talent acquisition, permanent placement fee revenue continued to moderate from post-pandemic highs with executive search, RPO and Professional Search down 7%, down 18% and down 29%, respectively. Fee revenue in the second quarter for interim services was also more stable, down sequentially approximately $2 million or 2%. Consolidated new business in the second quarter, excluding RPO was down 3% year-over-year at actual FX rates and down 4% at constant currency. Consulting new business in the second quarter was strong, up 10% year-over-year, driven by EMEA, which was up 34%. And Digital new business was up sequentially in the second quarter, but down 15% measured year-over-year due primarily to a strong fiscal Q2, which included several large contract wins. Similarly, RPO had a strong quarter with new business at $141 million. New business in the second quarter for Executive Search was down 10% year-over-year, and for professional search and interim was up 1% year-over-year. In line with guidance, second quarter earnings and profitability remained sequentially stable. Adjusted EBITDA in the second quarter was $99 million and despite moderating fee revenue, strong cost control drove adjusted EBITDA margin to 14%, up 30 basis points sequentially. Finally, our adjusted fully diluted earnings per share in the second quarter were $0.97, down $0.46 or 32% year-over-year. Adjusted fully diluted earnings per share excludes $70 million or $1.01 per share of restructuring charges related to the realignment of our workforce and integration and acquisition costs associated with our recent acquisitions. GAAP diluted loss per share in the second quarter was minus $0.04. Our investable cash position at the end of the second quarter remained strong at $464 million. Through the end of the second quarter, we deployed $65 million of cash using $28 million for share repurchases and dividends, $28 million for capital expenditures and $9 million for debt service. Now I'll turn the call over to Tiffany to review our operating segments in more detail.

[Tiffany Louder, executive]

Thanks, Greg. Starting with KS Digital, global fee revenue in the second quarter was $97 million, which was up 3% year-over-year and up 1% at constant currency. Digital subscription and license fee revenue in the second quarter was $32 million, which was approximately 33% of fee revenue for the quarter and up 12% versus Q2 of last year. The strategy of multiyear subscriptions has created some resiliency in digital revenue as this quarter marked a near all-time high in fee revenue for the segment. Global new business for digital was $95 million with $34 million or 36% of the total tied to subscription and license sales. Although the quarterly timing of larger new business projects is different than last year, the overall pipeline for digital remains strong as we head into the back half of our fiscal year. For consulting, fee revenue in the second quarter was $178 million, which was up approximately 3% year-over-year and up 1% at constant currency. The revenue growth was strongest in organizational strategy, which increased 19% year-over-year and an assessment and succession, which grew 7% year-over-year. The average hourly bill rate continues to climb now at $413 an hour, which is up over $42 an hour from just 1 year ago. Additionally, global new business for consulting in the second quarter was up 10% year-over-year, with continued double-digit growth in EMEA, resulting from large organizational strategy wins in the U.K. and Middle East. Total fee revenue in professional search and interim in the second quarter was $138 million, up $3.6 million or 3% versus Q2 of FY '23.Breaking down the quarter, year-over-year fee revenue growth was mostly driven by the interim business, which offset moderation in the permanent placement portion of the segment. Interim Services fee revenue grew to $82 million, up from $55 million in the same quarter of the prior year, driven in part by the most recent acquisition. The average interim hourly bill rate has increased to an average of $126 per hour, up from 107 just 1 year ago. Permanent placement fee revenue declined by $23 million to $56 million year-over-year, down 29% at actual and down 30% at constant currency. The professional search and interim new business increased 1% in the quarter compared to last year, driven by growth in EMEA and aided by the most recent acquisition. Moving on to recruitment process outsourcing. New business for the second quarter was $141 million, comprised of $53 million of new logos and $88 million of renewals and total revenue under contract at the end of the quarter was approximately $681 million. Fee revenue totaled $88 million, which was down $20 million or 18% year-over-year and down approximately 20% at constant currency. Fee revenue is impacted by a moderation in hiring volume in the existing base of contracts. We see this slowdown as transitory and believe RPO was well positioned to benefit when hiring returns to more normalized levels in the base and the larger, more recent wins begin converting to revenue at their full contract value. Although the quarterly new business can be choppy at times, the pipeline remains strong as RPO continues to win new business with a differentiated service offering in the marketplace.Finally, global fee revenue for Executive Search in the second quarter was $203 million, and as expected, experienced a year-over-year decline of 9% at constant currency compared to the accelerated growth rates during the pandemic recovery last year. Demand continued to moderate across most regions, with the exception of Latin America. Global new business in the second quarter for Executive Search was down 10% year-over-year and down approximately 11% at constant currency. I will now turn the call back over to Bob to discuss our outlook for the third quarter of fiscal '24.

[Robert Rozek, executive]

Great. Thanks, Tiffany. November new business came in line with our expectations and the normal seasonal patterns. And assuming no new major pandemic-related lockdowns or further changes in worldwide geopolitical conditions, economic conditions, financial markets and foreign exchange rates, we expect fee revenue in the third quarter of fiscal '24 to range from $645 million to $665 million, our adjusted EBITDA margin to improve to approximately 15% and our consolidated adjusted diluted earnings per share to range from $0.96 to $1.02. Finally, we expect our GAAP diluted earnings per share in the third quarter to range from $0.87 to $0.95. Now in closing, as I look across the organization, we're extremely well positioned in terms of what the world is looking for. Everything today is about talent. There's a war for talent, companies are looking for better talent, different talent with IT skills and so on. The collection of our IP data and content woven through our core and integrated solutions really creates a unique and symbiotic ecosystem of service offerings that touch every aspect of an employee's engagement with his or her employer. We're the only company in the world that has this collection of IP data, content and assets. It really gives us a great platform to help our clients synchronize their strategy and talent to drive superior performance, cocker change coming out stronger on the other side. With that, we would be glad to answer any questions you may have.

[Operator]

[Operator Instructions] One moment please for the first question. The first question comes from George Tong with Goldman Sachs.

[George Tong, analyst]

New business ex RPO inflected to a decline in the quarter, but it looks like November is following normal seasonal patterns. Can you talk a little bit more about new business trends that you saw by month during and exiting the quarter and if November trends suggest that we've essentially formed the bottom in terms of new business.

[Gary Burnison, executive]

The new business trends over the last 5 months have been pretty flat. That's number one. And it does appear that search has stabilized, particularly taking a look at even the last 4 quarters. October was substantially better than September, which we would expect. And November came in, which is November is a seasonal month, and it came in exactly where we thought. So it's been fairly stable, pretty consistent in terms of trends.

[George Tong, analyst]

Got it. That's helpful. You additionally talked about increasing cross referrals among large marquee and regional health. Can you provide some metrics on the extent of cross-selling and where you're seeing the most amount of cross-selling, which divisions?

[Gary Burnison, executive]

Well, the cross-selling -- look, the marquee and regional accounts is the anchor of our strategy. It's 38% of our top line. And in fact, this quarter, it was 38% of new business. And if you look overall cross referrals right now, I think year-to-date or something around 25% of the company's top line. And in some businesses, the percentage is higher and some it's lower. When you look at RPO, it's tended to be a very high percentage, substantially higher than 25%. We've certainly been very, very thrilled by saying the level of gross referrals into our new interim business that we didn't have 3 years ago. And then that continues to bear fruit. So part of the business, it's higher and some word that's being anchor strategy to have multiple panel of running that have raised the talk to clients and to drive deeper impact and change the trajectory of literally thousands of thousands of organizations.

[Operator]

Next question comes from the line of Mark Marcon with Baird.

[Mark Marcon, analyst]

Good morning or Good afternoon depending on where you are. I had several questions. One, Gary, you started out by basically talking about, hey, we've got this big reset in terms of getting ready for changes in rates. From your conversations and with your top consultants and the feedback that they're giving you, how are they viewing this reset? Like, how long do they think it's going to take? How is that impacting talent plans? What are you just seeing from that perspective? Because things have been stable for the last 5 months. And in addition to that, we are seeing some chatter about goldilocks and maybe a soft landing instead of an expected recession. So I'm just wondering how that all melts together.

[Gary Burnison, executive]

Well, in my conversations with clients and our consultants, it varies. It varies depending on where you are. There's there's parts of the world that are investing heavily, and there's others that are not. My -- look, you step back, and this is my read of things is that, number one, there's no question the labor market is softer. I mean a couple of years ago, the United States was producing like 600,000 jobs a month. Last year, it was 400,000. This year, it's 200,000 and October is probably like 100,000. So there's no question that coming off this incredible surge after the pandemic that the labor market has moderated. I would expect deflation. I think that is going to happen corn and wheat prices are back to pre-pandemic levels. You look at company's results over the past few quarters, and there's a consistent theme, volume down, prices up, package shrinking. I would expect that there to be deflationary pressures, broadly speaking. And I'm certainly not an economist. But I would think that central banks are going to hold pretty firm in where the rates are for the next several months and mid- to late '24, maybe there's some relief in that. But I think that this environment has taken companies time to adapt and adjust. And I think that's what you're saying with a higher cost to carry. But it's just -- it's clear to me that prices have to come down overall.

[Mark Marcon, analyst]

Great. I appreciate the perspective. With regards to capital allocation, so congrats on increasing the dividend. I know that that's been a point of discussion with the Board for quite some time. Can you talk a little bit about the dynamics that led to such a strong increase in terms of the dividend and just what -- how both the top management as well as the Board, what changed in terms of the thinking? And how should we interpret that with regards to further investments in terms of areas like interim or professional search?

[Gary Burnison, executive]

Confidence, confidence, confidence. I mean that's the answer. We have a completely different company today than we did several years ago. And we have confidence in our ability to generate sustainable profits. It is not by any store imagination deviation from our strategy. We have a multibillion-dollar opportunity ahead of us. We're going to continue to make investments to do acquisitions, but it reflects confidence in what the business is today. And you can see it in the results. I mean you can see a soft labor market. And clearly, the perm recruiting side of the business would ebb and flow with that. But if you look at the other parts, and it's buoyed, -- it's substantially look the firm's results. So it's all around confidence. And you look at our growth rate over 20 years, it's probably about 14%. I think last 10 years, it's 12%. 40% of that has been M&A, 60% has been organic. We're continuing to think that will be the playbook going forward. It could change if there is a big opportunity that comes our way. And that's one of the reasons why we took the actions we did, unfortunately, is to make sure that we're breaking and that we can make investments and deliver returns to shareholders. So we think that a balanced approach is the best way. Number one is to invest in the business as we've done, but we also have to be mindful of returning cash to shareholders either through dividends or stock buybacks.

[Mark Marcon, analyst]

Really appreciate that. I'm sure the shareholders do as well. With regards to just the separation and the restructuring that's occurring, which sections are being impacted the most from that perspective in terms of when we take a look at the overall headcount reduction in that $110 million to $120 million in terms of cost reductions, which divisions are being impacted the most there?

[Gary Burnison, executive]

It was fairly broad-based, and it kind of follows the trend in new business. Look, this is something that I just absolutely it's got reaching. And it's a decision that was not taken lightly, thought months about it, tried a lot of different things, and it's something that just weighs heavily on the even today. But the reality is that great companies make their best moves in times that aren't as rosy. And to do that, you have to make sure that you have financial freedom and flexibility to keep making investments. And that was the decision that I took. And unfortunately, it impact is about 8% of the organization. And it pretty much followed with the trends that you see in new business for the most part, both geographically, by industry and by solution.

[Robert Rozek, executive]

And Mark, it's Bob. The broad-based outcome really relates not only to the fact that we're getting -- taking out excess capacity. But remember, we also are taking advantage of some of the productivity gains that we're getting in the world of Workday, and that's what gave us the opportunity to be more broad-based for this versus more surgical.

[Mark Marcon, analyst]

I've got lots of other questions, but I'll jump back in the queue.

[Operator]

And our next question comes from the line of Tobey Sommer with Truist Securities.

[Tobey Sommer, analyst]

Capital intensity over the last few years, CapEx has gone from like $31 million in fiscal '21. It looks like we're on a run rate for over 80 this year. Can you talk about that? What -- what your goals are for what it will achieve and if there's a potential for it to normalize down as a percentage of sales and/or operating cash flow?

[Gary Burnison, executive]

Tobey the first part of your question was cut off, could you...

[Tobey Sommer, analyst]

Yes, absolutely. So I wanted to ask about capital intensity. In recent years and year-to-date, CapEx has gone up significantly. It's more than doubled in sort of 3.5 years. So I want to know what the goals are, what you're achieving in or achieve in the future and whether that could normalize down as a percentage of sales and operating cash.

[Gary Burnison, executive]

Yes. Well, look, it's number one, it's around the IP and embedding the IP in everything that we do. And with all the conversations around AI, it first starts with data and proprietary data. And that we have that. I mean, we developed over 1 million professionals a year. We've done $100 million assessments. So the CapEx and the investment there is really around data and IP and how we blend together the entire platform. And for example, in both consulting and digital. We break those segments out separately, but in fact, they very much go hand in hand and that consulting uses the IP as a firm in many of its engagements. So I think that's fundamental to the company's future is around proprietary IP data knowledge, particularly with these conversations around AI. I don't think it will be as quite as high as 80. But I do think that there is a level that we're going to want to maintain to see the opportunities going forward. And so when we look at this, we -- our track record, and we've got 20 years, you look, it's been fairly balanced in terms of our strategy. We say what we mean, we do what we say. And I would expect that it's going to continue to be balanced. Would that moderate somewhat this year, I think it probably will in the back half of the year. But we have to invest in the monetization and the integration of our IP into the solutions that we offer, including in search.

[Robert Rozek, executive]

Tobey, I think your -- the number you mentioned, the $80 million is high. You should be thinking this year CapEx is probably $60 million plus/minus.

[Tobey Sommer, analyst]

Okay. So it does edge down from last fiscal year Was...

[Robert Rozek, executive]

Yes, I'm sorry, go ahead.

[Tobey Sommer, analyst]

I appreciate that detail. How do we assess the effectiveness of those investments because they're multiyear in nature. It's a process. Is it more rapid growth in the licensing piece within digital? Is it also a boost in the medium-term growth rate of consulting like sort of from where we sit outside the company, how do we assess the efficacy of those investments?

[Gary Burnison, executive]

Well, I think the first thing is, number one, this is -- is the whole bigger than the sum of the parts. And so how does the firm perform overall. When you start to peel back, I think you first have to look at consulting and digital together. And what are those solutions doing relative to any kind of market expectations. And so today, that business is $1.1 billion, $1.2 billion. And as we talked about, look at the consulting growth rate, I mean, the new business in October was up like 10%, and the wins that we're getting are complex engagements, bigger sizes, look at the rate per hour. The rate per hour on our consulting business has gone from like $300 to $413 in the matter of 2, 2.5 years. That's a direct result of the investments we've made, the strategy around the marquee and regional accounts, the strategy around going to bigger engagements. So I think that's something you can look at. The RPO business the success in the RPO business is because of the account strategy, because of the talent that we have. But the big part is around the IP and the technology that we'll bring to clients. Now this is a pretty tough compare with what we're saying and what others are seeing in the RPO industry with what I called previously labor hoarding. It's difficult to really to assess it in this particular cycle. But I think you can look at that. And again, just look back over many years, I can remember 10 years ago, that business was $50 million. Today, the run rate is more like $320, $350, something like that. I think you would look at that as well

[Robert Rozek, executive]

And Tobey, the other thing you have to think about, too, is the total capital spend is a portion of that goes to infrastructure, right, whether we're updating systems or strengthening the foundation to keep the bad guys out, probably 15% to 20% of what we spend is infrastructure spending.

[Tobey Sommer, analyst]

Gary, how do we think about -- and how do you think about the internal recruiting capability that your customers have retained during this uncertain economic period over the last 7 or 8 quarters. And what does it mean to the ability of the company to sort of grow as perhaps marginal demand increases, how much will be retained internally at the customers versus represent -- given itself as demand to core...

[Gary Burnison, executive]

Well, I think ultimately it depends on the quality and the knowledge that we bring, clearly, we have seen companies retain a larger share of areas of shared services that I wouldn't have guessed. I mean there's no question about it. But you look at the business today and for example, the search business is essentially where it was pre-pandemic levels. And so do I think that that's going to have a negative impact when it's a little sunnier No, I don't think it's going to have a material negative impact because I've got a lot of confidence, and I think the data shows that the IP and the insight that we bring is pretty special in the marketplace. So I wouldn't expect that to have a big negative overhang on what we do around recruiting in the labor market.

[Tobey Sommer, analyst]

If I could just sneak one last one I want to react to something you said earlier. You said perhaps general deflation, how could that manifest itself in wages and how does that representation wages impact your growth in a year or 2?

[Gary Burnison, executive]

Well... There's going to -- I think there's going to continue to be some wage pressure, but you've seen that really moderate big time over the last few months. I mean, the quit rate has gone down substantially. And that's what happens in cycles. It goes from an employer market to an employee market and back and forth. But I do think, overall, that, that deflationary impact will ultimately result in central banks revisiting the levels of rates. And I think that could create freedom for companies in terms of investment. So I would view that as a good thing. I mean it's clear that the central banks and this unprecedented move that they've made over many months here. It has had a big, big impact on the economy. There's just no question about it. In the United States, going from 600,000 jobs a month to now this month, probably 100,000. I mean, that's incredible. That's unbelievable. So it's had its impact. And I have to believe that at, say, 5, 6 months down the road, there has to be -- we look at that...

[Tobey Sommer, analyst]

 Thank you for being so generous for my question.

[Operator]

Next question comes from the line of Trevor Romeo.

[Trevor Romeo, analyst]

First one just on the revenue guidance. I was just wondering if you could talk about your expectations for each segment. I think in total, it's maybe a mid- to high single-digit decline sequentially to synthetic kind of on a consolidated basis. Just wondering if you could kind of talk about the various factors for each of the businesses.

[Gary Burnison, executive]

The -- first, overall, when we historically look at our results, you would tend to think that the third quarter based on historical averages, would be down about 5% from the second quarter. And basically, our guide is in line with that. And I would expect that the results in the third quarter are going to mirror what we've talked about here in terms of new business trends. So I would probably expect the search business to be down 10% or so. I would expect the consulting business to be strong in a relative term in this kind of economy for sure. And so that's how I would think about it. On the interim side, I would expect that the technology area would improve slightly over what it's been. And so that's kind of broad-based how I would look at the components of the business. The -- on a geographic basis, I would expect EMEA to continue to perform well. And again, that's relative to the economy that we're dealing with, but that could be moderate growth. It could be flat. Asia -- historically in Asia over the last several quarters has been off. China has been a drag on our results of about -- to the tune of about $50 million a year. The good news in the last 2, 3 months is we've seen some improvement in Asia, which would be great for us. We have a great team there. So that's how I would think about it. The RPO business, the level of new business, this new wins this quarter was -- is about 100 -- almost $150 million, $141 million. So $600 million. That's kind of what it was excluding lost after the after the pandemic is kind of $600 million a year. So that's how I kind of think about it.

[Trevor Romeo, analyst]

Okay Gary. That's helpful. On the leadership development outsourcing or the Coaching at scale business, you've been talking more about lately. Just kind of wondering if you could talk about how you progressed towards that opportunity in the past several months and how significant that could be for the company in the future.

[Gary Burnison, executive]

Well, it comes back to Tobey's question around investment in capital. I mean, part of that investment in capital is around some of our training businesses, and we have to continue to invest in that. So that training business is roughly, call it, 10% of the overall company's revenue footing. It's an enormous market. It's probably $100 billion. I mean it's massive in terms of the market opportunity there. We continue to win mandates of not just teams, but thousands of people within an organization, particularly at a time like this when companies have to really adapt and adjust and innovate and optimize and think about AI and think about their talent strategies. So it does present an incredible opportunity for us, but the key is around the IP. And we have to make sure that we're making the investments to enable the development to create real learning journeys for companies and their employees.

[Robert Rozek, executive]

And Trevor, this is Bob. The one thing we are seeing right now on the leadership development and outsourcing on the journey to stand that up is clients are coming to us now. We have a leadership development outsourcing, diagnostic -- so we're helping clients to understand most clients, their spend is so dispersed across the organization. And in these times, we're trying to optimize costs, we started to get mandates around the cost optimization of their leadership development spend through our diagnostic tool.

[Trevor Romeo, analyst]

Great. And then if I could maybe sneak one more in, just a follow-up on the restructuring. I think the annual cost savings, I think, is about 4% of the current revenue run rate. I mean, just simplistically, would you expect that to have about a 4% positive impact on margins on an ongoing basis? Or would there be some offsets there? And then on kind of the phasing of the timing, will all of that benefit be captured by the end of Q3? Or would there be some lagging impact beyond that?

[Robert Rozek, executive]

I'll jump on that one, Gary. So I'll answer the second part first. The majority of the sales we would expect to see in Q3, there are some situations in foreign countries where, for example, people are on garden leave and so on. And so getting the cost out of the business takes a bit longer. But I would say for the most part, we'll realize the savings in the third quarter. You heard Gary talk about sort of breaking before the turn and then accelerating through it. And so as part of the reason why we took the actions is to give us the ability to make investments as we go through the cycle. And so the 400 basis points that you're referring to, you should be thinking about this business from a, I would say, for the near term, kind of a 14.5% to 15.5% margin adjusted EBITDA margin. And then obviously, once the fog lifts and word gets back to a more normal environment, we would expect to be in the kind of the 16% to 18% range that we previously talked about.

[Operator]

And our next question comes from the line of Josh Chan with UBS.

[Joshua Chan, analyst]

 So just one question on the guidance. You mentioned that in the third quarter, you expect about 15% EBITDA margin, which is obviously higher than what you did in Q2. So I was just wondering in what businesses do you expect to see that most of that sequential margin improvement?

[Gary Burnison, executive]

Well, we want to see it in all of them. The -- before the pandemic, we were kind of consistently running at 14%, 15% EBITDA margin. Then we entered into a brand-new market around interim services. And when you pro forma that out and look at the history, the immediate history before the pandemic, that kind of 14.5 15 historical number translates to about 12.5%, 13%, something like that. And so what we're guiding to here is 15%. So we would think on an apples-to-apples basis, that this would be 200, 300 basis points higher than pre-pandemic. And with the investments that we have made over the years, as Bob talked about in terms of productivity improvements using AI and the like, we better see that kind of profit increase. So that's how we're thinking about it.

[Joshua Chan, analyst]

Okay. That's helpful. And then just last follow-up, I guess, on the restructuring. Just -- could you kind of just run through the thought process and timing behind that? Because it didn't seem like any business took a leg down in the quarter really. So is this more of a catch-up and an acknowledgment that the recovery may take a little bit of time? Or I guess what was the thought process behind doing that now?

[Gary Burnison, executive]

Well, it's never a great thought process. And it was for me personally many, many months in the making, and we tried a lot of different things. But at the end of the day, and you look at the firm's history, and we have a clear and demonstrated track record powering through cycles. And if you look, we have a history of taking actions unfortunate actions earlier than later. And we do that so that when there is volatility and dislocation, we can take advantage of that. And that was the reason. And it's one -- it's just something that I hate to do. It weighs on my heart, but we have to make sure that we have the financial freedom to be able to invest because this is a multibillion-dollar opportunity from where we are today.

[Joshua Chan, analyst]

Great. Appreciate the color there and go back in the second half of the year.

[Operator]

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

[Mark Marcon, analyst]

Gary, I wanted you to expand, if possible, on your last comments. With regards to the rationale for doing it, I think you've always been very clear and it's very thoughtful in terms of the reduction. And it seems like everybody who is with the firm and coming through this on the other side is going to benefit from it. But I'm wondering if you can describe like what -- how morale is, how is retention with regards to the consultants that you want to keep and how -- to what extent do all the consultants appreciate the necessity of doing what you did?

[Gary Burnison, executive]

 Well, that's a loaded question. It's our -- just based on data, our turnover is really relative to a professional services firm. And it was low actually even during the great resignation relatively speaking. And so that's -- when you actually look at the data, and that is the fact is that the turnover has been very, very reasonable levels. These decisions are not easy ones. And at the end of the day, we have a multibillion-dollar opportunity ahead of us to be able to see that opportunity, we have to have the financial flexibility to make investments to do M&A, to reward our talent to invest in data and AI and the things that we've talked about, and at the same time, return capital to shareholders. And again, on an apples-to-apples basis, with the investments that we've made, I think we should be more profitable than we were. And before the pandemic, we were running apples-to-apples kind of 12.5%, 13% adjusting for the interim mix. And with the investments that we've made, you have to see a return on those investments. And our profitability level now to guide at 15% reflects a step-up in profitability from the pre-pandemic levels. And I think that is absolutely warranted, given the investments that we've made in the business.

[Mark Marcon, analyst]

Great. The digital business, despite the economic softness has been growing had modest 2.9% year-over-year growth, but strong sequential growth. Can you talk a little bit about the areas that you're seeing the greatest success in the digital business? And then you also earlier referenced bigger projects on the consulting side. And I'm wondering if you can talk a little bit about that. And just how should we think about the lumpiness with regards to new business trends as it relates to digital?

[Gary Burnison, executive]

Yes, you're going to continue to see lumpiness in digital. We've got some very tough compares. -- muted land, multimillion-dollar engagements that hit in the quarter, and that's actually what you're seeing. So there is going to be some lumpy I mean that's why we've tried to move this towards a Software as a Service business. And as Tiffany said, it's about 1/3, 36%, something like that, of our new business is around licensing. We made that move a few years ago. We're going to continue on that. I do think you really do need to look at the consulting and digital businesses together to get a true picture. And the digital business feeds a lot of other -- I mean, the digital part of that is feeding our professional development business. So to just look at that on a stand-alone basis, and it was my decision to break that out several years ago. I mean you do really need to look at it as an integrated whole. There's really 4 things on the digital business that we're focused on right now. One is around rewards. -- two is around sales and service, three is around assessments and four is around renewals. And if I added a fifth, it would be around developing an ecosystem channel partners that is a pain. [Indiscernible] able to monetize even further. The sales and service, we made an investment right before the pandemic in a company called Miller Heiman, -- we've got incredible IP there. We've got to make sure that that's being digitized and brought in to today's reality, assessment is the linchpin of the company. We've done $100 million assessments. We've got to make sure that we are digitizing that, embedding AI into it. We have to focus on renewals. And part of that's around activating and enabling our learning content for sure.

[Robert Rozek, executive]

Mark, it's Bob. The other thing that you should think about with the new business in digital is as we start to sign up more longer-term engagements, you signed up in the past, you do it 1 year, then another year and another year. So each sequential year, you'd have that same renewal happening, whereas now, if we sign up a 3-year deal, you don't get the renewal in year 2 and year 3. So you're seeing some of that influence the new business in digital as well. Which is a good thing. We want to get to the long-term subscriptions.

[Mark Marcon, analyst]

And can you talk about like on the digital side with your largest client there? How is that progressing? What are you hearing? How referenceable are they going to be?

[Gary Burnison, executive]

Well, I look at just the -- again, I'm going to look at the consulting and digital business together. I mean you look at the shift that's been made in those businesses over several years. And you're clearly seeing a move towards more scaled assignments. There's no question about it. And a lot of those are around organizational strategy, which is when companies rethinking their organization, setting up a new organization, adapting, optimizing, innovating and the success of that is due not only to the talented people that we have, but the IP that we have to, and that's really bearing out.

[Robert Rozek, executive]

And Mark, when you think about our largest clients, you should be thinking about it more from a kind of a one Korn Ferry integrated approach where the real power of the firm comes in, we've got multiple lines of business into a client. So rather than looking at a large client relative to digital or RPO, it's really the whole suite of services that we offer is what creates the largest accounts that we have.

[Mark Marcon, analyst]

Yes. I was just talking about that one contract that you know what I'm talking about in terms of how well that's going. So just was curious there. With regards to China, you did mention it's been soft and a big drag. But Gary, you mentioned it's starting to pick up a little bit or stabilize. Can you expand on that?

[Gary Burnison, executive]

Well, we've seen a little bit of green shoots over the last couple of months. And I'm not going to sit here and say that 2 months make a trend. But that's $50 million in terms of going back to pre-pandemic off the company's top line. It's not insignificant in terms of the impact that it's had. So I'm not going to sit here and say that 2 months make a trend, but it has looked better the last couple of months.Â

[Operator]

 And appears there no further questions, Mr. Burnison.

[Gary Burnison, executive]

Okay. I thank everybody. It's a time of year where there's a lot of reflection and a lot of thankfulness, despite what's happening in the world today. And I thank you all for listening, taking an interest, and we'll speak to you next time. Thank you, everybody.

[Operator]

 Ladies and gentlemen, this conference call will be available for replay 1 week starting -- for 1 week, starting today at 3:00 p.m. Eastern Time running through the day September -- sorry, running through December 13, 2023 at midnight. You may access the AT&T Executive playback service by dialing [phone] and entering the access code 917 729 International participants may dial (402)-970-0847. Additionally, the replay will be available for playback at the company's website, www.kornferry.com in the Investor Relations section. That does conclude our conference for today. Thank you for your participation and for using AT&T conferencing service. You may now disconnect.