Ladies and gentlemen, thank you for standing by and welcome to the Korn Ferry Second Quarter Fiscal Year 2024 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 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 relating 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 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.

Okay. Good afternoon, everybody, and thank you for joining us and season's greetings. The team is going to get into this in more detail. But there is 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 EBITA 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 firm 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 $200 million 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. It has become clear that the economic environment will continue to be challenging in the months ahead. Countries have been transitioning from almost three decades of cheap money to substantially higher interest rates. 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 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 three-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?

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 and 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 right-size 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 three-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 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 will 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, larger 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 Gregg, who will take you through some overall company financial highlights.

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, continued 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 17%, 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%. 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 acquisition. 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.

Thanks, Gregg. Starting with KF 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 multi-year subscriptions has created some resiliency in digital revenue as this quarter marked the 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 remained 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. Fee revenue growth was strongest in organizational strategy, which increased 19% year-over-year, and then 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 one 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 UK 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 per-minute placement portion of this 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 one 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 is 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 rate 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.

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 a $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, 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 concrete change coming out stronger on the other side. With that, we would be glad to answer any questions you may have.

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

Hi. Thanks. Good morning. New business ex-RPO inflected through 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 essentially formed a bottom in terms of new business?

The new business trends over the last five 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 four 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, fairly stable, pretty consistent in terms of trends.

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

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 are something around 25% of the company's top-line. And in some businesses, the percentages is higher and in 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 cross-referrals into our integrated business that we didn't have three years ago. And then that continues to bear fruit. So, parts of the business is higher and some lower and that's the anchorboard strategy. They have multiple panel offerings, they have reasons to talk to clients and to drive deeper impact and change the trajectory of literally thousands of organizations.

Very helpful. Thank you.

Next question comes from the line of Mark Marcon with Baird. Please, go ahead.

Hey, good morning or good afternoon depending on where you are. I have 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 what 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 five months? And in addition to that, we are seeing some chatter about Goldilocks that may be a soft landing, instead of expected recession. So, I'm just wondering how that all melts together.

Well, in my conversations with clients and our consultants, it varies. It varies depending on where you are. 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 at Korn and we -- prices are back to pre-pandemic levels. You look at company's results over the past few quarters and there is a consistent theme. Volume down, prices up, package shrinking. I would expect that there to be deflationary pressures, broadly, 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 company's 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.

Great. I appreciate the perspective. With regards to capital allocation, so congratulations 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 how should we interpret that with regards to further investments in terms of areas like interim or professional search?

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 stretch of 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 were the ebb and flow with that. But you look at the other parts, and it's buoyant. It's substantially lifted the firm's resolve. 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.

Really appreciate that. I'm sure the shareholders do as well. With regards to the -- 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 a $120 million in terms of cost reductions, which divisions are being impacted the most there?

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 gut-wrenching. And it's a decision was not taken lightly. Thought months about it, tried a lot of different things, and it's something that just weighs heavily on me 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 impacted about 8% of the organization. And it pretty much followed with the trends that you see in the business for the most part, both geographically, by industry and by solution.

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 work today. And that's the opportunity to be more broad-based with this versus more surgical.

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

And our next question comes from the line of Tobey Sommer with Truist Securities. Please, go ahead.

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 million this year. Could you talk about that? What your goals are for -- what it will achieve and if there is a potential for it to normalize down as a percentage of sales and/or operating cash flow?

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

Yeah, 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 and/or you look to achieve in the future, and whether that could normalize down as a percentage of sales and operating cash?

Yeah. Well, look, it's -- number one, it's around the IP and embedding the IP and 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 develop over one million professionals a year, we've done 100 million assessments. So, the capex and the investment there is really are 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 in that consulting uses the IP of 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 million, but I do think that there is a level that we're going to want to maintain, to seize 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.

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.

Okay. So, it does edge down from last fiscal year?

Yeah. Last year, it was -- I'm sorry, go ahead.

I appreciate that detail. How do we assess the effectiveness of those investments, because they're multi-year in nature and it's a process? Is it more rapid growth in the licensing piece within digital? Is it a also a boost in 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?

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 billion, $1.2 billion. And as we talked about, look at the consulting growth rate, I mean, the new business in October was up by 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 seeing and what others are seeing in the RPO industry, with what I've 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, with run rates more like $320 million, $350 million, or something like that. I think you would look at that as well.

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.

Sure. 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 seven or eight 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 -- exhibit itself as demands here at Korn Ferry?

Well, I think ultimately 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.

If I could have 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 of wages impact your growth in a year or two? Thanks.

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 the central banks and this unprecedented move that they've made over many months here, it has had a 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, say, five months, six months down the road, there has to be a relook at that.

Thank you for being so generous with my question.

Next question comes from line of Trevor Romeo. Please begin.

Hi. Thanks so much for taking the questions. First one just on the revenue guidance. 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 that's embedded kind of on a consolidated basis. Just wondering if you could kind of talk about the various factors for each of the businesses.

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. 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, 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 two months, three 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 -- it's about almost $150 million, $141 million. So, $600 million, that's kind of what it was excluding last year. After the pandemic, it was kind of $600 million a year. So, that's how I kind of think about it.

Okay. Thanks, 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 toward that opportunity in the past several months and how significant that could be to the company in the future?

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.

And Trevor, this is Bob. The one thing we are seeing right now on leadership development 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 your 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.

Great. Thanks. And then if I could maybe sneak one more in just to 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 or the timing, will all of that benefit be captured by the end of Q3, or would there be some lagging impact beyond that? Thanks.

I'll jump on that one, Gary. So, I'll answer the second part first. The majority of the saves we would expect to see in Q3, there are some situations in foreign countries where, for example, people are in garden leave and so on. And so, getting the costs 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, part of the reason why we took the actions is to give us the ability to make investments as we go through this 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 world gets back to more normal environment, we would expect to be in the kind of the 16% to 18% range that we previously talked about.

Okay. Understood. Thank you very much.

And our next question comes from line of Josh Chan with UBS. Please, go ahead.

Hi. Good morning. Thanks for taking my questions. 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?

Well, we want to see it in all of them. 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 basis points, 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.

Okay. That's helpful. Thank you. And then just a 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 it 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?

Well, it's never a great thought process. And it was, for me personally, many months in the making. And we tried a lot of different things. But at the end of the day, you look at the firm's history and we have a clear and demonstrated track record of 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's volatility and dislocation, we can take advantage of that. And that was the reason. And 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.

Great. Appreciate the color there, and good luck in the second half of the year.

And the next question comes from the line of Mark Marcon with Baird. Please, go ahead.

Thanks for taking my follow-ups. Gary, 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 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?

Well, that's a loaded question. It's -- our -- just based on data, our turnover is really low 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 at 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 seize 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, the 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.

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?

Yeah. You're going to continue to see lumpiness in digital. We've got some very tough compares. You could land multimillion dollar engagements that hit in a quarter. And that's actually what you're seeing. So, there is going to be some lumpiness. 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 one-third, 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 four 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 [Technical Difficulty] So, those are the areas. We have comp data of millions of people, 30 million people around the world, 30,000 companies that should be 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 into today's reality. Assessments is a 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.

Hey, 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, right, you sign it up in the past, you do it one year, then another year, then another year, so each sequential year, you'd have that same renewal happening, whereas now, if we sign up a three-year deal, you don't get the renewal in year two and year three. So, you're seeing some of that influence the new business in digital as well, which is a good thing. We want to get this for long-term subscriptions.

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?

Well, I'd look at just the again 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 around 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 too. And that's really bearing out.

And, Mark, when you think about our largest clients, you should be thinking about it more from kind of a one Korn Ferry integrated approach where the real power of the firm comes in when 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.

Yeah. 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?

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 two 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 two months make a trend, but it has looked better the last couple of months.

Great to hear. Thank you very much.

And it appears there's no further questions, Mr. Burnison.

Okay. Thank you everybody. It's 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.

Ladies and gentlemen, this conference call will be available for replay for one week starting today at 03:00 PM 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 866-207-1041 and entering the access code 9177291. 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 Conference Service. You may now disconnect.