Bob Rozek: 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.
Mark Marcon: Great. Well, 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. Please, go ahead.
Tobey Sommer: 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?
Gary Burnison: Tobey, the first part of your question was cut off. Could you…
Tobey Sommer: 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?
Gary Burnison: 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.
Bob Rozek: 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: Okay. So, it does edge down from last fiscal year?
Bob Rozek: Yeah. Last year, it was — I’m sorry, go ahead.
Tobey Sommer: 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?
Gary Burnison: 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.
Bob Rozek: 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: 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?
Gary Burnison: 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.
