Trevor Romeo: Okay. Understood. Thank you very much.
Operator: And our next question comes from line of Josh Chan with UBS. Please, go ahead.
Josh Chan: 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?
Gary Burnison: 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.
Josh Chan: 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?
Gary Burnison: 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.
Josh Chan: Great. Appreciate the color there, and good luck in the second half of the year.
Operator: And the next question comes from the line of Mark Marcon with Baird. Please, go ahead.
Mark Marcon: 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?
Gary Burnison: 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.
Mark Marcon: 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: 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.
Bob Rozek: 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.
Mark Marcon: 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?
