Korn Ferry (NYSE: KFY) Q1 2021 earnings call dated Sep. 03, 2020
Corporate Participants:
Gary D. Burnison — Chief Executive Officer and member of the Board of Directors
Robert Rozek — Chief Financial Officer, Executive Vice President and Chief Corporate Officer
Gregg Kvochak — Senior Vice President, Finance
Analysts:
George Long — Analyst
Tobey Sommer — Suntrust Robinson Humphrey — Analyst
Sam — Analyst
Mark S. Marcon — Robert W. Baird & Co., Inc. — Analyst
Marc Riddick — Sidoti — Analyst
Presentation:
Operator
Ladies and gentlemen, thank you for standing by, and welcome to the Korn Ferry First Quarter Fiscal Year 2021 Conference Call.
[Operator Instructions]
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 the Private Securities Litigation Reform Act of 1995. Although the company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, and investors are cautioned to be — 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 others [Phonetic] reports filed by the company with the SEC, including the company’s annual report for fiscal year 2020 and in the company’s soon-to-be-filed quarterly report for the quarter ended July 31, 2020.
Also some of the comments today may reference non-GAAP financial measures such as constant currency amounts, EBITDA and adjusted EBITDA. Additional information concerning these measures, including reconciliations to the most directly comparable GAAP financial measure 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 will turn the call over to Mr. Burnison. Mr. Burnison, please go ahead, sir.
Gary D. Burnison — Chief Executive Officer and member of the Board of Directors
Okay. Thank you, Steven, and good afternoon, good morning, everybody.
It’s been six months since the pandemic was officially declared and I think the world is at the beginning of an Ironman Triathlon. It’s not just a marathon but a triathlon of endurance, agility, change. In fact, I think over the next two years, we’re going to see more change than we’ve seen in the past 10. Change will circle humanity. And in business, different work will need to get done and work will need to get done differently. Almost every company on the planet is going to have to reimagine their business, whether that’s rethinking their organizational atmosphere, their structure, roles, responsibilities, how they compensate, how they engage, how they develop their workforce. There is — change is going to be all around us. They’re going to need to hire learning, agile, diverse talent, and do so in a more inclusive ethos and in an increasingly digital world and that’s the essence of Korn Ferry’s business, to enable people and organizations to exceed their potential, to be more of them.
In early March, we were announcing the best results in our history. Record fee revenue and the continued transformation from a monoline firm to an organizational consultancy. And then the world temporarily paused. Certainly that pause temporarily impacted our business. During the first quarter of our fiscal year, we generated about $344 million in fee revenue, which was down about 28% in constant currency. But I think the key word is temporary. As we alluded on our last call, we’re continuing to see green shoots, with July new business better than June, June better than May, and May better than April.
Trailing new business for the three months ended August was down about 13% year-over-year combined, which is obviously more positive than we saw in our first quarter in what we saw when the world stopped in April. In fact, August new business was only down about 6% year-over-year. So really good news. July new business was up 34% over June. So again, green shoots that we’re seeing. And I think I’m — more than anything I’m proud, proud of our organization and motivated by how we’ve positioned ourselves for the opportunity ahead, and we face this crisis from a position of strength, not only when you consider the breadth and depth of our solutions, but when you consider our balance sheet.
And the foundation of the firm has been to ground it in [Phonetic] IT [Phonetic] and data. And that continues to be the backbone of Korn Ferry. We’ve got rewards data on over 20 million people, 25,000 companies, we’ve done almost 70 million assessments, we have thousands of organizational benchmark data, we’ve got thousands of success profiles, every year we train and develop 1 million professionals a year, and certainly last but not least is we place a candidate at each business hour, every three minutes. And so we’re using this time of change not only to have an impact with our clients, but also to reimagine our own business.
And that includes moving from analog to digital including in our assessment and learning business, which today it’s almost 25% of the company and we’re certainly shifting that business. We’ve done more virtual sessions in the last couple of months than we’ve done in the last many, many months. The pipeline is good. We pivoted very quickly. I can’t be prouder of our team. And when you look at the uptick here month over month in both our Consulting and Digital new business, you can see that something is working. And on the recruiting side, that’s another place where we are reimagining that business as well through AI technology and a lot of the platform that we use in RPO. We’ve taken this IP. We’ve taken it out to the marketplace. I’m very proud in terms of the stance we have taken. I think our biggest opportunity as a company is to recast the Korn Ferry brand.
We recently launched Leadership U, a curriculum that helps leaders taking on today’s challenges. And more importantly, amid all the calls for change, we’re amplifying our voice, not only on diversity, but also in equity and inclusion, both within Korn Ferry and among our clients. And we know from our research that diversity is a fact, engagement is an emotion, but inclusion is a behavior. And so, our focus on D&I, it’s about — actually it’s about eight years ago almost — actually it was two days ago eight-year anniversary of us making an investment in a company at that time was called Global Novations. We’ve turned that into what I consider to believe the absolute best D&I consulting business in the world. And as I mentioned, our July Consulting new business was the fourth highest month in our history. And I think that was driven in part by the strong voice we’ve taken not only around the pandemic, but also around D&I.
And I’m also proud and pleased to say that we’re launching Leadership U for Humanity and that’s a non-profit venture of the Korn Ferry charitable foundation, focused on developing the total mosaic inside communities and within corporations. One of our partners will be the Executive Leadership Council, an absolute preeminent organization. Their mission is to develop/increase the number of successful Black executives around the goals — around the globe. And our goal is to develop 1 million new leaders from diverse backgrounds using our Korn Ferry Advance and Leadership U platforms. And so not only I think we demonstrated that we say what we mean, but we’re not just talking about it, we’re being about it and providing a systemic solution to a systemic issue. And so out of tomorrow’s change, a new order is emerging, and Korn Ferry is going to help drive that change, helping people and organizations be more of them.
With that, I am joined here by Bob Rozek and Gregg Kvochak. And so before we entertain questions, I’ll turn it over to you, Bob.
Robert Rozek — Chief Financial Officer, Executive Vice President and Chief Corporate Officer
Great. Thanks, Gary, and good afternoon, and good morning.
Before I jump into the first quarter results, I want to just elaborate on a couple of points that Gary talked about. I think he’s absolutely right, concerning the amount of change that will take place in the next two, even three or four years. We’re already seeing it in our clients. I truly believe that Korn Ferry is uniquely positioned to lead companies through this change. The data, IP and know-how that Gary talked about, really sits at the center of our organization and permeates all of our solutions. And that provides a common harmonized language for talent that’s really core to our One Korn Ferry integrated approach to helping clients solve their thorniest business issues through the most valuable asset, which obviously is the people.
Again, I believe we’re uniquely positioned because we’re the only firm that has the end-to-end data, IP and know-how to address every aspect of an employee’s engagement with his or her employer. Not only do we have first-mover advantage, but in my opinion, our position and our collection of assets is virtually impossible to replicate. So as I sit here today in the midst of this wave of change with the collection of assets and solutions we’ve assembled, my optimism for Korn Ferry’s future growth prospects have never been higher.
Now let me turn my attention to the first quarter. I’ll start with a few highlights before turning it over to Gregg, and then I’ll come back on and address recent business trends. For the first quarter of fiscal year ’21, our fee revenue was $344 million, down about 28% in constant currency. More importantly, our monthly fee revenue trends within the quarter showed signs of stabilization. Consolidated fee revenue in May was down about 34% year-over-year, while June and July were down 27% and 26%, respectively. For each of our service offerings, we saw fee revenue slowing at different rates, which really was in line with our expectation and reflects the diversification and mix shifts that we’ve been communicating.
Specifically, fee revenue in the first quarter, measured at constant currency, was down 37% for Executive Search, 35% for Professional Search, our Consulting was down 26%, RPO was down 22%, and Digital was down 2%. Driven by the revenue contraction, our consolidated adjusted EBITDA for the first quarter was $10.6 million with an adjusted EBITDA margin of 3.1%, and our adjusted fully diluted loss per share was $0.19. Our balance sheet and liquidity remained strong. At the end of the first quarter, cash and marketable securities totaled $733 million. Excluding amounts reserved for deferred comp and for accrued bonuses and actually net of the funds used to rightsize the firms, our investable cash balance at the end of the first quarter was about $511 million, and that’s up about $150 million year-over-year. We continue to have undrawn capacity of $645 million on our revolver. So altogether, we have close to $1.2 billion in liquidity to manage our way through the COVID-19 crisis and to invest back into the business through the recovery. Last, we had about $400 million in outstanding debt at the end of the quarter.
Finally, during the quarter, we completed our restructuring actions to size the firm for the anticipated current levels of revenue. As you will recall, in April, just before the end of our fiscal fourth quarter of FY ’20, we announced a number of cost actions targeted at both compensation expense, which included layoffs, furloughs and across the board salary cuts, as well as other actions focused on the reduction of G&A. Combined with the actions completed in the first quarter, we have initially reduced our cost base by about $321 million annually.
I’m now going to turn the call over to Gregg to review our operating segments in more detail.
Gregg Kvochak — Senior Vice President, Finance
Okay. Thanks, Bob.
Starting with our Digital segment. Global fee revenue for KF Digital was $56 million in the first quarter and down approximately $2 million or 2% year-over-year measured at constant currency. The subscription and licensing component of KF Digital fee revenue in the first quarter was approximately $21 million, which was up $6 million year-over-year and flat sequentially. New business in the first quarter for the Digital segment was down approximately 3% globally year-over-year at constant currency with the subscription and licensing component up approximately 40%. Adjusted EBITDA in the first quarter for KF Digital was $7.9 million with a 14.2% adjusted EBITDA margin.
Now turning to Consulting. In the first quarter, Consulting generated $99 million of fee revenue, which was down approximately 26% year-over-year at constant currency. As clients have settled into their new work from home protocols and have become more familiar with our virtual delivery capabilities, new business for our Consulting services has begun to improve. Measured year-over-year at constant currency, new business in the first quarter for our Consulting segment was down approximately 4%, led by North America, where new business was up 11% year-over-year. Adjusted EBITDA for Consulting in the first quarter was $6.6 million with an adjusted EBITDA margin of 6.6%.
RPO and Professional Search generated global fee revenue of $68 million in the first quarter, which was down 27% year-over-year at constant currency. RPO fee revenue was down approximately 22%, and Professional Search fee revenue was down approximately 35% year-over-year measured at constant currency. Adjusted EBITDA for RPO and Professional Search in the first quarter was $6 million with an adjusted EBITDA margin of 8.8%.
Finally, for the Executive Search, global fee revenue in the first quarter of fiscal ’21 was approximately $120 million, which compared year-over-year and measured at constant currency was down approximately 37%. At constant currency, North America was down 38%, while both EMEA and APAC were down 35%. The total number of dedicated Executive Search consultants worldwide at the end of the first quarter was 510, down 59 year-over-year and down 46 sequentially. Annualized fee revenue production per consultant in the first quarter was $900,000 and the number of new assignments opened worldwide in the first quarter was 1,115, which was down approximately 34% year-over-year, but up 9% sequentially. Adjusted EBITDA for Executive Search in the first quarter was approximately $8.1 million with an adjusted EBITDA margin of 6.7%.
Now, I’ll turn the call back over to Bob to discuss some of our recent monthly new business trends.
Robert Rozek — Chief Financial Officer, Executive Vice President and Chief Corporate Officer
Great. Thanks, Gregg.
Globally, year-over-year declines in monthly new business exiting fiscal year ’21 Q1 and entering the second quarter continued to stabilize. Excluding new business awards for RPO, global new business measured year-over-year was down approximately 31% in May, down 25% in June, rebounding to down 5% in July. Measured sequentially, June new business was up 17% over May and July new business was up 34% compared to June. With summer vacations, August is a seasonally slow month and normally is lower relative to July. Measured year-over-year, August new business was stable and down about 6%, which is in line with what we saw in July.
Monthly new business trends have varied by segment and have, in some cases, been choppy month-to-month. Digital new business was up 3% year-over-year in June, down 5% year-over-year in July and up 10% in August. Likewise, Consulting new business was down 28% year-over-year in June, rebounding to up 34% in July and up 10% in August. For Executive Search, new business was down 34% year-over-year in June, improving to down 27% in July and was down 19% in August. And finally, Professional Search new business was down 15% year-over-year, falling to down 23% in July and August. With regards to RPO, a strong quarter of new business with $56 million of global awards and that was comprised of $32 million of new clients and $24 million of renewals and extensions. And we continue to have a strong pipeline of new business in the RPO world [Phonetic].
Approximately two months have passed since our last earnings call, yet there remains significant uncertainty about the ultimate impact of COVID-19 on society and global economies. Currently, governments are struggling to balance reopening and reengaging in an effective way against the maintenance of an environment that fosters the health and safety of everyone. There really is no playbook. This effort takes on many forms, and there’s not a clear path to success. Further, it’s unclear whether certain governmental a programs that were put in place to provide financial assistance to impact the businesses and individuals, whether they will remain in place or for how long. The unprecedented nature of the current environment, combined with many unanswered questions and rapidly changing data points, like the recent acceleration of corporate layoffs and the potential outcome of the US presidential election, that really continues to cloud the near-term predictability of our business. And consistent with our approach in the last two earnings calls, we will not issue any specific revenue or earnings guidance for the second quarter of fiscal year ’21.
That concludes our prepared remarks. We’re glad to take any questions you may have.
Questions and Answers:
Operator
[Operator Instructions]
Our first question will come from the line of George Long [Phonetic]. Please go ahead.
George Long — — Analyst
Hi, this is George. Good morning. You indicated that July new business trends were down 5% year-over-year, whereas August new business was down 6% year-over-year. Could you talk about what contributed to the moderation in the piece of improvement in new business trends overall and perhaps by segment?
Gary D. Burnison — Chief Executive Officer and member of the Board of Directors
If you look, the good news is, obviously, the headline numbers on the corner — on the quarter were not spectacular, but the world stopped in April, and you’re going to see that with GDP. But what we have seen is a very steady upswing in new business. And as Bob indicated, July was better than June, which was better than May. So that’s really good news. And when we look at August, overall, we were down about 6%. Executive Search was down 18%, if you just isolate the month of August. And Consulting and Digital were actually up 10%. So I think that when you look at the platform as a whole, the business is reacting almost in line with what we thought it would do.
And when you look at the drivers of Consulting and Digital, I would say, I would point to, number one, transformation. And the fact that every company — different work needs to get done and work needs to get done differently. So every company in the world is going to have to reimagine their business, and that starts with the organization and its people. And when there’s transformation, there’s usually a pause, then the next step is with people. So we’ve certainly seen that. We’re starting to see early signs of that in our Consulting and Digital business. I think the other broad stroke I would put on the new business trends is our D&I business, which is before this was about a mid — eight-figure business. And we’ve seen over the last few months, about a 50% uplift in how we can help companies not just deal with diversity, because that’s a fact, but more importantly, how you deal with inclusion, which is a behavior.
So I would point to those two, and then I would point to one other, which ties to transformation, which is around developing a workforce and creating a more learning agile workforce that can operate in a digital world with an inclusive ethos. So those are, I think, the broad strokes on the business. You’re seeing, obviously, an uptick in search, which is good. And then from an industry standpoint, it’s much like you would probably intuitively think the consumer area has seen improvement, but not as much as, say, life science. Life science has been, as you would guess, certainly stronger. And so those would be the broad strokes. Obviously, energy has been challenged over the past few months. But that would be my kind of 38,000-foot view.
George Long — — Analyst
Got it.
Robert Rozek — Chief Financial Officer, Executive Vice President and Chief Corporate Officer
Yeah, hey George, just so you know, on the wise counsel of Toby, after our last earnings call, we actually put a slide into the earnings call presentation that’s posted that shows the new business by each line of business. That’s on Page 7.
George Long — — Analyst
Great. No, that’s helpful. And as a follow-up, could you provide some perspectives around how you expect the trends that you’re seeing in new business to translate into revenue or fee performance? It sounds like clients aren’t canceling, so retention rates aren’t changing. So it’s really the pace of new business that’s ultimately going to drive fee revenue performance. It sounds like it’s ultimately delays rather than cancellations. So could you provide some perspectives on how you expect the translation of new business into fee revenue?
Gary D. Burnison — Chief Executive Officer and member of the Board of Directors
Yeah. We’ve seen on the — the search businesses are rather straightforward. That’s going to be — that translates to revenue generally over 90 days. And when you look at the Consulting and Digital business, you’d find that essentially, 50% of it gets recognized in, say, within 12 months, and then the balance is going to be over the next 13 to 35 months. And the RPO business is not materially different than that. And what I would say, there’s been a couple of other trends too. We’ve certainly shift — seen a shift towards bigger engagements. That was a strategic pillar of ours going back a couple of years. We’re now really starting to see it more impactful engagements. That’s something that is coming through.
And I think the other thing that Bob can maybe allude on is when you look at the Digital business, we’ve all — we’ve talked for a while about moving that business to a subscription-based model. And that Digital business, we obviously made a push towards digitizing that. But the reality is when this pandemic hit — still a lot of the business was delivered in classroom. And we have gone — we are all over that, moving that to a digital offering. And one of the things is to increase the amount of subscription-based business from Digital. So Bob, do you want to comment on that?
Robert Rozek — Chief Financial Officer, Executive Vice President and Chief Corporate Officer
Yeah. So George, just so you know, the subscription business, I’ll give it to you over the last three quarters, including Q1, was right around $21 million. So that demonstrates the durability of that revenue in the current environment that we’re operating in. The piece of that, I think, is better news is if you look at the new business for our subscription offerings, it was about $23.5 million in Q1. That’s up 42% kind of year-over-year and even quarter sequential, it’s up about 16%. So again, as Gary indicated, part of the strategy in the diversification is also creating more durable revenue streams, and we’re starting to see that take shape. Even when we talked about the larger engagements, when you stratify the — whether it’s Digital or Consulting into the large engagements, for Digital, we consider that over $250, for Consulting, we consider that over $500. We’re seeing growth in those large engagements year-over-year and quarter sequential versus the smaller, more transactional engagements. That’s where the — you see the decline. So again, this — these are data points at this point, but we are starting to see really the strategy come to life that we’ve been talking about.
George Long — — Analyst
Got it. Very helpful. Thank you.
Operator
Our next question will come from the line of Tobey Sommer. Please go ahead.
Tobey Sommer — Suntrust Robinson Humphrey — Analyst
Thanks. Just a quick follow-up, if I could, on the new business trends. What contract duration like or new business trend duration? And if you could speak to that a little bit by segment. And in particular, the D&I wins that you have, are those on the longer side? Just trying to think of that as far as how to play out in the model.
Gary D. Burnison — Chief Executive Officer and member of the Board of Directors
Yeah. We hope that the D&I is it’s definitely — it’s not going to be 90 days, but it’s not going to be as long as the balance of the portfolio. Companies, there’s going to be real change. People are, from what I can tell talking to CEOs, it’s — people are taking this very, very seriously, particularly in the United States. So I would guess that much of that will have a shorter tail. And so if I describe that the search businesses have a tail of, say, 90 days or so, and the Consulting, Digital, RPO businesses have a revenue recognition of, say, 50% within 12 months and then the balance over, say, 36 months, I think this will be — the D&I business will be somewhere in between.
Tobey Sommer — Suntrust Robinson Humphrey — Analyst
Okay. Thanks. That’s helpful. How should we think about the temporary cost cuts being reabsorbed into the business, again, from a modeling perspective. It’s a pretty significant variable for us to contemplate.
Gary D. Burnison — Chief Executive Officer and member of the Board of Directors
I would think about it when we laid out the cost cuts. Our goal was this — number one, I guess, as I step back, this was a humanitarian crisis. And so we pulled out a contingency playbook a year ago and did a number of things to prepare for a turn. Obviously, we didn’t envision this kind of turn. But when we — in early March, we obviously saw this in China about the third week in January. As we looked at this, we said, well, this is a humanitarian crisis. And let’s go into this with the view of preserving as much muscle as we possibly can to accelerate through the term. And last time, when I go back 12 years, Korn Ferry’s business grew fivefold from the trough, obviously, over a period of years, both inorganically and organically. And within four quarters of the trough, the business was up 60%.
So we said, okay, let’s try to save as many jobs as we possibly can. Unfortunately, we did have to make the decision to let go some very, very good people, which troubled us. And then we took some other actions that were more temporary in nature. And so when you look at it in total, on an annualized run rate, we said we would reduce the cost base by about $320 million. Essentially, half of that was more permanent in nature and half of it would be variable. And so when you look at this quarter on that variable piece, you’ll probably find that 40% or so of that variable came back in, maybe a little bit less into the first quarter. Something like that. Bob can provide the specific numbers.
The way that — we’re not providing guidance just given how quickly the world seems to change from day-to-day. And the way that I would kind of look at this is just say, okay, you did $345 million in revenue — in fee revenue this quarter, which obviously reflected the world stopping in April. And if that were to go up, say, pick a number, say, $25 million how would that margin expand? And I would probably point you to on that first $25 million, it would probably go up 100 to 150 basis points. And as you go up the ladder, in $25 million increments, as you — each rung up that ladder, you’re going to see more leverage and more flow through to EBITDA. So that’s kind of how I would think of it in very, very broad strokes.
Bob, can you clarify any of that? Is that about right?
Robert Rozek — Chief Financial Officer, Executive Vice President and Chief Corporate Officer
No, it’s actually pretty spot on, Gary. The percentage you talked about, 40% is actually 41%. So you’re spot on. And yeah, no, the model that you laid out is exactly what we’re — how we view the world.
Tobey Sommer — Suntrust Robinson Humphrey — Analyst
Thank you. If I could ask another one. With that in mind, investors looking at businesses in the storm, or trying to see what they’ll be likely, things are more normal, and we’re just worried about economic forces and not the humanitarian crisis you articulated. What — what kind of revenue level do you think the company would need to hit to operate at the old EBITDA margins of around 16% as that kind of analysis is going to be integral to long-only building a position amid this turmoil?
Gary D. Burnison — Chief Executive Officer and member of the Board of Directors
Well, I think — yeah, I hear you. I think you first have to look at — do you believe in the company’s strategy of creating a preeminent organizational consultancy, taking strategy, synchronizing with an organization and talent and driving superior performance. I think we’re at the very, very beginning of that journey. So what I would say is, number one, it really kind of does depend on the mix of business in what happens here. I think there’s going to be, again, more change in the next two years and in the last 10 years, and that change is going to encompass a lot of different factors, including the C-suite. Because I think what you’re going to find is, for a whole host of reasons, there’s going to be a lot of chairs that are going to get reshuffled. People may make personal decisions, there could be demographic issues and considerations. There could be a number of things, but that would not surprise me in the least. That once companies get past this neutral zone and really move to offense — and I’m not suggesting that companies haven’t done that. Clearly, there’s been a number that have, but now you’re really going to determine winners and losers.
So you’re absolutely right. Korn Ferry in its past performance, we — from the last trough, grew the company fivefold. And from the trough in 12 years ago within four quarters, it grew 60%. And so it depends on, number one, if you consider this to be a trough. If you do and you apply that same sort of logic to where we were in the first quarter, I think you could reasonably conclude that we would be back at those margin levels for sure. So we think we’ve taken the right step, not only on the cost side, but much, much, much, more importantly, on the top line side, about how we can help companies really, really deliver on change. And whether that’s D&I, whether it’s sales effectiveness, whether it’s M&A, whether it’s transformation, or whether it’s the reshuffling of the C-suite, I feel very confident in that.
Tobey Sommer — Suntrust Robinson Humphrey — Analyst
Okay. If we just take the mix shift out of it, can you be at the old margin at a lower revenue level because of the cost cuts you’ve taken in?
Gary D. Burnison — Chief Executive Officer and member of the Board of Directors
Yes.
Tobey Sommer — Suntrust Robinson Humphrey — Analyst
Thank you.
Operator
We have a question from the line of Sam [Phonetic] [Indecipherable]. Please go ahead.
Sam — — Analyst
Hey everyone. Hope you guys are doing well. My question relates to Executive Search. Are there certain client groups that demand has trended particularly better or worse throughout the quarter here?
Gary D. Burnison — Chief Executive Officer and member of the Board of Directors
Could you — you’ve got a little muffled. Could you repeat that, I’m sorry, one more time?
Sam — — Analyst
Yeah. With an Executive Search, are there certain client groups that demand has trended particularly better or worsen throughout the quarter?
Gary D. Burnison — Chief Executive Officer and member of the Board of Directors
That are trending better or worse?
Sam — — Analyst
Yes.
Gary D. Burnison — Chief Executive Officer and member of the Board of Directors
Well, when you look at it, clearly, the life sciences area has, for sure, trended better. On the other end of it, there’s been certain aspects of the industrial business, such as energy, that haven’t trended as well. And so those would probably be the barbels. And I’d also say that professional services has not trended well. But given what we’re seeing in manufacturing activity and all of that, I’m not so sure that those trends that I just alluded to would continue. But I would say those are the outliers, things like wealth management, asset management, have done reasonably well in this environment.
Sam — — Analyst
Thanks. That’s helpful. Maybe switching gears a little bit. In prior cycles, when coming out of a recession, were there more favorable opportunity for market share capture from struggling competitors or even additional acquisition opportunities?
Gary D. Burnison — Chief Executive Officer and member of the Board of Directors
For sure. We’ve been — one of the things we did a year ago is we planted a lot of M&A seeds. And as you know, we’ve done 13 acquisitions in 12 of those were really kind of sole-sourced where the company wasn’t necessarily for sale. We planted a lot of M&A seeds going back a year ago. So there will undoubtedly be those kind of opportunities. When we look at the market, we size the market at somewhere between $200 billion and $250 billion. And when you look at that market sizing, you would find that the areas of learning and development represent a disproportionate size of that market. And so we are keenly focused on growing that learning and development business.
The Executive Search market, although incredibly strategically important to Korn Ferry and an advantage that other professional services firms do not have, I think that Executive Search market is probably no more than $5 billion. The Professional Search market is probably four or five times the size of the Executive Search market. So we look at that as a much broader market, and we also focus on the RPO piece of the business as well, which has continued to deliver incredible quality renewals as well as new logos. So we think that there’s that opportunity, and there’s that opportunity to also bundle services together.
Sam — — Analyst
That’s helpful color.
Robert Rozek — Chief Financial Officer, Executive Vice President and Chief Corporate Officer
[Speech Overlap] This is Bob. Just to elaborate on a point Gary made earlier to. When you think about the cost savings that we put in place, Gary mentioned, about 50% of those relate to position elimination, the other 50% or other actions. It was a very conscious decision on our part to do that, so we retained as Gary indicated, the muscle to enjoy more than our fair share of the recovery. So as you think about us coming out the other side of this, our participation in that recovery we’ve got the company positioned to enjoy more than our fair share of that.
Sam — — Analyst
Thanks for the answers, guys.
Operator
Question from the line of Mark Marcon. Please go ahead.
Mark S. Marcon — Robert W. Baird & Co., Inc. — Analyst
Hello. Thanks for taking my questions. One, just as it relates to the — some of the cost actions that you took over the last five months, from the permanent side, what percentage of that has already gone through here in the in the first quarter? Are there more benefits to see in terms of the permanent reductions as it relates to the financials?
Gary D. Burnison — Chief Executive Officer and member of the Board of Directors
Bob, you should answer that.
Robert Rozek — Chief Financial Officer, Executive Vice President and Chief Corporate Officer
Yeah, yeah. No, let me take that. Mark, I would think about it, again, more from the perspective — because again, we’re trying to balance the temporary cuts. We’ve got a program in place for the organization to share some of the economics back to the employees, sort of mute the impact of the pay cuts. But as you think about it — I would think about it the way that kind of Gary described it in — if you assume the trough was this quarter and you have $25 million increments, you’re going to get 150 basis point margin improvements up to probably around maybe a little bit north of $400 million in revenue. Once you get past that point, you’d be looking at a more normalized flow through.
Mark S. Marcon — Robert W. Baird & Co., Inc. — Analyst
Great. And then, Gary, you’ve described this as potentially a triathlon. You’ve been through multiple cycles. Obviously, there’s — this one is unprecedented in multiple respects. But how do you think most of your clients are going to basically react in terms of going into offense, engaging in terms of some of the changes that you could help them with. What’s that pacing do you think going to look like? And in terms of reshuffling organizations, how quickly do you think that’s going to occur?
Gary D. Burnison — Chief Executive Officer and member of the Board of Directors
I think the elephant in the room is fiscal stimulus. And there’s — as you know, there’s a substantial — the punchbowl was [Phonetic] spiked big time. So the really hard piece of the algebra is gauging the fiscal stimulus and whether that continues. As you know, there’s some countries where that’s scheduled to end in October. That certainly has an overriding impact on the economic landscape. But I would say we are starting to see, we’ve clearly seen it in the D&I space. There’s no doubt about it. But in terms of transformation, yes, we are starting to see that. And I just — I firmly believe that there is more change here in the next two years than in the last 10 years. And I think that — don’t take this the wrong way, but it’s been a bit pre-season up until very, very recently. And I do believe that culture, for me, the definition is how an organization gets things done. I think it’s going to be incredibly widespread. And I think that — that a lot of the changes that we’re seeing, people are not going to go back.
So I’m envisioning — and you can see it in our Consulting business. I do envision that to be pretty widespread, but I think the overarching question there is the stimulus question. Because that impacts company’s liquidity, impacts the degree of change they can actually actualize. And that one’s hard to handicap. My intuition would be that for any politician, it would be very, very hard to stop spiking the punchbowl, but you never know.
Mark S. Marcon — Robert W. Baird & Co., Inc. — Analyst
Well said.
Robert Rozek — Chief Financial Officer, Executive Vice President and Chief Corporate Officer
Yeah, just to give you a data — a data point on that. As we are looking at the second quarter, whether it’s money coming back to Korn Ferry, or money going to our employees, we’re estimating that that level of, A, is going to drop by about 30% from what we saw in the first quarter. So it’s pretty — it’s a big factor, as Gary indicated in terms of what we see going forward.
Mark S. Marcon — Robert W. Baird & Co., Inc. — Analyst
If we don’t see a resumption with regards to the stimulus, do you anticipate that perhaps some of that choppiness that we’ve seen from month-to-month in some of the businesses could continue?
Gary D. Burnison — Chief Executive Officer and member of the Board of Directors
Yes. How could you have 50% of Americans making more unemployed than employed, right? That’s — there’s some startling data points that you know better than I. And yeah, that’s a definite risk factor.
Mark S. Marcon — Robert W. Baird & Co., Inc. — Analyst
Okay. Can you talk a little bit about some of the new business trends that you indicated on a monthly basis in terms of the variance? What drove some of that — the choppiness? Like were there big engagements that were coming through and then some pulled back? And I’m talking about specifically, like in Professional Search, you ended up seeing some improvement there in terms of going from June to July. It was getting better from May to June, and then dipped off in July. Was that related to the spike in terms of COVID and same thing with Digital? On the flip side, Consulting ended up jumping dramatically in July, was that D&I?
Gary D. Burnison — Chief Executive Officer and member of the Board of Directors
Yeah. Yeah. So you’re absolutely right. As Bob said, one of the things — we’ve talked about this for a while. We’ve tried to move the organization towards being in the business, outcome business. So moving the solutions more anchored around outcomes and business impact. So we’ve certainly seen a shift, as Bob indicated, towards larger engagements. And I think you’re going to see that. You’re going to see that on the Consulting side, in particular, where there could be in any particular month, there could be a large engagement that has hit. And so we see that, and we’re very — I think some of the most validating things to me have been not only the stance we’ve taken publicly around issues, but some of the wins. And these are major companies that have turned over either part of their leadership development to us, their leadership journeys, helping companies move from analog to digital. These are major wins with brand name logos that Korn Ferry never would have done 12 years ago.
So the company is positioned completely differently today. And so yes, you’re absolutely going to see some of that. Is it going to be like the RPO business that tends to be really lumpy? I’m not sure. But clearly, that — yes, you’re absolutely right. The Professional Search, I wouldn’t I didn’t read too much into that. Clear — in June, we saw a huge upswing in Professional Search. But again, you had pent-up demand from the world stopping in April. So I’m not so sure I would read much into that. But I do think that overall, when you look at the Consulting and Digital business, you would point to transformation, you’d point to D&I, and you would point to learning and development. And obviously, some of those things are very related, right?
Mark S. Marcon — Robert W. Baird & Co., Inc. — Analyst
Absolutely.
Robert Rozek — Chief Financial Officer, Executive Vice President and Chief Corporate Officer
And Mark, to give you some data points on that. The new business in our Digital business year-over-year engagement is above $250 million, it was actually up 5%, quarter sequential was up 13%. Our Consulting new business and we draw line for large engagers there at $500,000. It was actually up a 80% year-over-year and almost 50% quarter sequential. So you can see the real shift that Gary indicated towards — a strategic shift towards large engagements.
Mark S. Marcon — Robert W. Baird & Co., Inc. — Analyst
That’s fantastic. Can you talk a little bit about two different things? One, what you’re doing in terms of changing and transforming yourself? Some elements are relatively obvious in terms of like the sales training piece and moving to virtual. But what are some of the other elements that are changing? And what would some of the longer-term impacts be on the margin structure? And then secondly, when we think about some of the leadership development and analog to digital engagements that you’re doing, D&I is fairly obvious in terms of what you’d be doing for clients. But can you talk about the engagements that you’re seeing like the specifics with regards to the types of engagements that you’re seeing now from some of the larger clients that are — where you’re seeing some of those big growth rates?
Gary D. Burnison — Chief Executive Officer and member of the Board of Directors
The broad brush is analog to digital. And so companies are increasingly looking at their workforce and saying, how learning, agile are we to make that move from analog to digital, it’s not only strategy, but then you’ve got to say, okay, what kind of workforce do you have. So do you have people that are mentally agile, strategically agile, people agile? And so we have a real IP that will go in and say, okay, this is where you’re trying to move the company directionally now, this is what we think it’s going to look like in two years, and so what type of workforce do you need, and then measure that workforce today. And then if there’s a gap, okay, these are the learning journeys that you go through. So I would say that is absolutely number — in terms of a broad thesis, that is — that’s number one.
As you said, the D&I is, yes, maybe it is more obvious, but I’ll tell you that even though it’s — on the surface, it’s more obvious, it’s much more systemic. It is hard, much harder for organizations to drive that change, not around diversity, but around the behavior of inclusiveness. And so that is, again, a leadership journey. We haven’t seen much around the M&A space, but we have pretty deep solutions around that. I wouldn’t be surprised if that kicks in at some point here. Sales effectiveness. We’ve got a very, very, what I consider to be world-class business there. We have been helping companies, how you engage with customers virtually. That is a big topic of conversation today. And so you’ve seen that.
I think with our own business, we are trying to do the same thing. And so number one, I think our biggest opportunity is to recast the brand and to make the brands synonymous with organizational performance. And so hopefully, people have seen what we’ve done there in terms of that — making the brand more elastic. I think second for us, just like our clients, is analog to digital, and that’s not just in our learning business and assessment business, which is like almost 25%. It’s also in our core recruiting businesses. And we’re pushing very, very hard around what we can do there in terms of using our technology and AI and the things that we use in our RPO business across the entire recruiting platform. So that would be number two.
We obviously continue to look at M&A. There’s nothing that’s executable right now, but we’re obviously — we planted a lot of seeds there. Then the fourth piece is our own talent. And whether that is developing from within or adding talent from the outside, that’s another leg of our playbook that we said we would try to actualize here accelerating through the turn.
Mark S. Marcon — Robert W. Baird & Co., Inc. — Analyst
Great. Thanks a lot. Appreciate the color.
Operator
And our last question will come from the line of Marc Riddick. Please go ahead.
Marc Riddick — Sidoti — Analyst
Hi, good morning. I wanted to just touch on — and thanks for the detail that you provided up to this point. I just wanted to touch a little bit on maybe where you are with marquee accounts and the progress that’s been made there certainly with everything going on. And just also wanted to get a sense of with the folks that were kind of in that marquee group, if you will, if the actions that you’re seeing there or the plans that you’re seeing there differ than maybe the rest of the clientele, if there are any particular trades that we should be thinking about as far as maybe what some of your marquee customers are doing as opposed to others? Thanks.
Gary D. Burnison — Chief Executive Officer and member of the Board of Directors
Yeah. I’ll make some broad comments, and then maybe, Bob, if there’s any data that you happen to have at your fingertips. We really do believe that when you look at a world-class professional services firm, 35% to 40% of the portfolio would be driven by loyal, repeatable, sustaining clients of scale. That’s where we are moving to, that’s our true north. We have about 300 accounts between marquee and regional that we would consider as part of that. We need to continue to develop from within and bring in account leaders, which is a completely different game than Korn Ferry has played in the past. So we’ve got to be aggressive in that.
I will say that — I can’t mention the wins, but there’s been some really validating wins with major logo — major logos, who not only picked our solution because of our technology platform. So we started a B2C business that is relatively small in financially, but we’ve put 100,000 people through that around being the world’s gymnasium to exercise your career. Well, as part of that, we developed what has now been validated as a world class platform, technology platform. And so some of the wins — and in fact, we’ve even gotten into career transition services. Some of those wins are actually due to our fabulous team in the KF Advance business and the platform that we’ve built. But the other reason is that some of those wins have been from marquee and regional accounts where we’ve been — had a dedicated effort for many quarters.
And so I think, clearly, when I look at some of the marquee wins from marquee accounts — Bob, I don’t know if there’s any data that you happen to have at your fingertips?
Robert Rozek — Chief Financial Officer, Executive Vice President and Chief Corporate Officer
Yeah. Yeah. So Marc, just so — if you go back to where we finished last year, the marquee and regional accounts were about 32%, 33% of our total revenue. As Gary just alluded to, the program we put in place with account leaders, account managers, again, is demonstrating that our strategy is paying off with the larger engagements. The first quarter, the marquee and regional accounts was about the same as where we ended last year. But with the larger — the change that we’re seeing in larger engagements, we absolutely expect that group of accounts to grow as a percentage of our total revenue over the next couple of years.
Marc Riddick — Sidoti — Analyst
Okay. That’s certainly encouraging. And then I guess the final question for me is, and you touched on this a little bit as far as the potential of acquisitions. But I guess maybe I can maybe ask it a slightly different way. Are there any pieces that you look at now that you feel as though would be — that Korn Ferry is missing or things that you’d like to enhance? I know you’ve talked about enhancing the digital and recurring revenue streams and things. But I was wondering if there are any observations over the last few months that has made any shifts in some of the overall acquisition wish list? Thanks.
Gary D. Burnison — Chief Executive Officer and member of the Board of Directors
No, the organizational strategy and learning and development clearly are big pieces, and as you said, the digital aspect of that. If you look at our research, what it would suggest is that for — number one, the number one predictor of success is learning agility. But on top of that, for people to actually even find their potential, let alone exceed it, people need opportunity and our research, whether it’s on female leaders, Black leaders, across the board, you have to have opportunity, you have to have mentorship, you have to have sponsorship and there needs to be development. So we believe that learning and development, albeit it’s going to be delivered completely differently. At least for the next few years, that’s a place that is sustaining and where Korn Ferry wants to help people exceed their potential for sure. So I’d point to those two. Obviously, we have some other lenses, but that would probably be the biggest.
Operator
I would now like to turn the conference call back over to Mr. Burnison for any closing remarks.
Gary D. Burnison — Chief Executive Officer and member of the Board of Directors
Okay. Well, listen, I thank everybody for joining us. Clearly, the first quarter headline numbers were not spectacular, but the good news is that the company is positioned to accelerate through the turn. And more importantly, when you look at the new business, it’s clearly encouraging. So our business in essence, is to enable people and organizations to exceed their potential. And I think this company is better positioned than it’s ever been.
So with that, thank you very much for your time. Have a good rest of your day. Thank you.
Operator
Ladies and gentlemen, today’s conference call will be available for replay for one week starting today at 3:00 PM Eastern Time, running through the day September 10, ending at midnight. You may access the AT&T executive playback service by dialing 866-207-1041 and entering the access code 2407985, and our international participants may dial 402-970-0847, and once again, using the access code 2407985. Additionally, the replay will be available for playback at the company’s website, www.kornferry.com in the Investor Relations section.
[Operator Closing Remarks]