Korn Ferry (KFY) Q3 2022 Earnings Call Transcript

Korn Ferry  (NYSE: KFY) Q3 2022 earnings call dated Mar. 09, 2022

Corporate Participants:

Gary Burnison — Chief Executive Officer

Robert Rozek — Chief Financial Officer, Executive Vice President & Chief Corporate Officer

Gregg Kvochak — Senior Vice President & Investor Relations

Analysts:

Tobey Sommer — Truist Securities — Analyst

George K. Tong — Goldman Sachs — Analyst

Mark S. Marcon — Robert W. Baird & Co., Inc. — Analyst

Marc Riddick — Sidoti & Company, LLC — Analyst

Presentation:

Operator

Ladies and gentlemen, thank you for standing by. And welcome to the Korn Ferry Third Quarter Fiscal Year 2022 Conference Call. [Operator Instructions] Following the prepared remarks, we will conduct a question-and-answer session. [Operator Instructions] We have also made available in the Investor Relations sections 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 the 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, 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 with the SEC, including the company’s Annual Report for fiscal year 2021 and in the company’s soon-to-be-filed quarterly report for the quarter ending January 31, 2022.

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’ll turn the call over to Mr. Burnison. Please go ahead, Mr. Burnison.

Gary Burnison — Chief Executive Officer

Thank you, Carolyn. First, on a somber note, as we look at the events over the last couple of weeks, our thoughts, Korn Ferry’s thoughts are with the people of Ukraine and everyone who has been impacted by the destruction, the devastation, and the loss of thousands of lives. Our prayers go out to all of those who were impacted by this unnecessary war and by the human misery that’s taking place.

Turning from that, at an entirely different view, I’m pleased with our results during the third quarter. We once again achieved new financial performance highs. We generated about $681 million in fee revenue, that was up 43% year-over-year. Our diluted and adjusted diluted EPS was $1.54 and $1.59 respectively, and those were also new highs. Our performance over the recent quarters is a reflection of the relevance of our strategy and solutions, the resilience of our colleagues, and more importantly, the connection with our Korn Ferry brand. We are replicating and scaling our success and continuing to lead innovation at the intersection of talent and strategy in an increasingly digitally-enabled new world of work.

The metrics of our business are very good. It’s hard to believe that it was two years ago, almost to the day that the pandemic was declared and those were certainly uncertain times and now again, we face ourselves with uncertain times. But when we think about the power of the firm, the breadth of what we offer, and particularly the sacrifices made by our colleagues over the last couple of years, that affirms with this company is all about. We’ve accelerated from that uncertainty, we’re now up 32% compared to the quarter preceding the pandemic, which at that time was an all-time high and we haven’t just talked about it. We walked it. We walked it from the vast IP we have. We developed over 1 million professionals a year. We walked it by living our purpose, and we continue to innovate, replicate, and scale allowing people and organizations to exceed their potential in this rapidly changing world.

Elements of our strategy include driving a top-down go-to-market approach based on our marquee and regional accounts, which year-to-date represent about 37% of our portfolio. This not only facilitates growth and enduring partnerships, but is also key to more scalable and durable revenues. For example, on a year-to-date basis, about 28% of our revenue was driven by cross referrals within our firm, up several million dollars sequentially, which demonstrates the effectiveness of our go-to-market strategy. We also believe there is a substantial market opportunity with our talent acquisition in the interim businesses, particularly given the acceleration of a nomadic labor market.

And looking at our digital and consulting businesses, we will continue to innovate, marrying Korn Ferry’s capabilities with tomorrow’s opportunities from organizational transformation to sales effectiveness and accelerated revenue growth to M&A and ESG. We’re going to continue to further push to monetize our IP and continue to move more of our digital business to a subscription offering. And we’re also going to scale our learning development outsourcing capabilities, LDO, leveraging our Korn Ferry Advance platform. 150,000 professionals around the world have used Advance both as individuals and as part of their professional development journeys with their employers. And lastly, we’re going to maintain a balanced capital allocation strategy, including a disciplined approach to M&A.

With that, I’m joined by Gregg Kvochak and Bob Rozek. And Bob, I’ll turn it over to you.

Robert Rozek — Chief Financial Officer, Executive Vice President & Chief Corporate Officer

Great. Thanks, Gary, and good morning, good afternoon depending on where you are. A couple of weeks ago, I celebrated my 10-year anniversary at Korn Ferry. Looking back to when I started, I really believe that there were great opportunities ahead for us. And as I stand here today, and after 10 years looking at the business we built, the data, the assets, the solutions, and most of all the incredibly talented colleagues we have to serve our clients, it’s pretty clear to me that I underestimated our true potential. The investments we’ve made in IP, people, data, and processes have enabled us to thrive in today’s environment, and more importantly, have positioned us for future growth.

Our operational execution continues to drive consistent and superior financial performance. I’ve always said, the best way to measure performance is by looking at results. Now you heard Gary say that we continue with strong financial performance in the third quarter, delivering new highs in our fee revenue and adjusted diluted earnings per share. This is a direct result of the exceptional execution of our strategy and the growing relevance of our solutions. You also heard Gary talk about our go-to-market success with our marquee and regional accounts in the cross line of business, top line synergies we’re able to generate with our highly complementary portfolio of services and solutions.

I look at the growing relevance of our consulting services and solutions around major issues or what we refer to as megatrends. The companies are wrestling with today, whether it’s ESG, diversity, equity, and inclusion, accelerating revenue growth in a post-pandemic world or developing professionals and leaders to operate in the evolving digital world. You can also look at our digital business, which as you will hear from Gregg in his prepared remarks, really continues to expand the monetization of our data through increasing levels of license and subscription new business with really, really great potential for further expansion as we enter new sales channel partnerships with major technology companies. All of this leaves us uniquely positioned. In fact, the only company able to meet the entire spectrum of human capital needs of companies across the globe, and we are well positioned to continue to gain market share in the markets that we serve.

Now, let me turn to the third quarter. Fee revenue, as Gary indicated, was $681 million, that’s up $205 million or 43% year-over-year. Normally with the year-end holidays, our third quarter has historically been our seasonal low. However, in the current year, fee revenue was actually up $41 million or 6% sequentially. By line of business, fee revenue growth for Executive Search was up 42% year-over-year, while RPO and Professional Search was up 98%. Year-over-year growth for Consulting and Digital was also very strong at 20% and 19%, respectively.

Earnings also grew to new highs in the quarter. Adjusted EBITDA grew $42 million or 43% year-over-year to $138 million with an adjusted EBITDA margin of 20.3%. Our earnings and profitability continue to benefit from both higher consultant and execution staff productivity, as well as lower G&A spend. Today, our earnings and profitability have never been higher.

If you go back and you look at the first three quarters of fiscal 2020, that’s right before the pandemic recession hit, our adjusted EBITDA is up 71% and it’s actually grown 2.5 times faster than our fee revenue has grown. Our adjusted fully diluted earnings per share also advanced to a new high in the quarter, improving to a $1.59 per share, which was actually up $0.64 year-over-year.

New business was also very strong in the third quarter, up 30% year-over-year, reaching a new quarterly high. If you look at it by month, the consolidated new business, we saw a real sharp rebound in January from a seasonal low in December. We saw solid new business growth in every line of business. Of particular note, growth in our RPO new business was very strong at $135 million of new contract awards and that’s the second consecutive quarter they achieved that level.

Our investable cash position remained strong at the end of the third quarter. Cash and marketable securities totaled about $1.1 billion. Now, if you exclude amounts reserved for deferred compensation arrangements and accrued bonuses, our global investable cash balance was approximately $592 million, which is up $58 million or 11% year-over-year. I would note that the investable cash position is net of $91 million that we used to acquire the Lucas Group on November 1 and about $22 million for share repurchases in the quarter.

As Gary mentioned, we continue to take a balanced approach to allocating capital in addition to investing in M&A and hiring of additional fee earners and execution staff. We have repurchased approximately $55 million worth of our stock and have paid cash dividends of approximately $20 million so far in fiscal year ’22.

With that, I’ll turn the call over to Gregg to review our lines of business in more detail.

Gregg Kvochak — Senior Vice President & Investor Relations

Thanks, Bob. Let’s start with KF Digital. Global fee revenue for KF Digital was $90.2 million in the third quarter, which was up 19% year-over-year. Additionally, the subscription and licensing component of KF Digital fee revenue grew to $29 million in the third quarter, which was up 26% year-over-year and up 12% sequentially. Globally, new business for KF Digital in the third quarter grew 8% year-over-year to $108 million, which was the fifth consecutive quarter over $100 million. $39 million or 37% of the total digital new business in the third quarter was related to subscription and license sales. Earnings and profitability remained strong with adjusted EBITDA of $28.1 million and a 31.2% adjusted EBITDA margin.

Now turning to Consulting. In the third quarter, Consulting generated $162.9 million of fee revenue, which was up approximately $27 million or 20% year-over-year. Fee revenue growth continued to be broad-based across all solution areas and strong regionally in North America and EMEA, which were up 28% and 16% respectively. Consulting new business also reached a new high in the third quarter, growing approximately 10% year-over-year. Regionally, new business growth in the third quarter was strongest in North America and EMEA, which were up 10% and 16%, respectively. Adjusted EBITDA for Consulting in the third quarter was $28.6 million, with an adjusted EBITDA margin of 17.5%.

The growth trend for RPO and Professional Search remained strong in the third quarter, driven by the surge in demand for top skilled professionals. Globally, fee revenue grew to $188.6 million, which was up 98% year-over-year and up approximately $38 million or 25% sequentially. RPO fee revenue grew approximately 68% year-over-year and 3% sequentially. While Professional Search revenue was up approximately 150% year-over-year and up 67% sequentially.

The integration of the Lucas Group has gone well. Revenue in the third quarter for the Lucas Group was approximately $33 million, which was up approximately 10% compared to the revenue for the three months preceding the acquisition. New business wins for both RPO and Professional Search were also strong in the third quarter reaching new highs. Professional Search new business was $93 million and RPO was awarded $135 million of new contracts, consisting of $74 million of renewals and extensions, and $61 million of new logo work. Adjusted EBITDA for RPO and Professional Search continued to scale with revenue improving to $44.1 million with an adjusted EBITDA margin of 23.4%.

Finally, in the third quarter, global fee revenue for Executive Search reached another new high of $239 million, which was up 42% year-over-year. Growth was also broad-based with North America growing 44% year-over-year and EMEA and APAC growing 32% and 45% respectively. Market demand in international regions continued to improve in the third quarter with core sequential growth accelerating in EMEA, APAC, and Latin America.

We continue to invest in expanding our team of consultants in the third quarter. The total number of dedicated Executive Search consultants worldwide at the end of the third quarter was 581, just up 59 year-over-year and up 11 sequentially. Annualized fee revenue production per consultant in the third quarter remained steady at $1.66 million and the number of new search assignments opened worldwide in the third quarter was up 37% year-over-year to 1,787. In the third quarter, global Executive Search adjusted EBITDA grew approximately $66 million, which was up 24 — grew to approximately $66 million, which was up $24 million year-over-year with an adjusted EBITDA margin of 27.5%.

Now, I’ll turn the call back over to Bob to discuss our outlook for the fourth quarter of fiscal 2022.

Robert Rozek — Chief Financial Officer, Executive Vice President & Chief Corporate Officer

Great. Thanks, Gregg. As previously discussed, our consolidated new business grew to a new high in the third quarter, again, with real strength across all lines of business. Backlog exiting the third quarter was strong as was February new business. February generally is the shortest month in the year in terms of working days. However, this February was actually our eighth best new business month ever, excluding RPO. And if you include RPO, it was actually our best new business month ever.

Now despite the continuing strength in new business trends and backlog coming out of Q3, the very recent situation in Eastern Europe presents a level of risk and uncertainty that is difficult to quantify. With this in mind, in assuming no new major pandemic-related lockdowns or further changes in worldwide geopolitical conditions, economic conditions, financial markets, or foreign exchange rates, we expect our consolidated fee revenue in the fourth quarter to range from $670 million to $690 million and our consolidated adjusted diluted earnings per share to range from $1.49 to $1.63 per share, and our GAAP diluted earnings per share to range from $1.44 per share to $1.60.

Now, let me end as I started. As I look ahead for all the reasons previously discussed, I’m more optimistic now than I have ever been about our long-term opportunity to continue to build on our financial success. Our company today has more durable revenue streams, has achieved a new level of business activity and profitability that is sustainable and has positioned us for continued growth. And we have a core set of integrated solutions that are highly relevant to the megatrends that we’re seeing in the world today. Korn Ferry has never been better positioned to serve all of its constituencies, colleagues, clients, candidates, and shareholders for years to come.

With that, we’ll conclude our remarks and be glad to answer any questions you may have.

Questions and Answers:

Operator

[Operator Instructions] Our first question is from Tobey Sommer from Truist Securities. Your line is open. Please go ahead.

Tobey Sommer — Truist Securities — Analyst

Thanks. I wanted to ask you, the business and the recruiting market have just surged so much over the last six, seven quarters, kind of everybody is at all-time highs usually surpassing 2019. How do we think about growth from here, and not specifically in the April quarter, but even some sort of medium-term vision, I don’t expect you to necessarily answer in dollars, but any sort of the inputs that drive growth, productivity, headcounts? Any kind of way you could help frame that, so that we can put together an intelligent model would be helpful?

Gary Burnison — Chief Executive Officer

Okay. Tobey, it’s good to hear your voice. I think that barring inflation, which we put aside for a second, this is a — it’s an incredibly nomadic labor market. When you look at the labor participation rate, it’s pretty much what it was right before the pandemic, maybe at 1 million people sure. But it’s pretty [Indecipherable] — it’s pretty close. But when you look at the number of people that have left labor market, it’s millions of people. Maybe it’s not as high as 10 million people, but it’s a significant number. Then, you’ve got all the changes that have happened during the pandemic around how you work, when you work, where you work, efficiency, and the like. And I think there is, in the near term, a scarcity of talent. And so I would expect again barring the impact of inflation that there is going to continue to be this war for talent. And so, I would think that the labor market is extremely tight, which is good for our business. Then when you look at our Consulting business and all the trends around the workscape today, I think that’s another positive.

Tobey Sommer — Truist Securities — Analyst

Okay. Thank you. Good to hear your voice too, Gary. And then, kind of a follow-up along the lines that your answer prompted to me, with the sort of structural change to work from anywhere and the way employers have to open their aperture and adapt to be flexible in that regard, what are the implications for pricing across your businesses? And I don’t know if you could actually address it by line of business, but the Executive Search, Professional Search, RPO, what does that mean to sort of unit-based economics for your business?

Gary Burnison — Chief Executive Officer

Well, we have increased our pricing over the last few months. Now, that will take some time to bleed in because of longer-term contracts, MSA agreements and the like, but we certainly — we made that move probably five or six months ago. When you look at the — from a line of business perspective, clearly, what you’re seeing in our talent acquisition businesses, particularly Executive Search and Professional Search, is the impact of wage inflation and you will see that the average fees in both those businesses has gone up double-digits over the last, call it, 12 to 15 months. And so again, hard to predict, but I would think there is going to continue to be wage pressure there and that coupled with the scarcity of talent is very, very positive for the business. When you look at what’s actually happening today around culture, around how people get work done, I think it presents an enormous opportunity for us around professional development, what we call LDO, learning development outsourcing, I think that’s an opportunity for us.

On the Consulting side, we have — like the other parts of our business, we have raised the pricing. And if you look at our rate per hour now, it’s almost $400, it’s not quite, but you can see that, that has steadily gone up. So I — look, in this environment, I think there is that opportunity how much it really is, that’s kind of hard to quantify, but I think it has an upward trajectory to it.

Tobey Sommer — Truist Securities — Analyst

Thanks. Last question from me. How are you thinking about margins going forward in the sort of resumption of some business expenses, like travel and I say that as someone who has actually been on the road a little bit recently myself?

Gary Burnison — Chief Executive Officer

Yeah. I mean, Bob can answer this maybe and put a little bit more definition around it. I think that the big question is inflation. I think that’s actually more germane than even travel. And that’s hard to predict where that’s going to go and what the Fed really does and where oil, where it is today. So I think that is probably the biggest question. I think when it comes to how people get work done, that’s forever changed. And I would — when this thing broke out two years ago, I said that whatever we were doing before, how we consume, how we’re entertained, how we produce, how we travel for business, it’s going to be kind of 50% of what it was. I even think it’s probably a greater change than 50%.

And I’ll give you an example. I was interviewing a young professional college grad, second full-time job, mid-20s, and this person last week was really bragging around their “office culture.” The truth is that none of them actually go into the office. But yeah, he was really hyping up the office culture. It’s an entirely different perspective today than when I entered the workforce. So I think that change is pretty profound. Now in terms of margins, Bob, maybe you could comment on that.

Robert Rozek — Chief Financial Officer, Executive Vice President & Chief Corporate Officer

Sure. Thank you. Hey, Tobey. We — I think — on the last earnings call, I talked about where we saw margins settling from a long-term perspective versus kind of 18%, 19% range. We still feel that that’s the range that we’ll settle into. We’ve reduced our real estate footprint by about a little over 20%. If you remember, we took a charge in Q2 for that. And then, we’re still — we still have probably another 4 percentage points of reduction, but that will happen as leases come to their natural term over time and a couple of years before, that works its way through.

I think on the BD in travel side, that’s the one area that we’re watching very, very closely. If you remember, before the pandemic, we were spending $11 million or $12 million a quarter on that. And year-to-date, we’re probably averaging in the, say, $2 million, $2.5 million a quarter range. I expect that, that will increase. I think it will probably end up somewhere between the midpoint of zero and $11 million or $12 million that we were at over the long haul, but we’ve got that factored into our long-term views of where the margin is.

And then, the last piece is obviously, we manage our headcount closely. And so, as new business comes in and we need resources to deliver, while bringing people on board. And to the extent, there would be any slowdown we would just moderate that hiring to accommodate the slowdown in business. And so, we feel pretty good about the 18% and 19%.

Tobey Sommer — Truist Securities — Analyst

Thank you.

Operator

Our next question comes from the line of George Tong from Goldman Sachs. Your line is open. Please go ahead.

George K. Tong — Goldman Sachs — Analyst

Hi, thanks. Good morning. Can you talk a bit about the sensitivity of each of your lines of business, the macro conditions, which of course are currently evolving?

Gary Burnison — Chief Executive Officer

Well, the big elephant in the room is obviously what’s happening in Ukraine. And so, that has an impact on our business in the Ukraine and Russia, not, it’s — the Ukraine business for us was probably about $1 million; the Russian business was $8 million, goes — essentially have gone to zero over the line [Phonetic]. Now, we haven’t seen a knock-on effect for — in other countries or other companies. We haven’t seen that today. March new business is starting out actually ahead of where February was. Of course, it’s very early in the month and that does not make a trend, but it certainly is not negative, if anything is neutral to positive.

I think the biggest — and I touched on this, I think the biggest macro trend is really inflation. And where does that really settle into over the next 12 to 18 months and what the central banks, what is their stance towards inflation? And I think that’s probably the biggest factor.

George K. Tong — Goldman Sachs — Analyst

Got it. And maybe sticking to the topic of inflation, can you talk a bit about pricing, not just where pricing is increasing today, but how much you expect pricing to increase looking ahead, and how that aligns with wage inflation that you’re seeing among your recruiters internally?

Gary Burnison — Chief Executive Officer

Well, we have a big comp and benefits advisory in digital business. In our most recent survey that we did of companies around the world, what we’d find is that the companies are expecting about a 5% wage pressure. Now, that varies by country. And certainly, our intuition on top of the data would absolutely support that. So I think if you look at the recruiting businesses, one would expect that there’s going to continue to be pressure resulting from this nomadic labor market, the scarcity of talent. Now, how much that is, George? It’s very hard to quantify because we don’t know what Central Bank’s posture is going to be. But as I indicated, we have, over the past few months, increased our pricing not just because of the macro environment, but because of what our view of the impact that we have on companies. And so, we’ll have to see where that goes.

George K. Tong — Goldman Sachs — Analyst

Got it. Thank you.

Operator

Our next question comes from the line of Mark Marcon from Baird. Your line is open. Please go ahead.

Mark S. Marcon — Robert W. Baird & Co., Inc. — Analyst

Hey. Hello, everybody, and thanks for taking my question and congratulations on a strong quarter and a strong year-to-date performance. Just going to the elephant in the room, Gary, obviously, it’s early and everything is occurring real time. How do you think clients would — are going to react? And how would you differentiate that in terms of regions. I would imagine EMEA would be the most impacted area, but how — what’s your sense just in terms of in your conversations with your consultants and with clients?

Gary Burnison — Chief Executive Officer

Well, right now, it seems to be other than Russia and Ukraine. It seems to be cautious, but people are still moving forward and making decisions. So I would say that, that’s probably the view. Part of that I think is dependent on, if you go to EMEA, what exactly — how far does the EU go in terms of would they cut off natural gas or oil from Russia. That’s a big question. And not to say that was to happen, but if that was to happen, I think there is definitely a pretty huge impact on EMEA. So, Asia, we haven’t really seen much — we had Chinese New Year here in February, but we really haven’t seen as much as we have, say, in EMEA. A lot of people are uniting around a metro city and inherently in the United States, the same view of course if not closer to home.

Mark S. Marcon — Robert W. Baird & Co., Inc. — Analyst

Great. And so, it sounds like you’re not seeing any cancellations of confirmations or any freezes yet or anything along those lines. But if you did — you did a great job during COVID in terms of managing expenses and being able to adjust quickly and preserving the earnings power and also the future potential. Do you feel like you have the same level of flexibility as what you were able to exercise during COVID, if something were to occur?

Gary Burnison — Chief Executive Officer

Yeah, absolutely. Yeah, there is no question about that. I think great companies make their best moves in uncertain times. I think we’ve got a track record of that. We clearly have contingency plans. If that were to happen, we put contingency plans, I think, in place over the last few weeks in Eastern Europe, helping our colleagues that have been impacted by this. So, yes, absolutely, Mark.

Mark S. Marcon — Robert W. Baird & Co., Inc. — Analyst

Great. And then, with regards to inflation, you mentioned that several times, it’s also mentioned in the release multiple times. What are you seeing just in terms of your own personnel? And then, in the context of the way that you were mentioning it, how are you thinking about the range of possibilities? There is obviously all sorts of different projections with regards to what central banks may end up doing both in the US as well as the ECB and BOV [Phonetic] in terms of what they may end up doing, but how are you thinking about the potential range of those impacts?

Gary Burnison — Chief Executive Officer

Well, on the one end, it’s a — there, we’re going to [Indecipherable], are you going to — we’re going to go back to the ’70s where we crank up rates to 18% or 19%. That’s really hard for me to imagine that we’re going to get back to that stance politically. I just — that seems pretty far out there. So I don’t see that and my own view would be that the side [Phonetic] at least is going to have to back off a little bit what they were talking about, but in our — just take our own company we’ve — for eligible employees trailing 12 months, we’ve raised salaries about 12% or so. If you run that across the entire population, it’s probably more like 8% or 9%.

And I think at some point for companies, if there is this, forget oil, I mean you could have a debate on whether somebody could afford gas or groceries. But I think the bigger thing is around wages. And that’s a question that — if that were to continue at some point, companies are not able to pass that on to consumers, which does impact earnings. So that’s — I think that’s the fundamental question here.

Mark S. Marcon — Robert W. Baird & Co., Inc. — Analyst

Got it. And then, what are you seeing just in terms of your ability to recruit. Obviously, you’ve distinguished yourself in terms of range of services, the marquee program is going well, what are you seeing just in terms of the ability to recruit? And particularly like when we think about like areas that you’ve targeted for growth like digital, when we take a look at the consultant count there, how should we think about that?

Gary Burnison — Chief Executive Officer

In the digital area, the thing that’s exciting is that we have made a purposeful effort to expand our ecosystem and to work with partners to help drive that. Now that’s not going to be next quarter, but that’s been a major pivot for us over the last, call it, six to nine months, where we’re partnering with at least a couple of companies too. They have a broader platform too, distribute the IP, that’s — that could be very meaningful for Korn Ferry.

In the digital business, we’re also going to have to continue to increase our own commercial capabilities, our own commercial sales force. So we will do that. We’re still all out in finding consultants, fee earners, partners, principles. We very rarely dial that back. So we’re being very aggressive there, and I think that people are attracted to the platform. I mean, we are, I think, at the intersection of what matters most and that’s strategy and organization and its talent. So we’re continuing to recruit. We’re recruiting account leaders into the organization. So we’re still moving forward with that.

Mark S. Marcon — Robert W. Baird & Co., Inc. — Analyst

Great. And then last question for me is, it sounds like the Lucas Group is going really well. How does that make you feel about future acquisitions in Professional recruitment? How are you feeling about the stat area and what you’ve seen thus far?

Gary Burnison — Chief Executive Officer

It makes me feel really good. Today, it’s around up here. It’s a $400 million business. The interim piece of that today is probably $60 million or $70 million. And so, I think we’ve got not only the opportunity about — around Professional Search, but also the interim business given this nomadic labor market. We’re going to continue to make investments there. And I think that the — it’s not just a question of entering another talent acquisition market of Professional Search, but it actually plays to the broader theme that we’re really trying to build out is around developing professionals and today, we develop over 1 million professionals a year.

And so the play there isn’t strictly — let’s increase talent acquisition, but let’s also get into a market that could lead to learning journeys, career development, that plays into the digital businesses. We look at the digital business today. There’s a couple of really big areas we’re trying to make a push on. One is sales transformation. And that, if you look at this last quarter, it’s probably 17%, 18% of new business. There’s 15 million sales professionals in the United States alone. That’s going through enormous change. We’ve got fantastic IP around how salespeople can prioritize strategic opportunities. We can couple that with coaching. We can couple it with our developmental IP that we have. So that’s one.

And then, the second one is around professional development. So the leadership development for the organization overall is about 10%, 11% of revenue. Historically, that’s been at the high end of the workscape. And we think we can actually — through the digital business, we’re making a big push there around professional development below, say, the CEO level.

Mark S. Marcon — Robert W. Baird & Co., Inc. — Analyst

Great. Thank you very much.

Operator

Our next question comes from the line of Marc Riddick from Sidoti. Your line is open. Please go ahead.

Marc Riddick — Sidoti & Company, LLC — Analyst

Good afternoon. [Indecipherable].

Gary Burnison — Chief Executive Officer

Hey, Marc, good afternoon.

Marc Riddick — Sidoti & Company, LLC — Analyst

I was wondering if you could spend some time talking about, if you’re seeing much differentiation with end-customer markets between various industry verticals as to maybe how far along they are in addressing the — as you described it on the call, the nomadic realities of the business. And I was wondering if you could sort of discuss maybe some opportunities that maybe some industry verticals may be a little further along and taking advantage of as opposed to others.

Gary Burnison — Chief Executive Officer

Well, it ranges. I really do believe that we’re in for more change over the next couple of years. Clearly, we’ve seen a great deal of change over the last two years. But I think we’re in for a lot of change over the next two years in terms of how people get work done and that should bode well for our firm. It’s hard to say, if there’s one particular industry that’s ahead of others. Some are more — have to be on the front line in terms of how they deliver products or services to consumers. So it’s hard to pinpoint one.

I would say that the — clearly, the push around ESG is real. And if you look at what’s happened over the last couple of weeks, not that, that will solve today’s crisis, but it will create tomorrow’s opportunity. And so, I do believe that, that push of sustainability, and we’ve got a broad-based solution anchored around that. I think that’s real. Whether that’s — it could be — our energy business is only 4% of the company’s top line. But clearly, we’re seeing a lot of movement around how they reskill, upskill, create a green business. So that should gain even further momentum over the next few quarters and years.

Marc Riddick — Sidoti & Company, LLC — Analyst

Great. And then just a quick follow-up. I was wondering if you could talk a little bit about the recurring revenue and subscription revenue that — as far as — specifically to price increases around those types of services, whether or not you’re seeing much in the way of — it doesn’t seem as there’s much pushback. But — so I was wondering if you could sort of give a bit of an update or thoughts as to maybe what you’re seeing as to those types of services that — whether people are sort of rethinking how they utilize that, or is that an opportunity to sort of expand? Thank you.

Gary Burnison — Chief Executive Officer

Well, let me make a couple of comments, and Bob, you can add to it. I mean, as you know, we’ve made a push to drive the digital business more and more through subscription. And so this quarter, in terms of new business, it was almost 40% of new business. Now that is substantially different than, say, two or three years ago, where we were not pushing that as much. And so, you’ve got a different revenue recognition policy that’s happening as a result of that subscription business. So subscription business was $100 million.

I think one of the things that I mentioned that we’re excited about is using an ecosystem to drive that business, not only through our own commercial sales and consulting teams, which we’re going to continue to do because the digital business drives consulting and the consulting business drives digital. There’s definitely pull through. But part of the answer to your question is also around the partners that we are doing business with and trying to embed our IP into their technology platforms that can, over the long term, drive that business.

Now, how we price that subscription business is similar to other SaaS models. It’s a license basis seat — per seat basis. So I can’t say that there — we’ve seen that kind of a uptick in pricing that we’ve seen in the talent acquisition businesses. It’s not as direct, whereas there in search, Professional Search, Executive Search, you can see that and you can see the wage pressure. But I think as we — if we put anchors down around sales transformation and we put anchors down around professional development and we could get both of those to 60%, 65% of the offering there. We have just tremendous IP. And that’s a real opportunity for Korn Ferry.

Robert Rozek — Chief Financial Officer, Executive Vice President & Chief Corporate Officer

Yeah, Gary. The only thing I would add is the — you talked about how tremendous IP is. One of the very large tech companies that were — we have a partnership with now who is kind of specializes in sales and customer relationship management actually uses our IP with their sales force.

Marc Riddick — Sidoti & Company, LLC — Analyst

Thank you very much.

Operator

Next, we have a follow-up question from Tobey Sommer from Truist Securities. Your line is open. Please go ahead.

Tobey Sommer — Truist Securities — Analyst

Thanks. The question I wanted to ask is just to dig into your comments and kind of tone on inflation. I think investors might assume that wage inflation, in particular, on average been good for the business and could be constructive on a go-forward basis as well. But you kind of struck a cautious tone, so there may be other impacts. Could you dig into that a little bit more for me?

Gary Burnison — Chief Executive Officer

Well, look, it is — overall, I think if you look at the nomadic labor market and the change that’s happening around how work gets done and you go to various things from organizational transformation to ESG to D&I, all of those are an extreme positive. And I think on Korn Ferry’s business, we’ve been able and we will manage any kind of wage pressure. And Bob alluded to that around how we tightly managed the business, and we’ve got a track record of actually accelerating through an economic turn.

So I don’t think anybody should take my comments and say, okay, Gary is not — Gary is negative on what Korn Ferry can do. But the reality is when you start seeing gas at $7 a gallon, which it almost is in Los Angeles, it does impact consumers. And the big unknown is ECB and other federal — what exactly is going to be their policy. And I just believe, I’m not an economist, but I think that they’re going to have to back down. I just don’t see the political will, particularly what’s going on. This tragedy — I mean what’s unfolding in Ukraine, I just don’t — I think they’re going to have to back off. So I don’t think you should read it as cautionary, but it is a macro factor that is out there for any company in the world. Carolyn, did we lose Tobey?

Operator

He’s still in the queue. He may be on mute at this time. We did lose him just now.

Gary Burnison — Chief Executive Officer

Carolyn, any other questions?

Operator

It appears we have no further questions, Mr. Burnison.

Gary Burnison — Chief Executive Officer

Okay. Listen, thank you very, very much. And on the one hand, very, very excited about where the firm is and what we’ve achieved and what this company can be in our purpose. And on the other hand, our hearts and prayers do go out to the devastation and the loss of life that we’re seeing in Eastern Europe. So with that, thank you very much for your time and look forward to speaking to you soon. Thank you, Carolyn.

Operator

Thank you. And ladies and gentlemen, this conference call will be available for replay for one week starting today at 3:00 PM Eastern, running through the day, March 15, and ending at midnight. You may access the AT&T Executive playback service by dialing 866-207-1041 and entering the access code: 2674495. 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.

[Operator Closing Remarks]