Korn Ferry

Ladies and gentlemen, thank you for standing by and welcome to the Korn Ferry second quarter fiscal year 2020 conference call. At this time, all participants are in a listen-only mode. Following their prepared remarks, we will conduct a question and answer session. As a reminder, this conference call is being recorded for replay purposes. We have also made available in the investor relations section of our website at KornFerry.com a copy of the financial presentation that we will be reviewing with you today. Before I turn the call over to our host, Mr. Gary Bernenson, let me first read a cautionary statement to the investors. Certain statements made on the call today, such as those relating to the 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 the 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 reports filed the company with the SEC, including the company's annual report for fiscal year 2019, 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 reconciliation to the most direct 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.cornferry.com. With that, I will turn the call over to Mr. Bernenson. Please go ahead, Mr. Bernenson.

Okay, Cammie. Good afternoon, everybody, and season's greetings. Thank you for joining us. Clearly, this has been an eventful year for Corn Ferry. November 14th, about a month ago, we celebrated our 50th anniversary, and it really capped an unprecedented moment in our history as the preeminent global consulting firm. Fee revenue in the quarter was up 1% in constant currency. We had an adjusted EBITDA margin of almost 16%. And in the quarter, we continued to have a long-term balanced approach to capital deployment. We repurchased about $50 million of stock during the quarter in addition to our normal quarterly dividend. On November 1st, we completed the acquisitions of Miller-Hyman, Strategy Execution, and Achieve Forum. Historically, we've only focused on a 10% subset of the $300 billion market for learning and development. With these acquisitions, we've added professional development, upskill capabilities, and that combined with our current offerings in leadership development, that will leverage our digital platform, tapping a much bigger opportunity in learning development outsourcing. And the companies that have joined us now, they train more than 210,000 people a year. As I think about this calendar year and the past few years, the investments that we've made in our business and operations, including folding the firm under one brand with one unified team to handle all of our clients' needs. It's really set the foundation to accelerate our growth in the years ahead. The foundation for us and the foundation of our go-forward strategy is around our IP. Arguably, we have the most comprehensive organizational and people databases in the world. We have rewards data on more than 20 million professionals, more than 20,000 companies. We've conducted almost 70 million assessments. We have organizational benchmark data on 12,000 companies. We have 3,900 success profiles, 30,000 job titles. You know, we've got rich IP. And, you know, certainly last but not least, Every business hour, we put somebody in a job every three minutes. And so, you know, building on this IP and the investments that we've made, our growth levers going forward are really going to be anchored around six key activities. One is to continue to extend and reposition the Corn Fairy brand, a brand that's synonymous with enabling people and organizations to exceed their potentials. It's about creating opportunity for individuals and for companies. Secondly, we're going to continue the path that we've very systematically gone down around a pragmatic, programmatic, go-to-market strategy. We've made investments around account planning and account management talent, and at the end of the quarter, end of our second quarter, we had more than 300 people marquee and regional accounts, and those represented about 30% of the revenue, and our long-term goal is to have those represent 40, 45% of the portfolio. Three, we've got to create scalable, repeatable, outcome-based solution sets. Four, we have to monetize this fabulous IP that we have, and that's the whole thinking behind a new business that we're going to be breaking out separately this quarter, the third quarter, called KF Digital. We're going to continue to pursue strategic acquisitions. And finally, we will be the premier career destination in the consulting world. And so the integration of these acquisitions is well underway. We expect the Revenue from these acquisitions will add another $120 to $130 million of revenue. And combined with what was our legacy products business, initially creates a $400 million Corn Ferry digital business. We would expect that the adjusted EBITDA margin of the Corn Ferry digital business after synergies that Bob will talk about will be 27% to 30%. And as I said, in the current quarter, in our third quarter, we're going to begin breaking out digital in our segment reporting. And after synergies, we expect that this will contribute about $100 million of EBITDA, approximately a third of the company's annualized EBITDA run rate, or approximately 19%. of the company's annualized run rate net income. And that's obviously very meaningful because that revenue stream is durable. The IP changes a lot of people's lives, and it's really about knowledge transfer. You know, as we look ahead, I think one word sums up the current economic environment, and that would be confused. Part of this results from the sociopolitical climate, whether it's social unrest or inequality, elections, Brexit, trade skirmishes. We could go on and on. But the important thing is what do you do about it and how do you position your organization? And I think we've been very transparent over the last few quarters, and we've taken a number of steps that we feel are enable us to seize opportunity. Number one, we introduced this regional account program. Two, we've continued driving the marquee account program and the aggressive recruiting of account leaders. We talked about how we've been moderating headcount for some time. We've also shared with you our view around professional search and moving that more towards knowledge-based assignments. M&A, you know our track record there. I talked about the recent acquisitions we completed. And finally, we've laid plans here to monetize the Korn Ferry digital and technology platform that we're building. And, you know, in markets like these, it's great companies that make their best moves. And we indeed have a history of seeking opportunity in more turbulent times. And as such, we've evolved. We've evolved into a broad-based consulting firm, and our offerings span way more than talent acquisition to organizational advisory services, learning and development, assessment, succession, rewards and benefits, and more. So today, Korn Ferry is a much more diversified, balanced firm. Based on the year-to-date quarter results, quarter two year-to-date results, and the expected top line contribution from the recent learning development acquisitions that we just talked about. You know, we'd have about almost two-thirds of our revenue outside of our historical executive search business. That includes almost a billion dollars in revenue from four solution areas, org strategy, assessment succession, learning development, and rewards and benefits. So I believe that this diversification strategy is absolutely taking hold. And as we enter another new year, we're going to continue our strategic commitment to build the preeminent global organizational consultancy, helping our clients synchronize strategy operations and their talent to drive superior performance. That's what it's all about for us. So with that, I'm joined here with Bob and Paul. Greg, the vote, Chuck. And so, Bob, I'll turn it over to you.

Great. Thanks, Gary. And good afternoon, everyone. Financial results for the second quarter of fiscal 20 continue to highlight the strength of our business model and the impact that the diverse mix of products and solutions that we have really contributes to the growing durability of our revenue base. As Gary indicated, we're operating in a confused economic environment driven by a whole host of factors that which really accentuates the importance of our diversification strategy. Our consolidated fee revenue in the second quarter was $492.4 million, which was down less than 1% year-over-year at actual currency and up about 1% measured at constant currency. From a solution perspective at constant currency, RPO and ProSearch continue to accelerate with fee revenue growth of 20%. While our advisory segment was down 1%, exec search was down 3%. We continued to diligently manage our cost base, which resulted in adjusted EBITDA of approximately $78 million and an adjusted EBITDA margin of 15.9%. Turning to new business trends globally, new business in the second quarter for all of Korn Ferry was up about 11% over last year's second quarter. Demand for RPO and professional search services continues to be strong. Total new business awards of approximately $150 million in the quarter consisting of $32 million of new professional search assignments and $118 million of longer-term RPO contracts. Now, of the 118 of RPO contracts, Approximately $49 million are with new clients, or what we call new logos, and approximately $69 million of extensions and renewals with current clients. Second quarter RPO awards were broad-based geographically with strong growth in the U.S., the U.K., and China. At Constant Currency, our advisory new business was up about 1%. with particular strength in North America, which was up 5% year-over-year, and our exec search new business was down about 5% year-over-year. At the end of the second quarter, total cash and marketable securities were $609 million. That's up about $86 million compared to the second quarter of fiscal 19. Excluding amounts reserved for deferred comp arrangements and for accrued bonuses, our investable cash balance at the end of the second quarter was was about $346 million. That's up about $102 million year over year. We also had outstanding debt at the end of the second quarter of about $273 million. It should be noted that the second quarter ending cash balance and outstanding debt balance both include an incremental $50 million drawn on our revolver to finance a portion of the recent acquisitions that Gary spoke about. In addition to our recent acquisition investments and consistent with our philosophy to maintain a balanced approach to capital allocation in FY20 through the second quarter and including activity to date for the third quarter, we have now repurchased in open market transactions about 1.74 million shares using total cash of approximately $66 million. Currently, we have about $184 million remaining on our authorization for share repurchases. And last, on December 4th, the Board declared a $0.10 per share dividend payable on January 15th, 2020. Finally, adjusted diluted earnings per share in the second quarter were $0.81, down approximately $0.04 compared to the adjusted fully diluted earnings per share in the second quarter of fiscal 19th. And it's mainly driven by a higher effective tax rate in this year's second fiscal quarter, which is about 26.8%, compared to 23.8% in the second quarter of fiscal 19. I'm now going to turn the call over to Greg, who will review our operating segments in a little bit more detail. Okay, thanks, Bob.