Korn Ferry

Ladies and gentlemen, thank you for standing by and welcome to the Korn Ferry fourth quarter fiscal year 2020 conference call. At this time, all participants are in a listen-only mode. Following the 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 cornferry.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 continuation statement to our investors. Certain statements made in this call today, such as those relating to future performances, performance plans and goals, constitute forward-looking statements within the meaning of the Private Securities Legislation 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. Additionally, 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 quarterly report for the quarter ended January 31st, 2020, the company's current report on form 8K filed on May 11th, 2020, and the company's soon to be filed annual report for fiscal year 2020. Also, some of the comments today may reference non GAAP financial measures such as constant currency amounts, EBITDA, and adjusted EBITDA. Additionally, information concerning these measures including reconciliations to most directly comparable GAAP financial measure is contained in the financial presentation and earnings release relating to this call. of which are posted in the investor relations section of the company's website at www.cornferry.com. With that, I'll turn the call over to Mr. Bernenson. Please go ahead, Mr. Bernenson.

Okay. Thank you, Amy, and good afternoon, everybody, and thanks for joining us. You know, the last several months, are unlike anything most of us have experienced in our lifetimes. With long overdue calls for social equality, persistent global pandemic and recovery curves, the only certainty today is uncertainty. But, you know, amid all this change, we'd be remiss not to recognize all the heroes. You know, it's been truly uplifting to see the humanity around us. Our healthcare workers, and other first responders and all of those who are committed to making our world a safer, better, and more equal place. I've never been more proud of our firm and how we've responded during these times. At the beginning of this pandemic, we adopted a framework of safety, caution, and agility to navigate the crisis. That included mobilizing almost all of our global colleagues to work from home environment, in really the course of days. And we sized our business to the current reality while preserving tremendous muscle, which we believe will allow us to accelerate through the term. We took a strong voice in the world, hosting multiple COVID-19 webinars, which were attended by over 20,000 leaders. And we led Race Matters webinars for colleagues and clients that attracted more than 100,000 leaders from global organizations. And we're continuing to engage with clients in these discussions, given our large diversity and inclusion consulting business. And we appointed Mike as our chief diversity officer, elevating our ongoing focus on and continuing commitment to not only diversity, but much more importantly, inclusion. You know, diversity is a fact. Inclusion is a behavior. And we're committed to continuing that conversation beyond the pledge through action. Now, let me comment briefly on our fiscal fourth quarter. Fee revenues were down about 7.9% at constant currency as the impact of the virus accelerated through the quarter. Our adjusted EBITDA margin was almost 16% and we delivered 60 cents of adjusted EPS. Full-year revenues were $1.9 billion, and we delivered approximately $300 million of adjusted EBITDA and $2.92 of adjusted EPS. Now for the future. There's no question that the magnitude of the humanitarian and economic impact brought on by the virus far outweighs what anyone could have expected a few short months ago. The pace and magnitude of the decline caused by this global health crisis is unprecedented, at least in the last hundred years. But with the crisis, there's also tremendous opportunity. And we believe that includes real tangible opportunities for corn. You know, almost every company on the planet is, and will have to reimagine their business. And I believe in the next two years, there's going to be more change than in the last 10. Quite simply, different work needs to get done, and work needs to get done differently. And to get work done differently, companies will need to rethink their org structure, roles, and responsibilities, how they compensate, engage, and develop their workforce, let alone the type of talent they hire and how they hire that talent in a virtual world. which will depend to even a greater extent on assessment. And as a reminder, our assessment and learning business is almost 25% of the company. So these are Korn Ferry's businesses, and this is on top of our M&A change management, virtual sales effectiveness, and customer experience services, let alone the D&I services that we offer to the marketplace. That's real opportunity for us. And as an organizational consulting firm, we enable people and organizations to exceed their potential. And to exceed potential, people need an abundance of opportunity, development, and sponsorship, which is absolutely foundational to our service offerings. We're also using this time of change as an opportunity to reimagine our business. For example, we're moving from analog to digital delivery of our assessment and learning business, which, as I just mentioned, it's 25% of the company, in a way that makes our IP more relevant and scalable. On the recruiting side, we're further refining our platform processes, such as AI, video, and technology. And on the administrative front, we're continuing to further consolidate our activities, adopting a one contrary approach to deliver greater efficiencies across the entire organization. When I look back during the Great Recession, our revenue was up almost 60%, four quarters from the trough, eventually growing 5x to almost 2.1 billion annual revenue run rate a few months ago. We believe the opportunity to grow after the pandemic subsides lies in front of us. We're a much different company today. Our firm's recovery could be substantially different with a pronounced upswing based on a broader and deeper mix of business. To undertake this journey, we're going to be agile, flexible, and responsive to the environment and our clients. Fortunately, we're facing this crisis from a position of strength when you consider we have a solid balance sheet with high levels of cash and liquidity, and we've taken swift and decisive actions to protect the company and more importantly, preserve its muscle. We've also seen some green shoots in new business and client wins. April, May, and June stabilized down approximately 30% year over year, and sequentially, June was up approximately 18% over May. So June was better than May, and May was better than June in terms of new business. We've also set operational guardrails in our business designed to preserve our position of strength and enable the firm to invest into the recovery. We're committed to maintaining at least neutral EBITDA. This preserves the muscle of the firm and our ability to fully harness the opportunities in the recovery, and we will maintain our dividend this quarter. As we discussed in the last earnings call, we continue to assess the changing health and economic environment and the impact it has on our forward visibility. As cities, states, and countries reopen their economies, there's been a significant resurgence of COVID-19 cases in a number of places. In some cases, this has resulted in the delay or even cancellation of plans to reopen. Despite the recent positive data indicating that our new business trends may be stabilizing, as well as the resilience that our clients and colleagues are demonstrating, the near-term predictability of our business remains clouded. As a result, we will not be providing specific revenue and earnings guidance for the first quarter of FY21. In wrapping up my remarks, I want to leave you with this. You know, at some point, we'll be looking at this virus through the rearview mirror. And I truly believe that we have the right strategy with the right people at the right time to accelerate through the turn like we've done before. We have a demonstrated track record of doing that. So now I'm joined virtually by Bob Rozak and Greg Kowalczyk, and I'll turn it over to you, Bob.

Thanks, Gary, and good afternoon, good morning, everyone. I'll start with a few important highlights for the full year and the fourth quarter of of fiscal year 20 before I address new business trends. For the full year of fiscal 20, our fee revenue was $1.93 billion, which was essentially flat year over year. Our adjusted EBITDA margin was, or adjusted EBITDA, I should say, was $301 million, and the adjusted EBITDA margin was 15.6%. And as Gary indicated, our adjusted fully diluted earnings per share were $2.92. Now, turning to the most recently completed quarter, our fourth quarter, fee revenue was $440.5 million, which was down 7.9% year-over-year, measured at constant currency. In the fourth quarter, fee revenue for executive search was down 10% globally. RPO and pro-search was down 9%. Consulting down 14%, and digital grew 14%, and all of that's at constant currency. Adjusted EBITDA in the fourth quarter was approximately $70 million with a 15.8% adjusted EBITDA margin, and our adjusted fully diluted earnings per share in the quarter were $0.60. Our balance sheet and liquidity remained very strong. At the end of the fourth quarter, cash and marketable securities totaled $863 million, and that's up about $95 million year over year. And then when you pull out amounts reserved for deferred compensation and accrued bonuses, that's what we define as our investable cash. That balance at the end of the fourth quarter was approximately $532 million. That's up about $150 million year over year. At April 30, 2020, we have undrawn capacity of $646 million on our revolver. So we have close to $1.2 billion in liquidity to manage our way through COVID-19 and, as Gary indicated, to invest back into the business through the recovery. Last, the firm had outstanding debt at the end of the fourth quarter of about $400 million. Finally, due to the negative economic impact of COVID-19, we did take swift and decisive actions to downsize our cost base. As previously announced, we took cost actions that were targeted at compensation as well as G&A spend, and we have initially reduced our cost base by about $300 million on a run rate basis. We believe these actions will help us manage the business to maintaining our minimum operating boundary of adjusted EBITDA neutrality throughout the COVID crisis. And in the current environment, maintaining operational flexibility is critical for us and will allow us not only to preserve the franchise, but as I indicated, will allow us to invest into the recovery. Greg, do you want to go through some of the operating segments? Sure. Thanks, Bob. I'm going to start with the digital segment.