Korn Ferry

Ladies and gentlemen, thank you for standing by, and welcome to the Korn Ferry first quarter fiscal year 2021 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 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, 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 2020, and in the company's soon-to-be-filed quarterly report for the quarter ending 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.cornferry.com. With that, I will turn the call over to Mr. Burnison. Mr. Burnison, please go ahead, sir.

Okay, thank you, Stephen, 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. You know, it's not just a marathon, but a triathlon of endurance, agility, change. In fact, you know, 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's change that's 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 than. You know, in early March, we were announcing the best results in our history, record fee revenue and a continued transformation from a monoline firm to an organizational consultancy. 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% 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 and 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, you know, green shoots that we're seeing. And I think I'm, more than anything, I'm proud. Proud of our organization. I'm motivated by how we've positioned ourselves for the opportunity ahead. And, you know, we face this crisis every, 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 IT 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, you know, thousands of organizational benchmark data. We've got thousands of success profiles every year. We train and develop a million professionals a year. And certainly, you know, last but not least, is we place a candidate each business hour every three minutes. And so we're, you know, we're using this 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, you know, today it's almost 25% of the company. And we're certainly shifting that business. I mean, we've done more virtual sessions in the last couple months than we've done in the last, you know, many, many months. The pipeline is good. We've pivoted very quickly. I can't be proud 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's working. And on the recruiting side, that's another place where we are reimagining that business as well through AI and 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 take on today's challenges. And more importantly, amid all the calls for change, we're amplifying our voice, not only on diversity, but also 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 is, 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 Innovations. 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. I'm also proud and pleased to say that we're launching Leadership U for Humanity. And that's a nonprofit 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 globe. And our goal is to develop a million new leaders from diverse backgrounds using our Korn Ferry Advance and Leadership U platforms. And so not only, I think, have 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 Corn Fairy is going to help drive that change, helping people and organizations be more than that. With that, I'm joined here by Bob Rozak and Greg Kowalczyk. And so before we entertain questions, I'll turn it over to you, Bob.

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 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. You know, 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 corniest 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 Greg, and then I'll come back on and address our 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 mixed 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 19 cents. Our balance sheet and liquidity remained strong. At the end of the first quarter, cash and market local securities totaled $733 million. Excluding amounts reserved for deferred comp and for accrued bonuses and actually net of the funds used to right-side 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 side 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 FY20, 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 Greg to review our operating segment in more detail.