Korn Ferry

Ladies and gentlemen, thank you for standing by and welcome to the Korn Ferry second 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 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'll be reviewing with you today. Before I turn the call over to your host, Mr. Gary Burnison, please 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 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 the company's soon-to-be-filed quarterly report for the quarter ended October 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'll turn the call over to Mr. Berntheson. Please go ahead, sir.

Okay, thank you, Greg. And good afternoon or good morning. And thanks for joining us. You know, this is the 11th hour of the 11th month of the year like no other. And the good news is that our business has rebounded dramatically. Revenue was up 27% sequentially to 435 million. Our earnings and profitability, they were both very good with 66 million of adjusted EBITDA. and a 15.2% adjusted dividend margin. I'm also pleased with the work we did to ensure a strong balance sheet and position of liquidity. This has served us well, not only weathering the pandemic storm, but being able to invest back into the recovery that we've seen. You know, and I attribute these results to what I'm calling the three R's. First, the action, strategy, solutions, and messages we've taken have resonated in the marketplace. Secondly, our clients have responded. And third, our colleagues have been resilient through a year that none of us have experienced in our lifetimes. Yeah, it's a testament to our strategy, but it's really about the resiliency of our colleagues across the globe. I couldn't be more proud. And while I'm pleased with the progress and the path we see ahead, there's no question that the magnitude of the humanitarian economic impact brought on by this pandemic will continue to permeate and shape the global landscape for quite some time. And as we've said since early March, I do believe there will be more change in the next two years than in the last 10 years. And that brings tremendous opportunity, real tangible opportunity for Korn Ferry. Almost every company on the planet is and will have to reimagine their business. 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 organizational structure, roles, and responsibilities, how they compensate, engage, and develop their workforce, let alone the type of agile talent they hire and how they hire talent in a virtual world, which will depend to a greater extent on assessment. And these are Korn Ferry's businesses, and that's real opportunity for our company. 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 foundational to our service offerings. We're also a firm that changes people's lives. As previously mentioned, I'm very proud to say we're launching Leadership U for Humanity, a nonprofit venture of the Korn Ferry Charitable Foundation focused on developing the total mosaics inside communities and within corporations. One of our partners will include the Executive Leadership Council, a preeminent organization whose mission is to develop and increase the number of successful black executives across the globe. Our goal is to take our expertise in IP and develop one million new leaders from diverse backgrounds using our Corn Fairy Advance and Leadership U platforms. We'll also be offering this to all of our colleagues. 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 represents about 23% of the firm's revenue in FY20 in a way that makes our IP more relevant and scalable. To give you some perspective on how far we've come, at the start of the pandemic, we flipped the switch almost overnight with nearly all of our assessment capability converting to a digital environment And on the recruiting side, we're further refining our platform processes, such as AI, video, and technology. More and more, search will not simply be about discovering or validating what someone has done, but finding out who they are. We have this capability to differentiate our strategy, and our strategy is absolutely taking hold. And we see that pay off with our approach to clients as we create loyal, repeatable, sustaining relationships with clients of scale. And that's where we're moving. our business. That's our true north. We have about 300 marquee and regional accounts representing about 34% of global revenue, which we'd like to increase to 40% or so. As such, we'll continue to develop account leaders from within as well as hire from the outside. So forget the new normal. This is normal. It's nearly nine months since the pandemic was declared, and as I've said before, it's not just a marathon, but an Ironman triathlon of of endurance, agility, and change. Embracing this change, we absolutely can make tomorrow better than today. I truly feel we have the right strategy with the right people at the right time to accelerate through the turn. And as we enter 2021, we'll continue our strategic commitment to build the preeminent global organizational consultancy. I look forward to what the new calendar year brings us. And before we take your questions, I'm joined by Bob Rozak and Greg Kowalczyk. And Bob, I'll turn it over to you.

Great. Thanks, Gary. And good morning and good afternoon. As Gary said, the rebound in our business has been tremendous. The sharp improvement in fee revenue in our fiscal second quarter is more than a result of improved global market conditions. In fact, It really is attributed to the resilience of our diverse mix of product and service offerings, our disciplined client management activities, and the growing relevance our solutions have in today's business environment. Coming through the last nine months of economic upheaval, we now have a number of proof points that our strategy is succeeding. The business we have today is less economically cyclical. with the time to recovery shorter and the trajectory of our recovery even steeper. Our operating experience through the COVID-19 recession thus far demonstrates a number of important points. First, our more diversified business is clearly demonstrating greater resilience than in the Great Recession, where fee revenue in the quarter immediately following the trough quarter was approximately 43% less than the prior peak quarter. For the current COVID-19 recession, the decline in fee revenue from the peak quarter to the quarter immediately following the trough is only 16%. So you can see a very dramatic improvement. Gary mentioned our marketing regional account programs. These are client relationships that continue to deliver less cyclical, more resilient revenue than the rest of our portfolio. And we achieved this result by actively managing the accounts with global account leaders who use a disciplined account management strategy. Through the first six months of fiscal 21, we saw our market and regional account fee revenue decline approximately 14% year over year, which compares favorably to the decline in the rest of our portfolio, which was down 23%. In our digital business, we continue to see meaningful progress selling subscription-based solutions. Our FY21 Q2 subscription-based fee revenue was $22.7 million, which was up 43% year over year and up 7% quarter sequential. Subscription-based new business also improved in the second quarter, reaching $29 million, which was up 39% year-over-year and 25% quarter sequential. While the shift to more subscription-based fee revenue will have a short-term negative impact on fee revenue growth, it clearly positions us with more durable fee revenue for the long term. In our consulting business, we continue to see success with our effort to capture larger engagements. And that's, as we've said in the past, those that are valued at $500,000 or more. These engagements provide us with an incrementally better visibility and a more durable stream of revenue. In FY21, our Q2 consulting new business was pretty steady with the prior year, despite last year's number being an all-time high, which included a single non-recurring engagement of $12 million. And these large engagements are also driving a rapidly growing consulting backlog, which again enhances our revenue visibility and durability. And last, our RPO business continues to enjoy great success, especially as companies increasingly look to outsource and verbalize their cost base. RPO new business in the second quarter was $120 million, which is just shy of an all-time high. So as I said when I started, we now have real proof points that our strategy is working. Now I'll turn to our quarterly results. In the second quarter, all of our business segments were up sharply from the trough of the first quarter with a significant improvement from the rate of decline that we saw in the first quarter. For the second quarter of FY21, our fee revenue was $435 million, which was up 91 million or 27% sequentially and down only 12% measured year over year. Fee revenue declines improved consecutively year over year each month of the quarter. On a quarter sequential basis, fee revenue in the second quarter for exec search was up 23%. RPO and pro search was up 25% with pro search being up 20%. and RPO up 27%. Consulting was up 28% and digital was up 34%. More importantly, as fee revenue has improved, we've been able to drive higher earnings and profitability by leveraging the cost saving actions we recently put in place as well as the productivity and cost efficiencies resulting from our emerging digital and virtual delivery processes. Adjusted EBITDA in the second quarter was up $56 million sequentially to slightly over $66 million, with an adjusted EBITDA margin of 15.2%. Our adjusted fully diluted earnings per share were also up in the second quarter, reaching $0.54, which was up $0.73 sequentially. Our balance sheet and liquidity remained very strong at the end of the second quarter, Cash and marketable securities totaled $774 million. When you exclude amounts reserved for deferred comp arrangements and for accrued bonuses, our investable cash balance at the end of the second quarter was approximately $458 million. Finally, during the last couple of quarters, we had discussed a number of restructuring and cost-saving initiatives designed to help the firm through the trough of the COVID-19 crisis. Some of these cost-saving actions, like salary cuts, were highlighted as being temporary in nature. It is important to note that based on our Q2 performance, we have in the second quarter made an accrual to pay all of our employees 100% of their salary for the second quarter. And therefore, our cost structure in this quarter is fully loaded as it relates to current compensation expense. I will now turn the call over to Greg to review our operating segments in more detail.