Korn Ferry

Ladies and gentlemen, thank you for standing by and welcome to the Korn Ferry second quarter fiscal year 2022 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 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 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 ended October 31, 2021. 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 conference over to Mr. Burnison. Please go ahead, sir.

Thank you, Tom. Good morning. I'm pleased to report that Corn Ferry once again achieved all-time financial performance highs. Revenue was up 47%, and our diluted and adjusted diluted EPS were $1.38 and $1.53, respectively. And our adjusted EBITDA margin was 21.1%. You know, I think our performance over recent quarters has reached a new level of scale, and it speaks to the resiliency and agility of our colleagues, as well as our operational excellence amid a time of enormous transition and secular change. And this aligns with our businesses. Today, wherever and whenever strategy meets talent, Korn Ferry is at that cross section, enabling agility in a world that will undoubtedly be in transition for the next several years. Our strategy in the new year will be to continue to innovate, replicate, and scale, allowing people and organizations to exceed their potential in this rapidly changing world. Elements of our strategy will include driving a top-down go-to-market strategy through our marquee and regional accounts, which represent about 36% of our portfolio. And this not only facilitates growth and enduring partnerships, but is also key to more scalable and durable revenues. For example, in the quarter, about 30% of our revenue was driven by cross-referrals within our firm. demonstrating the effectiveness of our go-to-market strategy. Although our search businesses, both pro-search and executive search combined, represent about 45% of our revenue, we believe there's still substantial market opportunity ahead given the acceleration of an increasingly nomadic labor market. It's one of the reasons we acquired the Lucas Group during the quarter. a move that adds breadth and depth to Korn Ferry's search portfolio. Looking at our digital and consulting businesses, we will continue to innovate, marrying Korn Ferry's capabilities with tomorrow's opportunities from ESG to DE&I to M&A services. And we're also going to further push the monetization of our IP and move more of our digital business to a subscription offering. We're going to also scale our learning development outsourcing or LDO capabilities, leveraging our Corn Ferry Advanced Platform, in which we now have completed 50,000 development and coaching sessions. And lastly, we're going to deploy a balanced capital allocation strategy, including a disciplined approach to M&A. Looking ahead, I truly feel we have the strategy, the people, the diversity of solutions and expertise to help our clients drive performance in this new world. And our results clearly reflect this reality. We look forward to keeping up the momentum in the new year ahead. And with that, I'm joined by Bob Rozak and Greg Kowalczyk. Bob, I'll turn it over to you.

Great. Thanks, Gary. Good morning and good afternoon, depending on where you are in the world. Let me start with a few comments before I jump into second quarter results. So I've always felt that the best way to measure success is through performance. And if you look at our performance coming out of the COVID recession, it's really been and continues to be exceptional and that's reflected in our Q2 results. There's no doubt that the world we live in has changed for good. Today more than ever, our clients are facing unprecedented organizational and human capital challenges, you know, as workforces are transformed and digitized, as corporations are called upon to have greater environmental, social, and governance responsibilities, as organizations strive to have work environments that are inclusive and free from bias, or even as companies are challenged to grow in a post-COVID environment. These are real secular changes creating real and challenging business issues for companies across the globe. And it's a fact that no business issue has ever been solved without the involvement of people. And that's really where Korn Ferry comes in. I mean, that's our sweet spot, right? Our core and integrated solutions line up perfectly with the secular changes that companies across the globe are wrestling with today, whether it's finding the right talent, in a dislocated labor market to accelerating the top-line growth or to even keeping employees engaged, motivated, appropriately rewarded, and retained in this new and evolving work and social environment. As these forces continue to shape the workplace, our clients, in growing numbers, continue to recognize the role that our people and our solutions play and helping them solve their most pressing business issues through their most precious asset, their people. You know, I would also say that this is not our 15 minutes of fame. I mean, these secular changes that we're all feeling are real and they are here to stay. You know, in my view, I think, I really believe that we're in the first inning of a long ballgame. Now, just as market demand has been strong, our execution has been stronger, driving our fee revenue, earnings and profitability to new all-time highs. Now I'm going to turn to Q2 results. So as Gary mentioned, fee revenue in the second quarter grew $204 million, or 47%, year over year, and $54 million, or 9% sequentially, reaching an all-time high of $639 million. Fee revenue growth in the quarter for our consolidated executive search business was up 59% year-over-year and up 9% sequentially, while our RPO and professional search business was up 76% year-over-year and 8% sequentially. Growth for our consulting and digital businesses was also very strong. Consulting grew 30% year-over-year and 11% sequentially. while digital was up 18% year over year and 10% sequentially. Turning to earnings and profitability, they also grew to new highs in the quarter. Our adjusted EBITDA grew $69 million year over year and $13.5 million or 11% sequentially to $135 million with an adjusted EBITDA margin of 21.1%. both our new quarterly highs. Our earnings and profitability continue to benefit from both higher consultant and execution staff productivity and lower G&A spend. Adjusted fully diluted earnings per share also advanced to a new high in the quarter, improving to $1.53, which was up 99 cents compared to adjusted fully diluted earnings per share in the second quarter of fiscal 21, and actually up 16 cents or 12% sequentially. You know, it's really interesting when you compare our business today through the first six months to the same period in fiscal year 20, the pre-pandemic period just two years ago, both our scale and our profitability are up dramatically. Our firm's fee revenue for the fiscal year 22 Q2 year-to-date period is up 25% with double digit growth in every line of business. Our adjusted EBITDA over the same comparison period is up 67%. That's nearly three times greater than fee revenue growth. And our adjusted EBITDA margin is up 530 basis points to nearly 21%. You know, our earnings power has never been higher. Now, as I look at new business, that also accelerated in the quarter, reaching new highs for each of our lines of business. On a consolidated basis, new business awards, excluding RPO, were up 40% year over year and up approximately 8% sequentially. RPO new business was also extremely strong, with a record $136 million of total contract awards. This consolidated record level of new business across all of our business lines in the second quarter really provides us with a very solid backlog entering the fiscal third quarter. Our investable cash position also remains strong. At October 31st, the end of the second quarter, cash and marketable securities totaled $997 million. Now, when you exclude amounts reserved for deferred compensation arrangements and accrued bonuses, our global investable cash balance at the end of the second quarter was approximately $591 million, and that's up about $133 million, or 29% year over year. You know, it should be noted that this investable cash position includes approximately $90 million that was used to acquire the Lucas Group on November 1st. We continue to take our balanced approach to allocation of capital. You know, in addition to the Lucas Group and investing in the hiring of additional fee earners and execution staff, year to date, we've repurchased approximately $14 million of our stock and have paid cash dividends of approximately $14 million as well. With that, I'll turn the call over to Greg to review our operating segments in more detail.