Korn Ferry

Ladies and gentlemen, thank you for standing by and welcome to the Korn Ferry third 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 sections 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 the 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 conscious not to place undue reliance on such statements. Actual results in future periods may differ materially from those currently expected or desired because of 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 ending January 31, 2022. 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. Burnison. Please go ahead, Mr. Burnison.

Thank you, Carolyn. First, on a somber note, as we look at the events over the last couple weeks, Our thoughts, Korn Ferry's thoughts, are with the people of Ukraine and everyone who's been impacted by the destruction, the devastation, and the loss of thousands of lives. Our prayers go out to all of those who are impacted by this unnecessary war and by the human misery that's taking place. Turning from that, in an entirely different view, I am pleased. with our results during the third quarter. We once again achieved new financial performance highs. We generated about $681 million in revenue. That was up 43% year over year. Our diluted and adjusted diluted EPS was $1.54 and $1.59 respectively, and those were also new highs. Our performance over the recent quarters is a reflection of the relevance of our strategy and solutions, the resilience of our colleagues, and more importantly, the connection with our Corn Fairy brand. We're replicating and scaling our success and continuing to lead innovation at the intersection of talent and strategy in an increasingly digitally enabled new world of work. The metrics of our business are very good. It's hard to believe that it was two years ago, almost to the day, that the pandemic was declared. And those were certainly uncertain times. And now, again, we face ourselves with uncertain times. But when we think about the power of the firm, the breadth of what we offer, and particularly the sacrifices made by our colleagues over the last couple years, it affirms what this company is all about. We've accelerated from that uncertainty. We're now at 32% compared to the quarter preceding the pandemic, which at that time was an all-time high. And we haven't just talked about it. We've walked it. We've walked it from the vast IP we have. We developed over a million professionals a year. We walked it by living our purpose. And we continue to innovate, replicate, and scale, allowing people and organizations to exceed their potential in this rapidly changing world Elements of our strategy include driving a top-down, go-to-market approach based on our marquee and regional accounts, which year-to-date represent about 37% of our portfolio. This not only facilitates growth and enduring partnerships, but is also key to more scalable and durable revenues. For example, on a year-to-date basis, about 28% of our revenue is driven by cross-referrals within our firm, up several million dollars sequentially. which demonstrates the effectiveness of our go-to-market strategy. We also believe there's substantial market opportunity with our talent acquisition in interim businesses, particularly given the acceleration of a nomadic labor market. And looking at our digital and consulting businesses, we'll continue to innovate, marrying Korn Ferry's capabilities with tomorrow's opportunities, from organizational transformation to sales effectiveness and accelerated revenue growth to M&A and ESG. We're going to continue to further push to monetize our IP and continue to move more of our digital business to a subscription offering. And we're also going to scale our learning development outsourcing capabilities LDO, leveraging our Korn Ferry Advanced platform. 150,000 professionals around the world have used Advanced, both as individuals and as part of their professional development journeys with their employers. And lastly, we're going to maintain a balanced capital allocation strategy, including a disciplined approach to M&A. With that, I'm joined by Greg Kowalczyk and Bob Rozak. And Bob, I'll turn it over to you.

Great. Thanks, Gary. And good morning, good afternoon, depending on where you are. You know, a couple weeks ago, I celebrated my 10-year anniversary at Korn Ferry. You know, looking back to when I started, I really believe that there were great opportunities ahead for us And as I stand here today, after 10 years, looking at the business we built, the data, the assets, the solutions, and most of all, the incredibly talented colleagues we have to serve our clients, it's pretty clear to me that I underestimated our true potential. The investments we've made in IP, people, data, and processes have enabled us to thrive in today's environment, and more importantly, have positioned us for future growth. Our operational execution continues to drive consistent and superior financial performance. You know, I've always said the best way to measure performance is by looking at results. Now, you heard Gary say that we continue with strong financial performance in the third quarter, delivering new highs in our fee revenue and adjusted diluted earnings per share. This is a direct result of the exceptional execution of our strategy and the growing relevance of our solutions. You also heard Gary talk about our go-to-market success with our marquee and regional accounts and the cross-line of business, top-line synergies we're able to generate with our highly complementary portfolio of services and solutions. You know, I look at the growing relevance of our consulting services and solutions around major issues or what we refer to as megatrends, you know, that companies are wrestling with today, whether it's ESG, diversity, equity, and inclusion, accelerating revenue growth in a post-pandemic world, or developing professionals and leaders to operate in the evolving digital world. You can also look at our digital business, which, as you'll hear from Greg in his prepared remarks, really continues to expand the monetization of our data through increasing levels of license and subscription new business with really, really great potential for further expansion and as we enter new sales channel partnerships with major technology companies. All of this leaves us uniquely positioned. In fact, the only company able to meet the entire spectrum of human capital needs of companies across the globe, and we are well positioned to continue to gain market share in the markets that we serve. Now, let me turn to the third quarter. Fee revenue, as Gary indicated, was $681 million. That's up $205 million today. or 43% year-over-year. Normally, with the year-end holidays, our third quarter has historically been our seasonal low. However, in the current year, fee revenue was actually up $41 million, or 6% sequentially. By line of business, fee revenue growth for executive search was up 42% year-over-year, while RPO and professional search was up 98%. Year-over-year growth for consulting and digital was also very strong at 20% and 19% respectively. Earnings also grew to new highs in the quarter. Adjusted EBITDA grew $42 million or 43% year-over-year to $138 million with an adjusted EBITDA margin of 20.3%. Our earnings and profitability continue to benefit from both higher consultant and execution staff productivity, as well as lower G&A spend. Today, our earnings and profitability have never been higher. And if you go back and you look at the first three quarters of fiscal 20, that's right before the pandemic recession hit, our adjusted EBITDA is up 71%, and it's actually grown two and a half times faster than our fee revenue has grown. Our adjusted fully diluted earnings per share also advanced to a new high in the quarter, improving to $1.59 per share, which was actually up 64 cents year over year. New business was also very strong in the third quarter, up 30% year over year, reaching a new quarterly high. If you look at it by months, the consolidated new business, we saw a real sharp rebound in January from a seasonal low in December. We saw solid new business growth in every line of business. Of particular note, growth in our RPO new business was very strong at $135 million of new contract awards, and that's the second consecutive quarter they achieved that level. Our investable cash position remained strong. At the end of the third quarter, cash and marketable securities totaled about $1.1 billion. Now, if you exclude amounts reserved for deferred compensation arrangements and accrued bonuses, our global investable cash balance was approximately $592 million, which is up 58 million or 11 percent year over year. I would note that the investable cash position is net of $91 million that we used to acquire the Lucas Group on November 1st and about $22 million for share repurchases in the quarter. As Gary mentioned, we continue to take a balanced approach to allocating capital. In addition to investing in M&A and hiring of additional fee earners and execution staff, we have repurchased approximately $55 million worth of our stock and have paid cash dividends of approximately $20 million so far in fiscal year 22. With that, I'll turn the call over to Greg to review our lines of business in more detail. Thanks, Bob.