Korn Ferry

Ladies and gentlemen, thank you for standing by and welcome to the Corn Ferry first quarter fiscal year 2023 conference call. At this time, all participants are in a listen-only mode. Following the prepared remarks, we will conduct the question and answer session. As a reminder, this 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'll 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 means 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 the 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 2022 and in the company's soon-to-be-filed quarterly report for the quarter ended July 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 on 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, Tony. Good afternoon, and thanks for joining us. First, I'm very pleased with our first quarter results. They were up about 24% constant currency, 19% in actual dollars to about $696 million in fee revenue. And our long-term performance has also been good. Our 10-year CAGR is about 13%, while our 20-year CAGR is about 10%. When you look more broadly at the landscape today, there's a big reset taking place, not to mention a workscape that is experiencing significant labor imbalances and dramatic changes in how and where organizations get work done. These tectonic shifts under our feet are arguably the most significant since the Industrial Revolution. As a result, organizations including Korn Ferry, will face a different climate over the next year than we've seen over the last 24 months. Clients will undoubtedly be in a fight for growth, profitability, and relevancy. And I'm confident that we've built a portfolio of offerings in IP that are relevant in today's and tomorrow's business environment. You know, during times of change, it's easy to identify numerous potential initiatives. But great companies choose the most impactful and execute them relentlessly. As such, we're anchoring Korn Ferry around initiatives that will continue to drive opportunity in the months ahead. Number one, we're executing a major account strategy that represents about 36% of our portfolio. The program includes 350 marquee and regional global accounts, generating almost a billion dollars in revenue on the current run rate basis. And that strategy is key to maintaining scalable and durable revenues. Secondly, we're driving an integrated go-to-market strategy, One Corn Ferry, which delivers almost 30% of our revenue from cross-line of business referrals. Our consulting and digital capabilities represent 38% of our firm. We're going to continue to invest in these areas to expand our suite of technological and digital capabilities. And we're also excited about the potential of our new interim business with about 200 million of annual run rate on a current basis. Then that includes our most recent investment in Infity Consulting Solutions last month. And we really welcome them to the Korn Ferry family. You know, given the labor imbalances that exist and the career nomad trend, as people change jobs more frequently, we continue to pivot toward bringing our interim capabilities to market. We also see growth opportunities around a focus on sales effectiveness and bolstering tech upskilling in the marketplace. ICS has a heavy focus on technologists. and our firm is working on a digital platform to upskill technology professionals. Lastly, we're going to continue to execute a balanced, disciplined approach to capital allocation. Times of great change can bring great opportunity. We're going to remain relentlessly focused on meeting the involving needs of our clients as they rethink all aspects of their strategy, their organizational leadership and talent components, needed to drive success. This includes specialized offerings in learning and professional development for these times. While cycles will continually change, the long-term premium on people endures. Strategy without talent is helpless, and talent without strategy is hopeless. Korn Ferry is the firm that helps clients drive performance through synchronizing their organization their strategy, and their people. I'm joined this morning by Greg Kowalczyk and Bob Rozak. Bob, I'll turn it over to you.

Great. Thanks, Gary, and good afternoon or good morning, depending where you are in the world. Secular drivers are reshaping the world of work and continue to drive our business forward. Even in today's uncertain economic environment, Global labor markets continue to be dislocated, challenged by shortages of skilled talent, and it really drives companies to seek new and innovative ways of finding, engaging, developing, and retaining their workforce. Our strategy capitalized on these drivers. An example of this is our timely diversification into interim talent solutions that Gary just spoke about. We're helping our clients with their increased need for finding quality talent, which in today's times of labor shortages is both permanent and interim positions. Today, more than ever, our broad collection of integrated talent management solutions anchored in a common set of proprietary intellectual property are perfectly aligned with the needs of the market. Now, this ever-growing relevance uniquely positions us to partner with with our clients to find bonafide business solutions to today's most difficult talent issues. Remember, as I've said in the past, no company has ever navigated through uncertain times or solved a sticky business issue without the help of people. And that's where we come in. Our services and solutions enable people and organizations to exceed their potential. We continue to thrive in today's economy And our results for the first quarter of fiscal 23 illustrate the power of our strategy and our relentless focus on execution. In the first quarter, fee revenue grew to $696 million, which was up $110 million, or 19% year over year, and that was up 24% at constant currency. Every line of business grew year over year in the first quarter, led by professional search in interim, which was up 101%, RPO, which was up 37%, and consulting, which was up 18%. Now, all of that's at constant currency. Consolidated new business, excluding RPO, was also up in the first quarter, with year-over-year growth in nearly every line of business. By month, new business was good in May, strong in June, but was followed by a slower July. RPO new business remained exceptionally strong in the first quarter with another $149 million of new contracts. An interesting note, synergies between our professional search and interim, which includes obviously our recent acquisitions, with our other lines of business continues to remain strong as the cross-line of business referrals actually increased the professional search and interim new business by almost 18% for the quarter. Now, our digital new business was lighter than expected. You know, for the eight prior quarters, digital averaged about $10 million per quarter in large deals, with large being defined as those over $1 million. Going into the quarter, digital had a strong pipeline of large deals, but only $2 million in large deals closed in the quarter. The pipeline for large deals remains very strong, and we expect to return to historical levels of deal closings. Higher revenue and disciplined cost control continue to drive earnings growth. Adjusted EBITDA grew $11 million, or 9% year-over-year, to $132 million with an adjusted EBITDA margin of 19%. Our earnings and profitability in the first quarter were impacted by both investment spending for new hires as well as promotion pay raises. These investments in our colleagues are important to drive future growth and to keep our colleagues engaged and motivated. Our adjusted EBITDA margins were also impacted by our continued investment in interim businesses, which carry a slightly lower post-synergy adjusted EBITDA margin but really offer us significant opportunities to capture outsized rates of fee revenue growth. And finally, our adjusted diluted earnings per share grew 13 cents or 9% year-over-year to $1.50. Our investable cash position remained strong. At the end of the first quarter, cash and marketable securities totaled about $897 million. Now, excluding amounts reserved for deferred comp arrangements and accrued bonuses, our global investable cash balance at the end of the first quarter was approximately $600 million. and $14 million. You heard Gary talk about our capital deployment and how that continues to be well-balanced. In the first quarter, we repurchased about 370,000 shares of our stock, using about $22 million, paid a cash dividend of approximately $7 million, and we funded about $17 million of capital expenditures, most of which was directed toward development initiatives for our digital business. And as we previously announced, we deployed about $100 million in capital with the acquisition of Infinity Consulting Solutions, or ICS, and we did that on August 1st, the first day of our second quarter. With that, I'm going to turn the call over to Greg to review our operating segments in more detail.