Korn Ferry

ladies and gentlemen thank you for standing by and welcome to the corn ferry third quarter fiscal year 2025 conference call at this time all participants are in 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 cornferry.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 meeting 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 2024 and the company's soon-to-be-filed quarterly report for the quarter ended January 31, 2025. Also, some of the comments made 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.

Okay, thanks, Rob, and good afternoon. Thanks for joining us. The team is going to get into our results in more detail, but overall, our execution has been outstanding. Korn Ferry drives our clients' organizational performance, and we continue to see demand for organizational and workforce transformations that are larger in scale and scope. In the quarter, we won significant transformation engagements, including a global energy company spanning 60,000 employees and wide-reaching leadership programs covering thousands of employees, one of the world's largest employers, as well as a leading global insurer. These engagements are meant to drive strategic transformation and find large post-merger integration solutions at a number of global household brands. These are just to name a few, but clearly illustrate the breadth and scale of today's Korn Ferry and demonstrate the power of our business and the strength of our diversification. We do enable people and organizations to be more than. Clearly, the macroeconomic environment for consulting services has been less than ideal for the last eight quarters. But when one examines the durability of our consolidated revenue, it is very clear that our strategy is definitely working. The broadness of our solutions counterbalance each other, providing a durable growth foundation for tomorrow, not to mention the higher levels of profitability and balanced approach to capital allocation. And we're raising our dividend to shareholders. This diversification was evident once again during the quarter. with total firm new business, 13% of cooking, driven by the Americas and EMEA. When one taps Google Earth, tomorrow's macro environment will be encircled by a lent supply-demand imbalance, requiring companies to reimagine and reskill their workforce, deploy, develop, promote, and retain talent. as well as embrace technologies that bridge that labor imbalance, all of which presents tremendous opportunity for Korn Ferry. Our strategy has indeed taken hold. We are purposefully aligning our capabilities in larger addressable markets. As a firm, we are now a more versatile provider of wide-ranging organizational and talent solutions. This evolution has changed the fundamental composition and scale of our business as we drive more sustainable, large-scale client engagements. Proof positive, our marquee and diamond accounts now represent 39% of our portfolio, and nearly all of our marquee clients are benefiting from at least three of our solution areas. The breadth, depth, and scale of our firm, expertise, and offerings puts us in a category of one, and we are well positioned for the future. We are a firm driving opportunity through a team-based client management approach, yielding substantial client engagement. An organization with an immense cache of IP and insights, a brand that has incredible license, operating at the highest level of global organizations as we enable people and organizations to be more than. and a business that has grown in current and adjacent verticals, further reducing our overall volatility and generating more predictable, visible, and recurring revenue. Validating the confidence we have in our business and our positive outlook for future earnings and cash flow, we will increase our quarterly dividend to 30%, which is the sixth increase in our dividend in the last five years. We are well on our way to becoming the undisputed leader, empowering organizational performance through talent. By steering into the turn, we've aligned our business strategy, operations, and talent to drive performance and deliver meaningful impact and measurable results for our clients. With that, I'll now turn it over to Bob.

Okay, good morning, good afternoon, everybody. We are pleased with our results for the third quarter, which exceeded our expectations and really demonstrate the power of integrating our rich and unique IP data and content into solutions that drive organizational performance through talent. The unique value our firm provides is really realized when we align and collaborate, when we show up as and we are Corn Fairy. In the third quarter, we continue to see a positive inflection in executive search and RPO growth, And our profitability remains strong with year-over-year growth in adjusted EBITDA margins in all solutions. Now turning to company-wide highlights. Fee revenue in the third quarter was $669 million. That's a 2% year-over-year increase at constant currency. Our earnings and profitability continue to grow. Adjusted EBITDA increased 13% year-over-year to $114 million. Adjusted EBITDA margin increased by an impressive 190 basis points year-over-year to 17.1%, and adjusted EPS increased 11% year-over-year to $1.19. As Gary discussed, total company new business grew 13% year-over-year at constant currency, and that included $210 million of RPO new business, of which 65% was generated from new logos or new clients, which is really important to fuel future growth. Excluding RPO, new business in the third quarter was up 1% at constant currency with particular strength in EMEA. We continue to diligently execute our go-to-market activities. Marquee and diamond accounts remain strong, very strong, at 39% of our total consolidated fee revenue. Our cross-solution referrals also held strong at 25% of total consolidated fee revenue. And we continue to see success with the integration of our recent interim acquisitions, achieving now close to 1,100 cross-referrals into or from interim since our first acquisition in 2021. As we signaled in our Q2 earnings call during Q3, we began to ramp up our investment hiring, bringing on almost 25 new fee earners in the quarter. Last, we continued our balanced approach to capital allocation. During the third quarter, we invested back into the business, spending approximately $45 million on the Trilogy acquisition. We also used about $18 million on share repurchases, and we paid $19 million in dividends. Year to date, we have repurchased slightly over 1 million shares, or about 2% of our outstanding share count, and returned $133 million to shareholders through both repurchases and dividends. And as Gary mentioned earlier, we are increasing our quarterly dividend by 30%. As you said, the sixth dividend increased in the last five years. Now let me turn to some of the highlights by solution area. Starting with consulting, our new business was $187 million, up 2% at constant currency. Our engagements greater than 500,000, so those are our larger engagements. represented approximately 41% of new business in the third quarter. And that's up from 32% last year third quarter. Our hourly bill rate climbed 5% year-over-year to $461 per hour. And profitability remained strong with an adjusted EBITDA margin of 17.7%. And that's up 100 basis points year-over-year. Fee revenue for digital was $91 million. That's up 3% in constant currency. with 39% of total fee revenue generated from subscription and licenses, and that compares to about 36% a year ago. Profitability remains strong there as well, with an adjusted EBITDA margin of 31.3%, and that's up 100 basis points year over year. Executive search fee revenue grew 4% at constant currency to $205 million, with growth in three of the four regions, most notably in North America, Our consultant productivity increased 7% year-over-year to approximately 1.5 million annualized per consultant, and profitability was strong with an adjusted EBITDA margin of 25%, up 320 basis points year-over-year. Professional search and interim new business and fee revenue continued to stabilize and were flat year-over-year at constant currency. Our interim average hourly bill rate and PERM placement consultant productivity remained strong at $129 per hour and $650,000 annualized per consultant, respectively. Profitability was also strong with an adjusted EBITDA margin of 21%, and that's up 280 basis points year over year. Finally, RPO fee revenue grew 6% to $85 million in the third quarter. Fee revenue under contract accelerated sharply higher to $752 million, and about 42% of that is estimated to be recognized in the next four quarters. RPO profitability was also strong with an adjusted EBITDA margin of 15%, and that's up 360 basis points year over year. To summarize, we're encouraged by our third quarter results and expect this momentum to carry into the fourth quarter. Turning to our outlook for the fourth quarter of fiscal 25, assuming no further changes in worldwide geopolitical conditions, economic conditions, financial markets, and foreign exchange rates, we expect fee revenue in the fourth quarter of fiscal 25 will range from $680 million to $700 million. Our adjusted EBITDA margin to remain approximately 16.8% to 17%. Our consolidated adjusted diluted earnings per share range from $1.22 to $1.30, and our gap diluted earnings per share to range from $1.20 to $1.28. Now let me end the way we began. We have been and will continue to operate in an uncertain macroeconomic environment. As always, we'll continue to be focused on operating excellence, and based on the results of our third quarter and our fourth quarter outlook, it is very clear that our strategy is working. As I've said in the past, I truly believe our best days lie ahead of us. With that, we would be glad to answer any questions you may have.