Korn Ferry

Ladies and gentlemen, thank you for standing by and welcome to the Korn Ferry first quarter fiscal year 2026 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 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 under-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 2025 and in the company's soon-to-be-filed quarterly report for the quarter ended July 31, 2025. 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 measures, 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. Thank you, Regina, and thanks to everybody for joining us. I'm really, really pleased with our performance in the quarter. The team's going to get into the results in a little bit, but when I look at the results, even over the past few quarters, with all the choppiness, the uncertainty around tariffs, the labor and economic environment, it's clear that our strategy is working. In fact, when you consider our diversification strategy and the current and future demographic trends alone, the opportunity is immense. And I think that's evidenced this quarter by the growth in all of our solutions. And today we're driving performance with a far more sophisticated, holistic approach that delivers our expertise and robust IP through integrated solutions in every region of the world. In the quarter, we won a number of notable engagements. I'll highlight a couple. A top pharma company with over 20,000 employees where we're building a globally aligned leadership team, helping them foster a culture of innovation and streamline talent development across regions. It's part of a multi-year engagement or a FTSE 100 retailer where we're now the exclusive assessment provider across all levels of the organization. using our consulting-led assessments and our digital at-scale solutions, with the ambition to deliver our capabilities from the shop floor to the boardroom. And finally, a top provider of HR management software, where we're going to deliver a subscription-based digital solution, a global leadership offering that includes content, instructor-led materials, micro-learning, And more, and that complements a consulting engagement that includes leadership assessments and coaching. And these are just, you know, three examples of how we're integrating multiple solutions to create enduring client partnerships. We also continue to make measured capital investments that extend our offerings and solutions and expand our impact with clients. And a case in point is TalentSuite. which offers seamless integration of proprietary IP and data and talent applications into one digital SaaS platform, which enables our clients to make better hiring decisions, structure their organizations, assess, develop, and reward their talent. In other words, Talent Suite enables clients to unlock human and organizational potential at scale. Our evolution towards large-scale, multi-solution client engagements is real as we change the fundamental composition and scale of our business. And when I just look at the tail of the tape, today we have loyal, repeatable clients of scale, marquee and diamond accounts generating almost 40% of our revenue, a 10-year revenue CAGR of 10%. driven by an expanding set of diversified solutions. We have strong top-line synergies with 25% of revenue generated from cross-solution referrals. Clearly, this diversification is driving resilience and durability in our business and contributing to sustained shareholder value, and that's evidenced through our balanced capital allocation strategies. which includes six dividend increases in the last five years and a demonstrated track record of M&A and share repurchases. I'm optimistic, truly optimistic, about the trajectory of this firm and, more importantly, the impact we're making. We have a strong foundation with incredible brand permission that is fostering deep client relationships. We have relevant, diverse, scaled, and increasingly more integrated solutions that are even more closely aligned with the talent needs of our clients. And through our disciplined approach, I'm confident we are poised and well-positioned for the future. With that, Regina, I'll now turn it over to Bob. Bob, it's all yours.

Great. Thanks, Gary, and good morning, good afternoon, depending on where you're at. The global business environment over the last quarter remained extremely uncertain, with many lingering economic challenges keeping investment spending cautious. You know, unresolved tariff issues added to ongoing geopolitical tensions, readings on inflation caused uncertainties as to whether interest rates would remain higher for longer. And despite the impact of these uncertainties on business sentiment, our clients continue to see the impact and value of our services and solutions. Our financial results for the first quarter of fiscal 26 remain strong, providing further proof that our integrated business strategy, which is really diversified across industries, geographies, and solutions, is working. In fact, the current economic environment has created opportunity for Korn Ferry to really strengthen our client relationships and continue becoming a trusted global partner of choice, helping our clients solve complex talent and organizational performance challenges. And today we're helping our clients resolve these challenges with both our skilled workforce and our proprietary data and IP, which is really a product of decades of behavioral science research. Additionally, we focus our efforts to sell larger, more integrated solutions via our We Are Corn Fairy go-to-market strategy. We're paving the way for stronger, more durable long-term growth. I'm also pleased to share that we remain on track for the market launch of our new Talent Suite platform that Gary referenced this November. Talent Suite will enable our consultants and clients to more easily derive and prioritize insights across our multiple talent products using client data, our own proprietary data, and select third-party data to help them make better, more insightful talent decisions. Now, in addition to the detailed results found in our posted earnings presentation, I just want to go over a couple of company-wide solution-specific highlights for the first quarter. As Gary mentioned, the marketing diamond accounts remain strong at almost 40% of our consolidated fee revenue. And that program delivered a little better than 7% fee revenue growth when you look at it year over year. Our cross-solution referrals also remained strong at 25% of our consolidated fee revenue. Executive search fee revenue also remained strong, growing 8% in the quarter. And that's our fifth consecutive quarter of year over year growth in that solution area. Professional search and interim fee revenue was up 10% year over year. with growth in both professional services per emplacement plus 5%, and interim was up 14%. Our digital subscription and licensed new business grew 10% year over year in the first quarter, and with 39% of total digital new business, and that's going to continue to add stability and predictability to our overall revenue base. And last, our average bill rates in consulting and interim both grew year over year, consulting by 9%, and interim by 4%. Now, turning to company overall results, our consolidated fee revenue grew 5% year-over-year to $709 million, which is a second consecutive quarter of positive growth. Earnings and profitability also continued to grow. Adjusted EBITDA grew 9 million, or 8% year-over-year, to $120 million. Adjusted EBITDA margin grew 50 basis points year-over-year to 17%, and our adjusted diluted earnings per share grew 13 cents or 11% year-over-year to $1.31. Total company new business excluding RPO grew 5% year-over-year, led by strength in EMEA and APAC. Our RPO delivered $99 million of new business in the quarter, 46% of that came from new logos, 54% from renewals, and the renewals included one large financial institution at $32 million. Estimated remaining fees under existing contracts also remain strong in the first quarter. Now as a reminder, this operating metric that we introduced last quarter is the quarter ending estimated fees under existing contracts to be recognized in future periods. At the end of the first quarter, This amounted to $1.67 billion, which was up 9% year-over-year. Of this amount, we expect approximately 58% or $972 million will be recognized as fees within the next year and 42% or $702 million to be recognized thereafter. Now, turning to our regional results, fee revenue in the Americas was down 2% year-over-year with growth in executive search and RPO being offset by slightly lower demand in consulting, digital, and professional search in interim. EMEA fee revenue was strong, growing 19% year over year, and we saw growth in all solutions. APAC fee revenue was also strong, growing 12% year over year, also with growth in all solutions. And finally, our capital allocation in the first quarter remained balanced. as we returned $36 million to shareholders through combined share repurchases and dividends, and we invested $22 million in capital expenditures focused on TalentSuite, our new technology platform, as well as productivity tools and other product enhancements. Now, turning to our outlook for the second quarter of fiscal 26, assuming no further changes in worldwide geopolitical conditions, economic conditions, financial markets, and foreign exchange rates, we expect fee revenue in the second quarter of fiscal 26 to range from $690 million to $710 million, our adjusted EBITDA margin to range from approximately 17% to 17.5%, and our consolidated adjusted diluted earnings per share to range from $1.23 to $1.33. Finally, we expect our gap-diluted earnings per share in the second quarter to range from $1.10 to $1.16. Now, I'd like to note that our gap-diluted earnings per share includes approximately $10 million, or 14 cents per share, of accelerated depreciation, and that's related to our current product technology platform, which will be sunsetted as the Talent Suite is commercially launched at the beginning of the third quarter. We remain committed to controlling what we can control, leaning into identified growth opportunities, and driving operational excellence. We will continue to promote a culture of innovation and remain focused on delivering outstanding client service. Korn Ferry is a global consulting firm that powers client performance. We're focused on improving our go-to-market efforts, engaging with our clients as one firm. We are Korn Ferry. We are well positioned for the next step in our growth, and I'm more confident and excited than I've ever been about what this company can become. With that, we would be glad to answer any questions you may have.