Korn Ferry

Ladies and gentlemen, thank you for standing by and welcome to the Korn Ferry second 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 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 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 October 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.

Okay. Thanks, Regina, and thank you, everybody, for joining us. You know, in the quarter, our performance was outstanding. I'm really proud. Proud of our firm, our colleagues, and our purpose. We enable people and organizations to be more than. Talent is everything. It's a universal need, and that's our business. We're a household brand. We're seen by millions of people around the world. And we have incredible permission to make an impact in the world, which is currently defined by digitization and economic fluctuation. Today, organizations require more than static strategies. They need the ability to adapt, align, and act. Our firm sits at the intersection of these opportunities, unlocking the potential in people, and organizations, synchronizing strategy, operations, and talent to accelerate performance, fuel growth, and inspire a legacy of change. At the heart of our strategy is client centricity. You know, here's just a few examples in the quarter where we've integrated multiple solutions to create enduring client partnerships. One of the largest commercial real estate services companies is partnering with us to secure a contract to build and manage multiple AI data centers for a major tech company. We're providing RPO and total rewards to make hundreds of hires per year. A major university in the United States is opening a new hospital, and we're developing a comprehensive talent strategy to bring in hundreds of physicians and other professionals. A global consumer company with over 150,000 employees, we're assessing and developing leaders to ensure they're equipped to drive enterprise-wide digital and AI transformation. I mean, those are just a few examples and it's, you know, clearly now today, You know, the larger, the more recurring relationships we have really pays off for not only our clients but our shareholders. And now as we begin another calendar year, we're going to lean even more heavily into our collected We Are Corn Fairy strategy. Our go-to-market efforts, our marketing initiatives, And our solution orientation in all of our organization is indexing more heavily into one business, not five segments. Clearly, the strategy is working, driving resilience and durability in our business. And I'm really confident that we are incredibly well-positioned employees for a tremendous 2026. With that, I'll turn it over to Bob. Bob, go ahead.

Great. Thanks, Gary. Good afternoon or morning, depending where you're at. In the second quarter, our financial and operating results continue to improve. We posted our fourth consecutive quarter of accelerating growth, which serves as a continuing proof that the intentional execution of our strategy to transform Korn Ferry is succeeding. In today's uncertain business environment, There has never been a greater need for talent, and that's exactly where we come in. We built an organization to fulfill the comprehensive talent needs of our clients. We've deliberately expanded our areas of expertise in the human capital solutions where our people, enabled by technology and our foundational assets, are uniquely positioned to help our clients drive their business performance. We continue to evolve the integration of our colleagues and solutions to enhance how we address our clients' challenges and changing needs. Now, looking more broadly at the company's financial performance over the quarter, we continue to demonstrate our ability to successfully execute our strategy in a low visibility and uncertain business environment. We have been on a deliberate journey to build a more durable, and stable base of fee revenue and profitability, and at the same time provide additional value and impact for our clients. And now with the go-live of our new talent suite technology platform this past November, we are in an even better position to leverage our foundational assets to lean into our collective go-to-market efforts as a holistic talent partner, as Gary mentioned, as one business. In addition to the detailed results found in our posted earnings presentation, I'm going to go through a few company-wide and solution-specific highlights for the second quarter. Our business referrals grew to 27.6% of consolidated fee revenue, up approximately 250 basis points, both year-over-year and quarter-sequential, demonstrating early signs of progress driven by our WeAre contrary go-to-market evolution. Estimated remaining fees under existing contracts increased to $1.84 billion. Now, that's up 20% year-over-year, led by strong new business in RPO. Executive search fee revenue remained strong, growing 10%. Now, that's the sixth consecutive quarter of year-over-year growth. Professional search and interim fee revenue was up 17% year-over-year, with growth in both professional search plus 7% and interim, including the Trilogy acquisition, at 24%. Our subscription and licensed new business continued on a positive trajectory, growing to 43% of digital's new business for the quarter. And last, hourly bill rates in consulting and interim remained strong, at $460 and $142 an hour, respectively. Now I'm going to turn to overall company results. Consolidated pre-revenue grew 7% year-over-year to $722 million. Earnings and profitability also remained strong. Adjusted EBITDA grew $8 million or 7% year-over-year to $125 million. Adjusted EBITDA margin was strong at 17.3% and adjusted diluted earnings per share grew 12 cents or 10% year-over-year to $1.33. Total company new business excluding RPO grew 4% year-over-year led by strengthened EMEA and RPO delivered $253 million of new business in the quarter with 16% coming from new logos and 84% from renewals. As I mentioned previously, estimated remaining fees under existing contracts at the end of the second quarter were $1.84 billion, of which we estimate approximately 57% or $1 billion will be recognized within the next year, with the remaining 43% or close to $800 million estimated to be recognized beyond the next four quarters. Turning to our regional results, Fee revenue in the Americas was up 3% year-over-year, led by executive search and RPO. EMEA fee revenue continued to be strong, growing 20% year-over-year, with growth in executive search, professional search in interim, consulting, and digital. APAC fee revenue was flat, with moderate growth in exec search and pro search in interim, offset by slight declines in RPO, consulting, and digital. And finally, our capital allocation during the quarter remained balanced. Through the end of the second quarter, we returned almost $70 million to shareholders through combined repurchases and dividends, and we invested $43 million in capital expenditures focused on talent suite, productivity tools, and other solution and product enhancements. Now, turning to our outlook for the third quarter of fiscal 26th, Assuming no further changes in worldwide geopolitical conditions, economic conditions, financial markets, and foreign exchange rates, and recognizing the year-end holidays, we expect fee revenue in the third quarter of fiscal 26 will range from $680 million to $694 million. Our adjusted EBITDA margin to range from approximately 17.2% to 17.4%. and our consolidated adjusted diluted earnings per share to range from $1.19 to $1.25. And finally, we expect our gap diluted earnings per share in the third quarter to range from $1.15 to $1.21. I'm excited about the next step in our go-to-market evolution. We are Korn Ferry, with a real focus on becoming the holistic talent partner for our clients. At the same time, we remain committed to controlling what we can, leaning into identified growth opportunities, and driving operational excellence. We remain well-positioned to drive long-term, profitable, and sustainable growth by using our foundational assets to deliver expanding and differentiated solutions to our clients. I'm more confident and excited than I have ever been about what this company can become. With that, we would be glad to answer any questions you may have.