Korn Ferry

Ladies and gentlemen, thank you for standing by and welcome to the Korn Ferry fourth 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 in the periodic and other reports filed by the company with the SEC including the company's soon to be filed annual reports for fiscal year 2026. 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 cornferry.com. With that, I'll turn the call over to Mr. Burnison. Please go ahead, Mr. Burnison.

Okay, thank you, Sarah, and thank you, everybody, for joining us. I'm going to let our team walk through the numbers, but our quarterly performance was outstanding. It marks our fifth consecutive quarter of top-line growth, underscoring the strength of our strategies. But let me first reflect on a moment. On these calls, I used to talk about opportunities measured in the hundreds of millions of dollars. Today, I think in terms of opportunities measured in the billions, far beyond where we are today. In leadership, we spend a lot of time talking about the what, the how, and the when. Too often, though, the why and the who get overlooked. Despite all of Korn Ferry's success and evolution, our why has never changed. Enabling people and organizations to be more than. And I was reminded of that a few months ago while I was traveling in the Midwest. And out of nowhere, I heard the sound of a train horn, which I hadn't heard in years. It wasn't the sound that struck me. It was that feeling. In an instant, I was taken back to where I was raised, where trains ran next to our house. And that moment healed back the years and made me reflect about the essence of who we are and what we do. And as I think about the corn theory of today, this image feels particularly relevant. We're at the intersection of a present that feels far different than our past and a future that will even be brighter than today. That's why our foundational head mark is evolving from one Korn Ferry to We Are Korn Ferry. And We Are Korn Ferry begins with deep client centricity and expanding the breadth of our solutions we deliver within every client relationship. And there are just a few examples during the quarter of the Fortune 50 tech company that turned to us to accelerate their sales organization, or a global professional services firm to look to us as their sole source of interim technology talent. I mean, I could go on and on and on, including in the quarter we won a number of substantial RPO engagements spanning multiple industries, across all three regions. And when we take a client-centric approach and we leverage our relationships across geographies and deliver impact with the totality of the firm, we build sustainable relationships of scale. Over the last several months, I've looked in the mirror. and realize that what got us here by itself is not what will get us there. To reach our destination, we need to shift our mindset. That's when our whole becomes bigger than the sum of our parts. As such, I want our industries to be accelerators, our solutions to be innovators and enablers, and our geographies to be the integrators. And so starting in this quarter, Q1, our external reporting segments are going to be reflected through a regional lens of the Americas, EMEA, and APAC. And our solution-level detail will be provided in three categories. Search, comprised of executive and professional search. Talent and organizational solutions, comprised of digital and consulting. And finally, workforce solutions comprised of RPO and interim. These categories serve our clients across the entire talent continuum. Search is about identifying talent. Workforce solutions is about scaling talent. And talent and organizational solutions is about unlocking potential. Grouping our solutions like this more accurately reflects how work gets done today, and orients our services to the competitive landscape and the way the clients buy these solutions. I'm confident that amid all the changes in the world today, it can also be the best environment where good companies become even greater, aligning to opportunities ahead. I'm also incredibly proud, enormously proud of our colleagues around the world Their expertise and passion are the catalyst as we change people's lives, unlock the potential in people, and unleash transformation across organizations. With that, I'll turn the call over to Bob. Bob, go ahead.

Great. Thanks, Gary, and good afternoon and good morning, everybody. You know, I would be remiss if I didn't start by saying thank you to all the colleagues Gary was just referring to as fiscal 26 was another outstanding year for Korn Ferry. Despite uneven market conditions, uncertain macro environment, we achieved a new fee revenue high and delivered very strong earnings. We continue to skillfully execute our We Are Korn Ferry go-to-market strategy, integrating our intellectual property data along with our consulting capabilities to drive enterprise-wide results for our clients. We continue to demonstrate how we're different, and we are different, growing for the fifth consecutive quarter while others in the industry continue to contract or just perform less worse. Our results demonstrate the resilience and effectiveness of our strategy and the benefits of our diversified business model. We continue to evolve into a comprehensive, organizational and talent solution partner for all of our clients. We perform differently because we're not simply a monoline transactional business. We're a diversified data and IP-driven talent advisory with multiple synergistic revenue streams and growing earnings power. Now let me turn to our Q4 performances. This will be in addition to the detailed results in the earnings presentation that we posted. I'm going to provide you a couple of company-wide and solution-specific highlights for the quarter. So for Q4, our ending estimated remaining fees under existing contracts grew 10% year-over-year to almost $1.9 billion, with growth in every solution. Our business referral rate increased to 29.1% of consolidated fee revenue in the fourth quarter. It's up by about 320 basis points. And our marquee and diamond account penetration remains strong at 40% of our consolidated fee revenue. Now, both these metrics really demonstrate the effectiveness of our We Are Korn Ferry go-to-market strategy. Executive search grew 7% in the fourth quarter, and has now grown for eight consecutive quarters. Professional search and interim fee revenue was up 14%, with 17% growth in professional search and 12% growth in interim. Our interim solution continues to perform better than other industry players, driven by both strong business referrals and expanding bill rates. Digital subscription and license fee revenue was up 10% year over year. And last, our consulting fee revenue grew 7%, driven by an increase in larger engagements and stronger bill rates. Now let me turn to overall company results. For the full year, fee revenue was about $2.9 billion, up 7%. We delivered close to $500 million in adjusted EBITDA, also up 7%. Adjusted EPS of $5.28, which was also up 8%. Focusing on the fourth quarter, we grew for the fifth consecutive quarter, as Gary mentioned, with consolidated fee revenue up 7%, reaching $760 million. Earnings and profitability also remained strong. Adjusted EBITDA grew 8 million, or 7%, to $130 million, Adjusted EBITDA margin remained very strong at 17%, and adjusted diluted earnings per share grew 8 cents, or 6%, to $1.40. Total company new business grew 2% when you exclude RPO, 4% when you include it. The RPO business itself won $137 million of new business in the fourth quarter, and 74% of that came from new logos. As I previously mentioned, estimated remaining fees under existing contracts at the end of the fourth quarter were almost $1.9 billion. 57% or about $1 billion of that is projected to be recognized within the next year, and the remaining 43% or $800 million or so is going to be recognized beyond the next four quarters. Looking at our regional results, fee revenue in the Americas up 8%. with strength in exec search, pro search in interim, and RPO. EMEA fee revenue also grew 8% with strong growth in consulting and professional search in interim. And our Asia PAC fee revenue was kind of flat year over year. Finally, we continued to maintain a disciplined approach to capital allocation. In the fourth quarter, we purchased 1.24 million shares using approximately $78 million. Now, if you remember, When we talked on our last earnings call, we said we're going to lean more heavily into buybacks, and that's exactly what we did. For all of fiscal 26, we returned $221 million to shareholders through the combination of share repurchases and dividends, invested $85 million into CapEx for the development of TalentSuite and the delivery of other productivity tools for other solutions. Now turning to our outlook for the first quarter of fiscal 27, assuming no further changes in worldwide geopolitical conditions, economic conditions, financial markets, foreign exchange rates, we expect fee revenue to range from $725 to $745 million, our adjusted EBITDA margin to be right around 17%, and our consolidated adjusted diluted earnings per share to range from $1.32 to $1.38. Now, before I conclude, as Gary mentioned earlier, the company will continue to build on our We Are Korn Ferry go-to-market strategy. We expect this initiative to continue to drive deeper client penetration and industry-leading growth. Through this initiative, we are orienting more towards regions or our integrators, as Gary said. This will also result in a change to the company's financial reporting segments. As Gary mentioned, beginning in the first quarter of fiscal 27, our external reporting segments will transition from global solution-based presentation to three regional reporting segments, the Americas, EMEA, and APEC. The region segment results will include fee revenue and profitability through adjusted EBITDA, And then we'll continue to provide solution-level results for new business fee revenue and estimated remaining fees under existing contracts through the three solution groupings. Again, search, executive search and professional search, talent and organizational solutions comprised of consulting and digital, and workforce solutions comprised of RPO and interim solutions. We really believe this reporting structure better reflects how work is delivered across the firm, aligns much more closely with how our clients are actually buying our services, and better enables our We Are Korn Ferry operating model. Now, to assist folks in understanding the impact of these changes, The company will be providing recast supplemental unaudited information containing historical financial information for the three reporting segments following the filing of our Q1 FY27 10Q in September. In addition, our Q1 FY27 press release will reflect the new reporting segments and the investor presentation that we will post to our website will reflect both the new reporting segments and the selected financial data previously mentioned for our three solution groupings. Now, in conclusion, we continue to be extremely encouraged by the strength of our business, the progress we've made executing our strategy, and the continued trust our clients place in Korn Ferry. Our diversified portfolio, global scale, and integrated solutions position us well to navigate through any business environment. We are going to continue to invest in our people, our platforms, and drive our long-term growth opportunities. We remain focused on driving performance, delivering value to our clients and shareholders, and we look forward to continuing with industry-leading differentiated success in the year ahead. With that, we would be glad to answer any questions you may have.