Ladies and gentlemen, thank you for standing by and welcome to the Korn Ferry Second Quarter Fiscal Year 2024 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 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 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 of the SEC, including the company's annual report for fiscal year 2023 and in the company's soon-to-be-filed quarterly report for the quarter ended October 31, 2023. Also, some of the comments today may reference non-GAAP financial measures such as constant-currency amounts, EBITDA, and adjusted EBITDA. Additional information concerning those measures, including reconciliations to the most direct 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. With that, I'll turn the call over to Mr. Burnison. Please, go ahead, Mr. Burnison.

Okay. Good afternoon, everybody, and thank you for joining us and season's greetings. The team is going to get into this in more detail. But there is no doubt that the strategy is working. Despite a softer labor market, our results demonstrate the resiliency of our business. Through a marquee and regional account strategy, multiple talent product offerings, and cross-referring those solutions to our clients, we generated $704 million in fee revenue in the quarter, which was down about 3% year-over-year. Despite a persistent uneven economic environment, earnings and profitability held steady sequentially as we delivered a 14% adjusted EBITDA margin. We announced this morning that reflecting that we've got a much different company today and the confidence that we have in our organization, we increased our dividend by 83%. I'm proud of our firm and of our colleagues. We continue to develop increasingly relevant solutions in a rapidly-changing world. In particular, our consulting and digital businesses now generate almost 40% of our top-line. Digital achieved an all-time record revenue at constant currency during the quarter. To put all this in perspective, I want to take a step back for a moment. When I started with our firm, we were a $200 million company. Today, we generate several billion dollars in revenue. Our top-line today is about 40% higher than pre-pandemic levels. We're at the threshold of even greater opportunity. More importantly, we have the possibility of accelerating the trajectory of thousands of organizations. At the same time, we have to acknowledge that most of the business world is in the midst of a multi-quarter cyclical reset. The economic environment will continue to be challenging in the months ahead. Countries have been transitioning from almost three decades of cheap money to substantially higher interest rates. This reset will require companies and our clients to not only adapt, but adjust, optimize, and innovate, which creates opportunity for Korn Ferry. We have a proven track record of accelerating through many economic terms. The crucial aspect is breaking before the turn and accelerating through it. In times like these, that's how great companies make their best moves, and Korn Ferry is a great company. Our vision to become the premier organizational consulting firm and our diversification strategy continues to positively influence our performance. We have a household brand operating in every major geographic region of the world with world-class IP and talent, unparalleled client access, and a pristine balance sheet, with substantial financial muscle. We power through cycles and are poised to seize opportunity with a three-point strategy: number one, optimize; number two, innovate; and number three, consolidate. I'll now turn the call over to Bob, who will cover all of this in more detail.

Great. Thanks, Gary, and good afternoon, or good morning. Similar to Gary, I'm very pleased with our performance this quarter. It clearly demonstrates that our broader diversification strategy and investment thesis continues to play out. Our consulting and digital businesses both grew year-over-year, and our recently acquired interim businesses were more durable than our permanent placement talent acquisition solutions. This intentional diversification into strategically aligned capabilities provides additional cross-line of business referral opportunities and more relevant and scalable solutions for our marquee and regional accounts. It also contributes to not only more durable fee revenues but to increased earnings stability, as shown in the company's sequentially stable adjusted EBITDA despite an increasingly complex and uncertain macroeconomic backdrop. I'm also pleased with our cost management as the company's adjusted EBITDA margin marked the second consecutive quarter of continued sequential improvement. Additionally, at the end of the second quarter, we took actions to right-size our workforce capacity to better align it with current business realities, as well as to take advantage of productivity gains we're realizing in this new world of work. These actions will help us to continue with our adjusted EBITDA margin improvement by driving approximately $110 million to $120 million in overall annual cost savings. Finally, and going back to the point Gary ended with, we do plan to continue to seize opportunities in the current environment with our three-point strategy, which includes optimizing, innovating, and consolidating. Let's start with optimize first. We're going to continue to drive productivity by leveraging our cost base. In fact, if you take Q2 of FY '24 and compare that to Q3 of FY '20, which was a quarter right before the pandemic, our fee revenue per employee is up 23%. If you were to pro forma a full quarter of the impact from our recent restructuring actions, it would actually be up 33%. Now let me turn to innovate. We will continue to build competitive advantages around our solutions and services using our proprietary data content and IP, which truly differentiates us from our competitors, who generally have to rely on third party data and insights. We are also actively embedding AI into our existing solutions and services to drive greater delivery efficiencies along with greater client impact. Last, we will continue with our investments to monetize our data content and IP through our digital business. Now I'll touch upon consolidate, where our efforts are going to be focused on continuing our investment in strategically aligned, less cyclical, faster-growing, larger addressable markets. With all of our recently acquired interim businesses now being fully integrated and the increasing relevance of our services and solutions in the world today, we will continue to leverage our existing client relationships, and our colleagues across all lines of business will drive top-line fee revenue synergies through expanded client penetration. Lastly, we will continue to expand our leadership and professional development business by replicating our success in delivering leadership coaching at scale across an increasing number of clients and leveraging this success into a broader leadership development outsourcing offering. Now let me turn the call over to Gregg, who will take you through some overall company financial highlights.

Okay. Thanks, Bob. In the second quarter, global fee revenue was $704 million, which was above the high end of our guidance range, and down 3% year-over-year, or down 5% at constant currency. By line of business, consulting and digital, which combined were approximately 40% of consolidated revenue, continued to be stable, each growing approximately 3% in the second quarter. For talent acquisition, permanent placement fee revenue continued to moderate from post-pandemic highs with executive search, RPO, and professional search down 17%, down 18%, and down 29%, respectively. Fee revenue in the second quarter for interim services was also more stable, down sequentially approximately $2 million, or 2%. Consolidated new business in the second quarter excluding RPO was down 3% year-over-year at actual FX rates, and down 4% at constant currency. Consulting new business in the second quarter was strong, up 10% year-over-year, driven by EMEA, which was up 34%. Digital new business was up sequentially in the second quarter, but down 15% measured year-over-year, due primarily to a strong fiscal Q2 which included several large contract wins. Similarly, RPO had a strong quarter with new business at $141 million. New business in the second quarter for executive search was down 10% year-over-year, and for professional search and interim was up 1% year-over-year. In line with guidance, second quarter earnings and profitability remained sequentially stable. Adjusted EBITDA in the second quarter was $99 million. And despite moderating fee revenue, strong cost control drove adjusted EBITDA margin to 14%, up 30 basis points sequentially. Finally, our adjusted fully diluted earnings per share in the second quarter were $0.97, down $0.46, or 32%, year-over-year. Adjusted fully diluted earnings per share excludes $70 million, or $1.01 per share, of restructuring charges related to the realignment of our workforce and acquisition integration costs associated with our recent acquisition. GAAP-diluted loss per share in the second quarter was minus $0.04. Our investable cash position at the end of the second quarter remained strong at $464 million. Through the end of the second quarter, we deployed $65 million of cash, using $28 million for share repurchases and dividends, $28 million for capital expenditures, and $9 million for debt service. Now, I'll turn the call over to Tiffany to review our operating segments in more detail.

Thanks, Gregg. Starting with KF Digital, global fee revenue in the second quarter was $97 million, which was up 3% year-over-year and up 1% at constant currency. Digital subscription and license fee revenue in the second quarter was $32 million, which was approximately 33% of fee revenue for the quarter and up 12% versus Q2 of last year. The strategy of multi-year subscriptions has created some resiliency in digital revenue as this quarter marked the near all-time high in fee revenue for the segment. Global new business for digital was $95 million, with $34 million, or 36%, of the total tied to subscription and license sales. Although the quarterly timing of larger new business projects is different than last year, the overall pipeline for digital remained strong as we head into the back half of our fiscal year. For consulting, fee revenue in the second quarter was $178 million, which was up approximately 3% year-over-year and up 1% at constant currency. Fee revenue growth was strongest in organizational strategy, which increased 19% year-over-year, and then assessment and succession, which grew 7% year-over-year. The average hourly bill rate continues to climb, now at $413 an hour, which is up over $42 an hour from just one year ago. Additionally, global new business for consulting in the second quarter was up 10% year-over-year, with continued double-digit growth in EMEA, resulting from large organizational strategy wins in the UK and Middle East. Total fee revenue in professional search and interim in the second quarter was $138 million, up $3.6 million, or 3%, versus Q2 of FY '23. Breaking down the quarter, year-over-year fee revenue growth was mostly driven by the interim business, which offset moderation in the permanent placement portion of this segment. Interim services fee revenue grew to $82 million, up from $55 million in the same quarter of the prior year, driven in part by the most recent acquisition. The average interim hourly bill rate has increased to an average of $126 per hour, up from $107 just one year ago. Permanent placement fee revenue declined by $23 million to $56 million year-over-year, down 29% at actual and down 30% at constant currency. The professional search and interim new business increased 1% in the quarter compared to last year, driven by growth in EMEA and aided by the most recent acquisition. Moving on to recruitment process outsourcing, new business for the second quarter was $141 million, comprised of $53 million of new logos and $88 million of renewals. And total revenue under contract at the end of the quarter was approximately $681 million. Fee revenue totaled $88 million, which was down $20 million, or 18% year-over-year and down approximately 20% at constant currency. Fee revenue is impacted by a moderation in hiring volume in the existing base of contracts. We see this slowdown as transitory and believe RPO is well-positioned to benefit when hiring returns to more normalized levels in the base and the larger recent wins begin converting to revenue at their full contract value. Although the quarterly new business can be choppy at times, the pipeline remains strong as RPO continues to win new business with a differentiated service offering in the marketplace. Finally, global fee revenue for executive search in the second quarter was $203 million, and as expected, experienced a year-over-year decline of 9% at constant currency, compared to the accelerated growth rate during the pandemic recovery last year. Demand continued to moderate across most regions with the exception of Latin America. Global new business in the second quarter for executive search was down 10% year-over-year and down approximately 11% at constant currency. I will now turn the call back over to Bob to discuss our outlook for the third quarter of fiscal '24.

Great. Thanks, Tiffany. November new business came in line with our expectations and the normal seasonal patterns. Assuming no new major pandemic-related lockdowns or further changes in worldwide geopolitical conditions, we expect fee revenue in the third quarter of fiscal '24 to range from $645 million to $665 million, our adjusted EBITDA margin to improve to approximately 15%, and our consolidated adjusted diluted earnings per share to range from $0.96 to $1.02. Finally, we expect our GAAP-diluted earnings per share in the third quarter to range from $0.87 to $0.95. Now, in closing, as I look across the organization, we're extremely well-positioned in terms of what the world is looking for. Everything today is about talent. There's a war for talent. Companies are looking for better talent, different talent, talent with IT skills and so on. The collection of our IP data and content woven through our core and integrated solutions really creates a unique and symbiotic ecosystem of service offerings that touch every aspect of an employee's engagement with his or her employer. We're the only company in the world that has this collection of IP data, content, and assets. It really gives us a great platform to help our clients synchronize their strategy and talent to drive superior performance and concrete change, coming out stronger on the other side. With that, we would be glad to answer any questions you may have.

One moment, please, for the first question. The first question comes from George Tong with Goldman Sachs. Please, go ahead.

Hi. Thanks. Good morning. New business excluding RPO inflected through a decline in the quarter, but it looks like November is following normal seasonal patterns. Can you talk a little bit more about new business trends that you saw by month during and exiting the quarter and if November trends suggest that we essentially formed a bottom in terms of new business?

The new business trends over the last five months have been pretty flat. That's number one. It does appear that search has stabilized, particularly, taking a look at even the last four quarters. October was substantially better than September, which we would expect, and November came in, which is a seasonal month, and it came in exactly where we thought. So, it's been fairly consistent in terms of trends.

Got it. That's helpful. You additionally talked about increasing cross-referrals among large marquee and regional accounts. Can you provide some metrics on the extensive cross-selling and where you're seeing the most amount of cross-selling, which divisions?

The cross-selling aspect is crucial to our strategy, with marquee and regional accounts constituting 38% of our revenue and the same percentage of new business this quarter. Overall, year-to-date cross-referrals account for around 25% of the company's revenue, although some areas see higher percentages and others lower. In particular, RPO has a significantly higher percentage than 25%. We are excited about the increase in cross-referrals to our integrated business, which was not present three years ago, and it continues to yield positive results. Different parts of the business show varying levels of cross-selling, which forms the foundation of our strategy. These divisions offer multiple panel offerings that create opportunities for engaging with clients, directly influencing and positively changing the course of numerous organizations.

Very helpful. Thank you.

Hey, good morning or good afternoon depending on where you are. I have several questions. One, Gary, you started out by basically talking about, hey, we've got this big reset in terms of getting ready for changes in rates. From your conversations and what your top consultants and the feedback that they're giving you, how are they viewing this reset? How long do they think it's going to take? How is that impacting talent plans? What are you just seeing from that perspective, because things have been stable for the last five months? And, in addition to that, we are seeing some chatter about Goldilocks that may be a soft landing instead of the expected recession. So, I'm just wondering how that all melds together.

Well, in my conversations with clients and our consultants, it varies. It varies depending on where you are. There are parts of the world that are investing heavily and others that are not. My read is that, number one, there's no question the labor market is softer. A couple of years ago, the United States was producing like 600,000 jobs a month. Last year, it was 400,000. This year, it's 200,000. October was probably like 100,000. There is no question that coming off this incredible surge after the pandemic, the labor market has moderated. I would expect deflation. Prices have returned to pre-pandemic levels. You look at companies' results over the past few quarters, and there is a consistent theme: volumes down, prices up, package shrinking. I expect deflationary pressures broadly speaking. Central banks are going to hold pretty firm where the rates are for the next several months, and in mid to late 2024, maybe there's some relief. This environment has taken companies time to adapt and adjust. It’s clear that prices have to come down overall.

Great. I appreciate the perspective. With regards to capital allocation, congratulations on increasing the dividend. I know that that's been a point of discussion with the Board for quite some time. Can you talk a little bit about the dynamics that led to such a strong increase in terms of the dividend, and how both the top management as well as the Board, what changed in terms of the thinking? How should we interpret that with regards to further investments in areas like interim or professional search?

Confidence, confidence, confidence. That's the answer. We have a completely different company today than we did several years ago. We have confidence in our ability to generate sustainable profits. This is not a deviation from our strategy. We have a multibillion-dollar opportunity ahead of us. We're going to continue to make investments for acquisitions. But it reflects confidence in what the business is today. You can see it in the results. You can see a soft labor market, and clearly, the permanent recruiting side of the business are ebbing and flowing with that. But you look at the other parts, and it's buoyant. It has substantially lifted the firm's resolve. So, it's all around confidence. You look at our growth rate over 20 years; it's probably about 14%. I think the last 10 years, it's 12%. 40% of that has been M&A, 60% has been organic. We're continuing to think that will be the playbook going forward. It could change if there is a big opportunity that comes our way. That’s one of the reasons why we took the actions we did, unfortunately, to ensure that we're breaking and that we can make investments and deliver returns to shareholders. We think that a balanced approach is the best way - to invest in the business, as we've done, while also being mindful of returning cash to shareholders, either through dividends or stock buybacks.

Really appreciate that. I'm sure the shareholders do as well. With regard to the separation and the restructuring that's occurring, which sections are being impacted the most from that perspective in terms of the overall headcount reduction and that $110 million to $120 million in terms of cost reductions? Which divisions are being impacted the most there?

It was fairly broad-based and follows the trend in new business. This is something that is gut-wrenching. This decision was not taken lightly. It weighs heavily on me even today. But the reality is that great companies make their best moves in times that aren’t as rosy. To do that, you have to ensure that you have financial freedom and flexibility to make investments. That was the decision I took, and unfortunately, it impacted about 8% of the organization. It pretty much followed with the trends we see in the business for the most part, both geographically, by industry, and by solution.

And, Mark, it's Bob. The broad-based outcome relates not only to the fact that we're removing excess capacity but also taking advantage of some of the productivity gains that we're realizing in the world of work today. That's the opportunity to be more broad-based with this versus more surgical.

Capital intensity, over the last few years, CapEx has gone from like $31 million in fiscal '21. It looks like we're on a run rate for over $80 million this year. Could you talk about that? What your goals are for what it will achieve and if there is potential for it to normalize down as a percentage of sales and/or operating cash flow?

Tobey, the first part of your question was cut off. What I can say is that the numbers were around the IP and embedding the IP into everything that we do. With all the conversations around AI, it first starts with data and proprietary data. We develop over one million professionals a year; we’ve done 100 million assessments. The CapEx and the investment there revolves around data and IP and how we blend together the entire platform. For example, in both consulting and digital, we break those segments out separately, but they go hand in hand in that consulting uses the IP of the firm in many of its engagements. This is fundamental to the company's future, particularly with these conversations around AI. I don't think it will be as high as $80 million, but I do think that there is a level that we're going to want to maintain to seize opportunities going forward. Our track record has been fairly balanced in terms of our strategy. I would expect that it’s going to continue to be balanced. Would that moderate somewhat? I think it probably will in the back half of the year.

Tobey, I think your number of $80 million is high. You should be thinking this year CapEx is probably $60 million, plus or minus.

Okay. So, it does edge down from last fiscal year?

Yeah. Last year, it was, I'm sorry, go ahead.

I appreciate that detail. How do we assess the effectiveness of those investments, because they're multi-year in nature and it's a process? Is it more rapid growth in the licensing piece within digital? Is it also a boost in medium-term growth rate of consulting? From where we sit outside the company, how do we assess the efficacy of those investments?

Well, the first thing is, this is about the whole being greater than the sum of its parts. So, how does the firm perform overall? You should look at consulting and digital together for a true picture. Today, that business is about $1 billion, $1.2 billion. Look at consulting growth rates; new business in October was up by 10%. The wins we’re getting are complex engagements. The rate per hour for consulting has gone from like $300 to $413 in the matter of 2.5 years. That’s a direct result of the investments we’ve made. The success in the RPO business is a result of account strategy and the talent we have. The big part is around the IP and the technology that we bring to clients. This is a tough compare with what we’re seeing in the RPO industry and what I've referred to as labor hoarding. It’s difficult to really assess in this cycle. You can look back over many years; I remember 10 years ago when that business was $50 million. Today, it’s more like $320 million or $350 million.

The other thing you have to think about with total capital spend is that a portion goes to infrastructure, whether we are updating systems or strengthening the foundation to keep bad actors out. Probably 15% to 20% of what we spend is infrastructure spending.

Sure. Gary, how should we consider the internal recruiting capabilities that your clients have maintained during this uncertain economic period over the past seven or eight quarters? What does this mean for the company's potential growth as demand possibly increases? How much will be retained internally by the clients compared to the demand that will be directed towards Korn Ferry?

It ultimately depends on the quality and the knowledge that we bring. We have seen companies retain a larger share of areas of shared services, which I wouldn't have guessed. There’s no question about it. But if you look at the business today, for example, the search business is essentially where it was pre-pandemic levels. Do I think that is going to have a negative impact when it's sunnier? No, I don’t think it will have a material negative impact, because I have confidence, and the data shows that we provide unique insights in the marketplace. I wouldn’t expect that to have a big negative overhang on what we do around recruiting in the labor market.

If I could sneak one last one, I want to react to something you said earlier. You mentioned perhaps general deflation. How could that manifest itself in wages, and how does that representation of wages impact your growth in a year or two? Thanks.

There will continue to be some wage pressure, but you've seen that moderate significantly over the last few months. The quit rate has gone down substantially. That happens in cycles. It goes from an employer market to an employee market and back. However, I believe overall that deflationary impact will ultimately result in central banks revisiting the levels of rates. I think that could create opportunities for companies to invest. I would view that as a good thing. The unprecedented moves by central banks have had a big impact on the economy. In the United States, going from 600,000 jobs a month to now probably 100,000, that's unbelievable. So, it's had its impact, and I believe that five or six months down the line there will need to be a reevaluation.

Hi. Thanks so much for taking the questions. First one just on the revenue guidance. Just wondering if you could talk about expectations for each segment. I think in total, it's maybe a mid- to high-single-digit decline sequentially that's embedded kind of on a consolidated basis. Just wondering if you could talk about the various factors for each of the businesses.

Overall, when we look at our results historically, you would tend to think the third quarter, based on historical averages, would be down about 5% from the second quarter. Our guide is in line with that. I would expect results in the third quarter to mirror what we've talked about regarding new business trends. I predict the search business to be down 10% or so. The consulting business will be strong in a relative term in this kind of economy, for sure. On the interim side, I would expect the technology area to improve slightly. That’s how I would look at the components of the business. Geographically, I expect EMEA will continue to perform well, and again, that's relative to the economy we are dealing with. Asia historically has been off due to China, and that has dragged our results down about $50 million a year. Recently, we've seen some improvements in Asia, which would be great for us. The leadership development outsourcing or coaching at scale business you've been talking more about lately, we have to continue to invest in that. The training business is about 10% of the company’s revenue. It's an enormous market, probably around $100 billion. We continue to win mandates of not just teams, but thousands of people within organizations, particularly at a time like this, when companies have to really adapt and innovate. It presents an incredible opportunity for us. The key is around the IP. We have to ensure that we're making investments to enable the development to create real learning journeys for companies and their employees.

The one thing we are seeing right now on leadership development outsourcing is clients are coming to us. We have a leadership development outsourcing diagnostic. We're helping clients understand their spend. In these times, we're trying to optimize costs; we've started to get mandates around optimizing their leadership development spend through our diagnostic tool. I'll jump on that one, Gary. The majority of the savings from restructuring we would expect to see in Q3. There are some situations in foreign countries where people are in garden leave, which makes getting costs out take longer. But most of the savings we'll realize in the third quarter. You heard Gary talk about breaking before the turn and then accelerating through it. The 400 basis points you're referring to should put this business in a 14.5% to 15.5% margin for adjusted EBITDA, and as the world gets back to normal, we expect to be in the 16% to 18% range we previously discussed.

Hi. Good morning. Thanks for taking my questions. So, just one question on the guidance. You mentioned in the third quarter, you expect about a 15% EBITDA margin, which is obviously higher than what you did in Q2. So, I was just wondering, in which businesses do you expect to see the most of that sequential margin improvement?

We want to see it in all of them. Before the pandemic, we were consistently running at 14%, 15% EBITDA margin. Then we entered into a brand new market around interim services. Pro forma that out and look at the history, the immediate history before the pandemic, that 14.5%, 15% historical number translates to about 12.5%, 13%. We're guiding to 15%. On an apples-to-apples basis, this should be 200 basis points to 300 basis points higher than pre-pandemic. With the investments we have made, we expect that kind of profit increase.

That's helpful. Thank you. And then just a last follow-up, I guess on the restructuring. Just, could you run through the thought process and timing behind that? It didn't seem like any business took a leg down in the quarter really? Is it more of a catch-up and an acknowledgment that the recovery may take time?

It's never a great thought process. It was, for me personally, many months in the making. We tried multiple different things. At the end of the day, you look at the firm's history and we have a clear track record of powering through cycles. We have a history of taking actions, unfortunate actions, earlier than later. We do that so that when there's volatility we can take advantage. That was the reason. It weighs on my heart, but we have to ensure that we have the financial freedom to invest, because this is a multibillion dollar opportunity from where we are today. Thank you, everybody. It's a time of year where there's a lot of reflection and a lot of thankfulness despite what's happening in the world today. I thank you all for listening and for your interest. We'll speak to you next time. Thank you.

Ladies and gentlemen, this conference call will be available for replay for one week starting today at 03:00 PM Eastern Time, running through the day December 13, 2023, at midnight. You may access the AT&T Executive Playback Service by dialing 866-207-1041 and entering the access code 9177291. International participants may dial 402-970-0847. Additionally, the replay will be available for playback at the company's website in the Investor Relations section. That does conclude our conference for today. Thank you for your participation and for using AT&T Conference Service. You may now disconnect.