Ladies and gentlemen, thank you for standing by, and welcome to the Korn Ferry Third Quarter Fiscal Year 2021 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'll be reviewing with you today. Before I turn the call over to your host Mr. Gary Burnison, please 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 Annual Report for fiscal year 2020 and the company's soon to be filed quarterly report for the quarter ended January 31, 2021. 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 www.kornferry.com. With that, I'll turn the call over to Mr. Burnison. Sir, the floor is yours.

Well thank you Steve and hello everybody. Welcome to our third quarter earnings call. Yeah this is the first call of the calendar year and before we talk about where we’re going, I want to step back for a moment and discuss how far we’ve come you know it’s almost a year ago, the great uncertainty filled the world. And I predicted that we would see more change in the ensuring few years than in the past ten. And as a leading global organisation consulting firm Korn Ferry is now at the center of that stage. During this time our colleagues have shown incredible resilience, resiliency and purpose, resiliency and hope and resiliency in serving our clients. And the success is deeply rooted in our vision or values how we see the world, how the world sees us and how we’ve been translating all of this into executing our strategy. To fulfil our vision and position our company for accelerated growth and long-term success, we’ve focussed on a few key strategic pillars. We’ve driving integrated solutions base go-to-market approach that facilitates growth and enduring partnerships with our marquee and regional accounts that are central to more scalable and durable levels. We continue to advance Korn Ferry as the premier career destination to attract and retain top talent. In the last two quarters, we've brought on about 70 senior commercial colleagues to strengthen our bench of talent across the globe. And as we look forward, we're focused on opportunities that will strengthen our solutions and create shareholder value. The focused execution of our strategy has transformed our business into a more efficient, profitable, growth oriented organization. We are far less economically cyclical today than in any point in our history. The time to recovery, much shorter, the trajectory of the recovery,…

Great, thanks, Gary. And good afternoon. Good morning, everybody. As Gary said, we're very proud of our third quarter results. We view them as a testament to the efforts of our Korn Ferry colleagues. They also represent validation that we have successfully transformed into a less cyclical firm with more resilient and durable base of fee revenue that will generate more sustainable, scalable earnings. Gary made reference to mega trends that are changing the corporate landscape. Items like accelerating digital transformation driven by the pandemic calls for long overdue social change and increased corporate emphasis on ESG issues. Our comprehensive set of solutions, informed by your deep rich collection of data and intellectual property are highly relevant and aligned to help our client’s needs in each of these areas. And, importantly, they serve as a real point of differentiation from Korn Ferry. Now let me turn to some of our third quarter results. As Gary mentioned, fee revenue in the third quarter was $475 million. Now that growth was broad based with fee revenue improving sequentially for the second consecutive quarter in each of our business units. Additionally, fee revenue growth in the third quarter, this is measured year-over-year was up 7% for RPO, was flat for North American executive search, which is actually seeing business activity backup prepared pandemic levels. We also saw substantial improvement in consulting, and it was only down 3% year-over-year, and in professional search that was only down 2% year-over-year. More importantly, earnings and profitability surged to record highs in the quarter. Our adjusted EBITDA grew $31 million or 46% sequentially to $97 million in our adjusted EBITDA margin improved 510 basis points to 20.3%. Adjusted fully diluted earnings per share also reached the record level in the third quarter improving to $0.95, and that…

Thanks Bob. Starting with our digital segment, global fee revenue for KF Digital was $76 million in the third quarter. Consistent with the second quarter, the subscription licensing component of KF Digital fee revenue in the third quarter was $23 million. Global new business in the third quarter for the Digital segment grew 14% sequentially to $100 million, the best quarter of new business since the beginning of the COVID recession. Additionally, 43% of new business in the third quarter was subscriptions and licenses, which is the highest portion of any quarter-to-date. Adjusted EBITDA in the third quarter for KF Digital was up $4 million sequentially to $27.1 million with a 35.8% Adjusted EBITDA margin. Now turning to consulting. In the third quarter, consulting generated $136.3 million of fee revenue, which is up approximately $9.5 million, or 8% sequentially, and down only 3% measured year-over-year. Growth in each of our solution areas improved in the third quarter enhanced by our virtual delivery capabilities. Consulting new business also improved in the third quarter. Sequentially global new business was up 8% with growth in every region. Adjusted EBITDA for consulting in the third quarter was up $7.3 million sequentially to $27.5 million with adjusted EBITDA margin of 20.2%. RPO and professional search global fee revenue improved to $95.2 million in the third quarter, which is up 11% sequentially, and at 4% year-over-year. RPO fee revenue was approximately 4% sequentially, and professional search fee revenue was up approximately 24% sequentially. As previously mentioned, measured year-over-year RPO fee revenue was up 7% in the third quarter. With regards to new business, in the third quarter professional search was up 31% sequentially, and RPO was awarded another $44 million of new contracts consisting of $12 million of renewals and extensions, and $32 million on new logo work. Adjusted EBITDA for RPM professional search and third quarter was up approximately $5.8 million sequentially to $19.6 million, with an adjusted EBITDA margin of 20.6%. Finally, for executive search, global fee revenue in the third quarter was $168 million up $20 million, or 14% sequentially, with growth in every region. Sequentially, North America was up approximately 16% while EMEA and APAC were up approximately 14% and 4% respectively. The total number of dedicated executive search consultants worldwide at the end of the third quarter was 522, which was up 10 sequentially. Annualized fee revenue production per consultant in the third quarter improved to $1.3 million, and the number of new search assignments open worldwide in the third quarter rose 1300. In the third quarter, adjusted EBITDA grew approximately $13.4 million sequentially to $41.7 million with an adjusted EBITDA margin of 24.8%. Now I'm going to turn the call back over to Bob to discuss our outlook for the fiscal fourth quarter.

Great, thanks, Greg. Over the past two quarters, the volatility challenged, our visibility into monthly new business activity has subsided. In addition, the global business environment appears to be becoming more stable. We're now in a position to identify trends and how it will impact our business. And as a result of that we've decided to reinstate guidance. Historically, the fourth quarter has been our strongest quarter in any fiscal year. Current new business activity continues and the normal seasonal patterns hold. We expect that new business in our fourth quarter will remain pretty strong. Considering this and assuming no new major pandemic related lockdowns, changes in worldwide economic conditions, financial markets and foreign exchange rates, we expect our consolidated fee revenue in the fourth quarter of fiscal 2021 to range from $475 million to $500 million and our consolidated diluted earnings per share to range from $0.95 to $1.05. Our third quarter reported and our fourth quarter expected adjusted EBITDA margins are benefiting from elevated levels of profitability flow through due to our top line recovering faster with a trajectory that is much steeper. However, our current execution capacity is pretty stretched. Our current levels of utilization are not sustainable to support new business growth. To that end, we are in the process of adding additional resources. Further, we want to take advantage of the opportunity in front of us. And as previously discussed, we've recently begun to aggressively invest back into our business making a number of key consultant hires, and we plan to continue satires going forward. With that, as you think about our near term operating boundary for our adjusted EBITDA margin, think about it along the following line. If you go back prior to the pandemic, we were essentially a $2 billion business with an adjusted EBITDA margin of around 15% to 16%. As we return to the, pre pandemic levels of fee revenue, our business will benefit from previously mentioned structural changes, and we're going to add around 200 basis points to our adjusted EBITDA margin. And as a result, we expect near term consolidated margins beyond the fourth quarter to range from 17% to 18%. Now before I open up the call to your questions, I just want to reiterate how proud Gary, the entire management team and I have are of this strong third quarter performance we announced today. We've taken significant steps in recent years to strengthen our business model, enhance our financial profile, and really position Korn Ferry for success. The sharp acceleration in our financial performance in the second and third quarters gives us tremendous confidence that our strategy is working, that we have the right initiatives in place to continue to increase our market share, and deliver sustainable value to all of our stakeholders. With that, I conclude remarks and we'd be glad to answer any questions you may have.

[Operator Instructions] Our first question will come from the line of George Tong of Goldman Sachs. Please go ahead

Hi, thanks, good afternoon. You indicated that new business ex-RPO was done 1% year-over-year in fiscal 3Q. Can you elaborate on the trends by month in the quarter and also talk about how the trends have evolved through the month of February and perhaps also touch on digital noticed that it was down 12% year-over-year in the quarter? Just what was happening there?

Bob, why don't you handle them?

Sure. Okay. Hey, George If you look -- Hey, how you doing? If you look at the new business trends in the third quarter, there was no real discernible pattern each month from a year-over-year perspective was, essentially flat with where we were last year. We saw that this is from an overall perspective. In exact search, the patterns were the same. In Pro Search, we actually saw a large spike in new business in December, November in January; we're down a little bit year-over-year, but the new business growth in Pro Search. We had a big spike in the month of December. And the consulting side, really strong new business every month in the quarter, particularly in North America. In North America consulting businesses, has just done a fantastic job. On the digital side, what we're seeing is we actually had the highest new business since the pandemic started although it was down 12% year-over-year. And I would say the decline that we saw in the digital new business was primarily focused in two areas. One was pay, coming through the pandemic, the desire for pay data for pay raises was dampened on a year-over-year basis. But the larger impact comes from the training in classroom training. And what we've seen there is the, the in classroom training when the pandemic first hit, virtually stopped. And then there was a shift from in classroom to virtual training. In fact, if you go back to the sort of January February timeframe, our in-classroom training was about 97%, or 98%, of what we delivered. Today, it's about 3%, of what we deliver 97% is virtual. What we haven't seen yet, George is the volume in the number of trainings delivered, bounced back quite yet, that, that's on the horizon for us and should stimulate good growth once that comes back to, pre pandemic levels.

Got it, that's helpful. And how have those new business trends evolved through the month of February and what's contemplated currently in your quarterly guidance?

Yes, so I would say, George, if you look at the month of February, and it's, it's a little bit challenging, because we do get a lot of new business at the end of the month. But through, right now we're about 75%, of the way through the business days in a month, and I'll do it from two perspectives. One is geography. And then I'll look at it from a line of business perspective. So from a geography perspective, North America is just firing on all cylinders year-over-year, and sequentially. The rest of the geographies are still have not caught quite up to where they were last year. But from a sequential perspective, they continue to make very good progress. From a line of business perspective, exact search, and Pro Search are starting to gain momentum. Consulting is performing very well, sequentially, and year-over-year. And then RPO, continues to have a strong, backlog of pipeline I should say, of opportunities. So we expect that, new business to continue very strong. And then I already touched on digital.

Yep, very helpful. And just a quick follow up. You mentioned that longer term, EBITDA margins beyond 4Q should range in the 17% to 18% area. When do you expect to fall within that range? Is it going to be a fiscal 2022 event or some other timeframe beyond that?

No, it'll be -- it'll be fiscal 2022.

Got it. Thank you.

Our next question will come from the line of Tim Mulrooney of William Blair. Please go ahead.

Good afternoon.

Hey, Tim.

Hey, so a couple questions first, just on your verticals. You guys give a breakout for fee revenue by industry. I'm wondering if you could discuss which of these verticals stood out as pockets of strength in the quarter for those that are currently strongly recovering, versus those that have either decelerated or have yet to recover.

Yes, we've seen a sequential increase across the board in all of the all of the industries and markets that we operate in. And when you look sequentially, technology was clearly a big driver of that. That was up about 16% sequential life sciences and healthcare, which is a bellwether practice of ours, I think we've got the best practice in the business. That was up 11% and even industrial, which is the largest piece of Korn Ferry today, it's about 28% of the overall portfolio and it was as high as 30%, 31%. That was up too. Now it was really good to see, and even energy as counterintuitive as it may sound that was that was up about 8% as well.

Okay, thank you. Yes, surprising to hear about the energy but that's good news. Moving to your digital business, just on the profitability, the revenue was down 25%. Right, but I think but EBITDA margins expanded nearly 10 percentage points year-over-year. I know there's been some cost takeout, but were there other contributing factors as well like maybe a sales mix issue or were there any guess one time or seasonal factors you'd point to here? Or is 35% profitability a good run rate to think about for this business?

Yes, it's probably not. I mean, as Bob talked about, there's a, there's a major transformation that's happening within that business. And many quarters ago, we went to take our IP, and try to change 1000s of people's lives into alter the destination of our clients, giving them IP that they could license and use to improve their performance. And so what you're saying there is there's a massive shift that we're making, not only in the, in the consulting, services that we deliver, we're purposely over the past two years, two and a half years, we've been jettison smaller consulting engagements, and pursuing bigger, more impactful engagements. And on the digital side, we've shifted towards a subscription based model. And with that model, we're finding that that revenue will be more durable, visible, but it'll also be recognized over a longer period of time. So that's a pretty big change from say, two, three years ago. And so we're very pleased and happy to see that and to see the integration between the consulting and the digital businesses. And so that the margin of 35%, I forget, Bob can tell you, what a year and a half ago, when we first broke out the digital segment, what we were targeting as sustainable margins. That's clearly I think, was 35%, I think was definitely at the upper end of that target that we laid out. And so I would, I would tend to look at something more like 30 or so can be a little loss can be a little bit more. I think that's more realistic, given the investments that we want to make to capture the market opportunity there.

Yes. The only thing and Gary's part -- but the other thing I would add to that is, you mentioned the digital revenue being down 25%. In just in terms of what the drivers are for that there's probably about 20% to 25% of that relates to this shift, from point sale solutions to long returns to subscriptions. Now, that 20% relates to the, temporary decline in demand for pay data. And then the rest of it would relate to the issues that I talked about on the training delivery of the training days.

Yes. Okay. That's helpful. I appreciate that color. Thank you. And congrats on a nice quarter.

Thank you.

Our next question will come from the line of Mark Marcon of Baird. Please go ahead.

Hey, good morning, or good afternoon, depending on where you are. Congrats on a great quarter. And more importantly, just the overall trajectory of the business and the long term progress. Gary, I was wondering if you could talk a little bit about, where you're making the investments, you mentioned, that you brought on, 70 tenured, highly qualified professionals. Just wondering, what areas are they in? It's also sounds like you're making more additions. So where should we think about the internal investments going? Where are you seeing the highest level of incremental demand relative to your current capacity?

Thank you Mark, for the kind words. Well, the place that I'm very excited about. And we're not going to necessarily see that in, in a quarter or a few months. But the professional search market is a massive market, and it's probably $25 billion, could be as high as $50 billion. And our business today is probably about $160 million annually. So it's something like that. And so it represents a real opportunity. It's obviously we're in the business today. And that's something that I think we can we can see over time. And so you will see us making more investments for sure into that into that segment. We've been, we have been investing heavily into not only the digital platform but our consulting capabilities across the board. So whether that's the consulting business or the executive search business, we've definitely been bringing in people to add talent to the bench. So those would be the areas. The RPO business is doing very well, we continue to add talent and add logos there. So it's, it's been split pretty evenly between our businesses. But the one you really haven't seen that is Pro Search.

And within Pro Search, can you talk about like the areas where you're seeing the highest level of incremental demand? It sounds like December was a blowout month? Or are there any sort of common characteristics in terms of, of where that surge came from?

Digital and technology? For sure, and even finance and accounting? So, it's probably what you would expect, we're seeing an incredible appetite in the world to get people that are digitally savvy, that are, technology enabled. And so we've seen very, very good drivers there. But the business, quite candidly, is just woefully under size, to the market opportunity. And, that's a pretty so that's, kind of a blanket statement. I mean, whether it's in the Americas or Asia or Europe, I think we've got a substantial runway ahead of us. And that runway, again, it's not in a few months, it's not a quarter out, but here in the very near term. I think you'll see us seizing on that market.

Are you sourcing those clients through existing Executive Search or RPO relationships? What's obviously there are other competitors within that space. None with kind of the, the type of reputation at Korn Ferry has, but there are other competitors out there and just wondering who you're who you're gaining the business from?

Yes, when you look at the, one thing that I'm very proud of is the cross referrals. And so it's been going up every quarter, this last quarter was 26%. And when you look at Pro Search, this last quarter is actually 53%. RPO was 49%. So, that's really coming from the executive search channel. So even though the market size of executive search is a fraction of the market opportunity for us, it's incredibly strategically important people return our calls. And so I think we've demonstrated that we can take that access to that brand permission, and do other things with it. So yes, Mark, it's coming from the executive search channel in a big way.

And then can you talk on the consulting side? Which areas are you seeing the strongest growth in within your consulting at this point?

Well, the it's, again, I'm going to, it's been pretty broad based. I mean, it ranges from our executive pay business, where we've won a number of Fortune 100 mandates, to do compensation advisory services, to organizational transformation. I can think of two Fortune 100 companies that are trying to get into a new business and they're turning to us around the org structure, around the people they need, assessment, development. And then the D&I business continues to flourish. And that has for a few months, but it's pretty broad based. When you look at the things that we're doing and our training business, our learning and professional development business is also doing well where we've won some pretty substantial mandates for companies, basically using our Korn Ferry advanced platforms or leadership view platforms and outsourcing their development to Korn Ferry.

That's great. Can you just one last one on the D&I. Can you give us an update in terms of the size and then just to be clear, to what extent does D&I also include potential engagements either on the executive search or the professional search side in terms of broadening out the candidates or the talent that you're that your clients have?

Yes, the when we talk about D&I in this context, we've just been talking about pure advisory or digital services. Now, there's a much broader theme that's happening in the world, in the C-suite. And whether that is executives that are have decided, it's time to move on. This whole pandemic, I think, has given a lot of people reason to kind of reset, and to look at life and say what's important. So we're seeing, and I think you're going to continue to see a lot of C-suite change there, as well as companies that are having to reposition their business. And then another mega trend within that would be the focus around diversity and inclusion. And so that is also we're benefiting from that in our search businesses. And so we've made some pretty significant investments. And we're going to make more around our executive search and professional search, recruiting platforms to, capture to capture that change. So yes, the D&I consulting business is, it's almost nine digits. I mean, it's a substantial part of today's Korn Ferry.

Congrats, thanks.

Thank you.

Our next question will come from the light of Marc Riddick of Sidoti. Please go ahead.

Hey, good afternoon. Anyway, first of all, I just wanted to address so much of the planning and the work that's been done over the years and sort of put yourself in the position was certainly to succeed here was certainly evident in a lot of the numbers that were reported in your commentary, and that we really do appreciate the color and the detail of that. I was wondering if you could talk a little bit about I think you've made mention, as you've mentioned, D&I quite a bit in prior quarters. I think you've made mention of ESG a little bit. And I was wondering if you could touch a little bit of maybe what you're seeing there, and how that might relate to some of the commentary that we're getting from your customers?

Well, we -- purpose is not a slogan. Purpose is the why a company is in business. And, every CEO -- you know a business is started for a reason. That's the why, and that's the purpose. And over the last several years, that purpose has expanded, and it's expanded to take on different different lenses. And so we clearly have been positioning the company, as you alluded to, to take that on. And when it comes to ESG, we'll see we are today, marketing capabilities there. And we'll just have to, see where the world goes in terms of, what the, what the environments really going to look like. But we clearly are positioned to help companies there. There's no question about it. And, the starting point for us was the Diversity, Equity & Inclusion business that was an investment that we made about eight years ago. And I can't say we were necessarily, predicting what the future was going to hold. But the theme on what you hit was that these are consistent decisions that have been made over many days, many months, and in fact, many years. And Bob alluded to it in his comments. I mean, it was back in 2019, where we got concerned about maybe a possible recession, and we took a number of actions to position the company to accelerate through the term. So and that's exactly, that's exactly what we've done.

Great. And then I want to talk a little bit about maybe with the benefits and progress that you've made with marquee accounts and in some of these cases, these are global, players that they can maybe provide, I would imagine some greater visibility and insight as to what plants may be outside of North America. So why don't you touch a little bit on maybe how maybe some of the initial things that you're seeing outside of North America, or maybe some of the learnings that you're getting from North America that can then be translated to Asia Pac and Europe going forward?

Well, I think the biggest -- the biggest for sure, is culture, which is, the way an organization gets things done. So clearly, that's been a mega trend across the world, how they engage with customers, what the customer experience looks like, that's been pretty consistent. North America has clearly been more agile, in for a whole host of reasons in terms of responding to the environment. And there's no reason to believe that that will not happen in Europe, and in Asia. As we're now into this [Indiscernible], or definitely I think, more than halfway there with the vaccines, with the U.K., schools opening up March 8, there's a lot of lot of positives out there. So I would expect the same kind of, agility, adaptability change, that's going to happen with our clients in South America and in Europe and Asia, as we've seen in North America.

Okay, that's very helpful. Thank you very much.

Our next question will come from the line of Toby Sommer of Truist Securities. Please go ahead.

Thanks. Could you elaborate on the transformational opportunities referenced in the slides that accompany the call? Thanks.

Well, as we look, yes, we really think the market opportunity is about $250 billion. And there's a couple very big pieces of that. Beyond the digital business that we have, and taking our IP and trying to change a lot of people's lives. The biggest is around learning and professional development. That's a massive market. And I really do believe that we can create a business like we did with RPO around LD learning and development outsourcing. And so part of that may require an investment, may require acquisition. But that's, that's in front of us. There's no doubt about it. The other one is around the professional search market around professionals, whether that's finance and accounting professionals, technologists, healthcare it is a big market. And we're clearly into a, mobile world, digital, everything career nomads work that works for everybody. And I think that Korn Ferry can capture a much larger share of that mega trend that's happening. So those would be two that would come right to mind. And I'm certainly not minimizing anything around org strategy, or anything around compensation. But clearly, those are sizeable markets. And our revenue today is a drop in the bucket compared to that market opportunity.

Appreciate that. I had a follow up question about the profitability if, if next year is sort of a couple 100 basis points higher in the 17% to 18% EBITDA margin range. Is it -- Is it fair to assume that that's not sort of a terminal end state point, but the business if revenue continues to grow from there with generate some operating leverage? How should we think about that?

Yes, we tried to the way we thought about it was basically to say, we're continuing to make investments. Obviously, we've been doing it now since the pandemic it’s been a year now. We had a playbook. And so the way we thought about that was okay, let’s assume the company is $2 billion or so what would we want to target as an on-going EBITDA margin? And that's where we're kind of guiding to 17% to 18%. We feel pretty comfortable with that now. Yes, there absolutely could be upside to that. And that upside and it could come from a few different pathways. One could come from the digital business, but that may not be in this next fiscal year, that may be the year after actually. The other place it could come from is the executive search and professional search businesses. For example, outside the United States and that's a very clear pathway as well. So yes, it's possible. But we're obviously trying to balance between our clients, our colleagues and shareholders. And so that's what we're targeting for the EBITDA margin for the next few quarters.

Thank you very much.

There are no further questions in queue. I'd like to turn the call back over to Mr. Burnison, for any closing remarks.

Well, I just thank you for listening. As paradoxical as it may sound, when nothing seems to be progressing. One can actually make the most progress. And when everything appears unchanged, externally, we experienced tremendous growth internally and when things seem so far away, they're much closer than they appear. And when we clearly see how far we've come, we appreciate more fully just how capable we've become. And I'm very, very proud of Korn Ferry, and for what the future holds. And thank you very much for listening. And we look forward to speaking to you next time. Thanks, everybody.

Ladies and gentlemen, today's conference call will be available for replay for one week starting today at 3pm. Eastern time running through March 01, ending at midnight of that day, you may access the AT&T Executive playback service by dialing 866-207-1041 and entering the access code 8533730 that access code once again is 8533730. For our participants that may be dialing in from an international location please dial 402-970-0847 and the access code of 8533730. Additionally, there will be a playback available on the company's website at www dot Kornferry.com in the investor relations section. Once again ladies and gentlemen would like to thank you for your participation in today's conference call. Thanks for using our service. Have a wonderful day. You may now disconnect.