Q4 2020 Korn Ferry Earnings Call

July 2, 2020

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Ladies and gentlemen, thank you for standing by welcome to the Korn Ferry fourth quarter fiscal year 2020 conference call. At this time all participants are in a listen only mode. Following the prepared remarks, we will conduct a question answer session.

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As a reminder, this conference call is being recorded for replay purposes.

We have also made available in the Investor Relations section of our web site at Korn Ferry Dot 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 Branson, Let me first read.

Continuation statement to our investors certain statements made in this call today, such as those relating to future performances performance plans and goals.

Constitute forward looking statements within the meaning.

The private securities.

Good.

But like Geisha 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 uncertainties, which are beyond the company's control. Additionally, 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 S. E C, including the company's quarterly report for the quarter ended January 31st Twentytwenty. The Companys current report on form eight.

K filed on May 11, 2020, and the company's soon to be filed annual report for fiscal year 2020.

Also some of the comments today may.

Reference non.

GAAP financial measures such as.

Constant currency amounts EBITDA and adjusted EBITDA a.

Additionally, information concerning these measures, including reconciliations to most directly comparable GAAP financial measure is contained in the financial presentation in earnings release relating to this call both of which are posted in the <unk>.

Investor Relations section of the company's website at Www Dot Korn ferry dot com with that I'll turn the call over to Mr. Berntsen. Please go ahead Mr. Britain's [noise].

Okay. Thank you Amy and good afternoon, everybody and thanks for joining US you know the last several months.

Or unlike anything most of us of experts in Norwalk towards long overdue calls for social equality.

Persistent global pandemic in recovery curves.

The only certain data there is uncertainty.

Amid all this change we'd be remiss not your work you know as all the heroes, it's been truly uplifting to see the humanity around ups or healthcare workers.

First responders and all those who are committed to making our world is safer better.

Good morning, equal plunge I've never been more proud.

About four and how we've responded during these codes.

At the beginning of this pandemic, a we adopted a framework of safety caution in Jody to navigate the crisis that included mobilizing almost all of our global colleagues to a work from home environment and really the course of days.

And we sized our business to the current reality wolper zoo preserving tremendous muscle.

Which we believe will allow us to accelerate through the term.

We took a strong voice in the world hosting multiple covert 19, Webinars, which were attended by over 20000 leaders.

And we led race matters webinars for colleagues and clients that attracted more than 100000 leaders from global organizations and we're continuing to engage with clients and these discussions given our large diversity and inclusion consulting business and we appointed Mike highlighted as our chief diversity.

For sure elevating our ongoing focus on continuing commitment to not only diversity, but much more importantly [noise].

Closure.

Diversity is up style.

Inclusion is a behavior.

And we're committed to continuing that conversation beyond the pledge group action.

Now, let me comment briefly on our fiscal fourth quarter fee revenues were down about 7.9% at constant currency.

As the impact to the virus accelerated through the quarter.

Adjusted EBITDA margin was almost 16% maybe delivered 60 seconds.

Adjusted EPS.

Your revenues were 1 billion nine and we delivered approximately 300 million of adjusted EBITDA.

And $2, a 92 cents of adjusted EPS.

Now for the future. There's no question that the magnitude of humanitarian in economic impact brought on by the virus.

Our outweighs what anyone could have expected few short months ago.

The pace in magnitude of the decline caused by this global health crisis is unprecedented.

At least than the last calendar year.

But with the crisis. There was also tremendous opportunity and we believe that includes real tangible opportunities for corn trait.

Almost every company on the plan it is and will have to reimagine their business and I believe in the next two years, there's going to be more change than in the lost him quite simply different work needs to get done.

And work needs to get done differently.

Let me get work done differently companies will need to rethink their org structure roles and responsibilities, how they compensate engage and develop their workforce, let alone the type of Cowen.

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And how they hire that selling into virtual world, which will depend to even a greater or just a.

On a softer.

And as a reminder, our assessment and learning business, you've almost 25% and the company.

No. So these are Korn ferry businesses and this is on top of our M&A change management.

Virtual sales effective dose and customer experience services, let alone to be an eye services that we offered to the marketplace, that's real opportunity for us and as an organizational consulting for them, we enable people and organization to exceed their potential new exceed potential.

So people made an abundance of opportunity development and sponsorship, which is absolutely foundational or service offerings.

We're also using this time of changes and opportunity to Reimagine. Our business. For example, we're moving from analog to digital delivery of our assessment and learning business, which as I just mentioned, it's 25% of the company in a way that makes our IP more relevant and scalable on the recur.

Routing side were further refining our platform processes such as they are video in technology and on the administrative front, we're continuing to further consolidate our activities adopting a one korn ferry approach to deliver greater efficiencies across the entire organization.

When I look back during the great recession.

Our revenue was up almost 60%.

Four quarters from the trial eventually growing five Alex So almost 2.1 billion revenue run rate.

Annual revenue run rate a few months ago, we believe the opportunity to grow after the pandemic subsides lies in front of those were a much different company today.

Affirms recovery could be substantially different with a pronounced upswing based on a broader and deeper mix of business.

So undertake this journey, we're gonna be agile flexible and responsive to the environment.

And our clients.

Fortunately, we're facing this crisis from a position of strength when you consider we have a solid balance sheet.

With high levels of cash and liquidity.

And we've taken Swift and decisive actions to protect the company and more importantly preserve it's muscle. We've also seen some green shoots and new business and client wins.

April may and June stabilize down approximately 30% year over year.

And sequentially June was up approximately 18% over Matt.

The agenda was better than May may was better than Jim in terms of new business. We've also said operational guard rails and our business designed to preserve our position of strength and enable the firm to invest into the recovery, we're committed to maintaining at least neutral EBITDA. This preserves the muscle of the phone.

And our ability to fully harness the opportunities in the recovery and we will maintain our dividend this quarter.

As we discussed in the last earnings call, we continue to assess the changing health and economic environment and the impact it has on our forward visibility.

A city states in countries reopen their economies, there's been a significant resurgence of cobot 19 cases in a number of places.

In some cases this has resulted in the delay or even cancellation of plans to reopen.

Despite the recent positive data, indicating that our new business trends, maybe stabilizing as well as the resilience that our clients and colleagues are demonstrating the near term predictability of our business remains cloudy as a result, we will not be providing specific revenue and earnings guidance for the first.

Quarter for that fly 21.

In wrapping up my remarks, I want to leave you with US you know at some point.

We'll be looking at this virus through the rear view mirror.

And I truly believe that we have the right strategy with the right people the right time to accelerate further through the turn like we've done before we have demonstrated track record of doing though.

So now I'm joined the virtually by Bob Rozek, and great devote Chuck and I'll turn it over to you Bob.

Thanks, Gary and good afternoon, and good morning, everyone I'll start with a few important highlights for the full year in the fourth quarter.

Fiscal year 20, before I address new business trends.

For the full year fiscal 20.

Our fee revenue was 1.93 billion, which was essentially flat year over year. Our adjusted EBITDA margin was our adjusted EBITDA I should say was 301 million in the adjusted EBITDA margin was 15.6%.

As Gary indicated adjusted fully diluted earnings per share were 2092 cents.

Now turning to the most recently completed quarter fourth quarter fee revenue was 440.5 million, which was down 7.9% year over year measured at constant currency.

In the fourth quarter fee revenue for executive search was down 10% globally. Our PEO in pro search was down 9% consulting down 14% and digital grew 14% and all that said constant currency.

Adjusted EBITDA in the fourth quarter.

It was approximately $70 million with a 15.8%.

Adjusted EBITDA margin.

And our adjusted fully diluted earnings per share in the quarter were 60 cents.

Our balance sheet and liquidity remained very strong at the ended the fourth quarter cash and marketable securities totaled 863 million, that's up about 95 million year over year.

And then when you pull out amounts reserve for deferred compensation.

In accrued bonuses.

That's our what we define as our investable cash.

That balance at the end of the fourth quarter was approximately $532 million, that's up about 150 million a year over year.

At April 30, 2020, we have undrawn capacity.

$646 million and our revolver. So we have close to $1.2 billion in liquidity to manage our way through covert 19, and as Gary indicated to invest back into the business through the recovery.

The last the from head.

Danny that at the end of the fourth quarter of about 400 million.

Finally, due to the negative economic impact of Koby 19.

We did take swift and decisive actions to downsize their cost base as previously announced we took cost actions that were targeted at compensation as well as gene ate spend and we have initially reduced our cost base by about $300 million on a run rate basis.

We believe these actions will help us manage the business to maintaining our minimum operating boundary of adjusted EBITDA neutrality.

Throughout the covert crisis.

And in the current environment meal, maintaining operational flexibility is critical for us.

It will allow us not only to preserve the franchise, but as I indicated will allow us to invest.

Into the recovery, Greg do you want to go through some of the operating segments sure. Thanks, Bob.

Let's start with the digital segment global fee revenue per cap digital was 69 million in the fourth quarter enough approximately $7 million were 14% year over year measured at constant currency, the subscription and licensing component of capped digitals fee revenue in the fourth quarter was approximately 21 million which was.

$6 million year over year and was flat sequentially.

Adjusted EBITDA in the fourth quarter for Caf digital was $17 million within 24.5% adjusted EBITDA margin.

Now shifting to the consulting segment in the fourth quarter consulting generated 121 million a fee revenue, which was down approximately 14% year over year at constant currency in every region consulting fee revenue in the fourth quarter was negatively impacted by the sudden shift to work from home protocols.

Which limited our consultants ability to execute and complete advisory assignment at client sites.

Adjusted EBITDA for consulting in the fourth quarter was $11.1 million with an adjusted EBITDA margin of 9.2%.

Our appeal in professional search generated a global free revenue of $82 million on the fourth quarter with both component is down approximately 9% year over year at constant currency.

Adjusted EBITDA for RPL professional search in the fourth quarter <unk>.

Oh from $7 million that suggested EBITDA margin of 15.4%.

Finally for executive search global fee, rather than a fourth quarter fiscal 20 was approximately $168 million.

Which compared year over year and measure constant currency was down approximately 10%.

At constant currency, North America, and EMEA were each down 10% year over year at eight cap was down 16%.

The total number of dedicated executive search consultants worldwide at the end of the fourth quarter was 556.

Now nine year over year end down 26 sequentially.

Annualized fee revenue production per consultant in the fourth quarter was $1.18 million.

The number of research assignments open worldwide in the fourth quarter was 1229, which was down approximately 28% year over here.

Adjusted EBITDA for executive search in the fourth quarter was approximately $47.5 million with an adjusted EBITDA margin of 28.3%.

Now I'll turn the call back over to Bob to highlight some of our recent monthly trends pretty thanks, Greg So globally year over year kind and must be the business as we exited fiscal year 20.

And entered fiscal year 21, imperatives stabilized excluded.

Our Pos.

Our total new business measured year over year was down approximately 20% in March in 34% in a <unk>.

Starting our new fiscal year may with approximately 36% year over year and beautifully down 26%.

Over the past two years, Jude enhanced sequentially better than maybe it kind of in the five 7% rate.

Correct.

Okay. So.

They will.

Yes.

Obviously at this point, we still don't know july's new business yet.

With regard to our PEO new business in the fourth quarter was once again strong with 109 million of Global Awards, which was comprised of 72 million of new clients in 37 million of renewals and extensions.

In the near term the new business pipeline for our PEO remained strong.

That concludes our prepared remarks, we'd be glad to answer any questions that you have.

Thank you, ladies and gentlemen, if you wish to ask a question. Please press one zero you may remove yourself from the Q at any time by pressing one zero again, but if you do have a question. Please press one zero.

Our first question comes from Tim Mulrooney with.

William Blair. Please go ahead.

Good morning.

Hey, Tim.

[laughter], given where two months through the first quarter can you just talking about the recent trends that you're seeing in the consulting business and can you maybe break that down and what you're seeing by geography in the types of consulting services that are holding up maybe better or worse in the San Dimas.

Well the on the on the consulting side Weve clearly seen a uptick in our.

Dan I business. We've we've we took a pretty proactive stance both in co that 19, and with respect to social a quality and rice.

And so we have definitely saying.

You know.

Quite a bit of activity in the marketplace.

When you just isolate a gen new business.

You would find that the consulting new business just in the month of Japan is down about 29%.

And if youre to look over the trailing four months you would find out the consulting business is down about two cents a you know approximately so.

I believe that.

Really up to this point.

And don't take this the wrong way, but it's been a bit pre season for companies I mean every company in the world.

It was gonna have to change how they do business different work needs to get done in work needs to get done differently.

And.

That's essentially the definition of culture, how an organization get things done.

So whether it is looking out there.

Or strategy, whether it's looking at roles and responsibilities, whether it's how they deal with customers virtually whether it's how they improved sales effectiveness virtually.

Whether it's M&A restructuring all of those things play and took Korn ferry platform today, which is substantially different.

Then you know 12 13 years ago and the great recession. The other thing we've seen is a pretty significant uptick in career transition services.

Several years ago, we started a business called cap advance.

And the thinking behind cap advance was to give professionals a gymnasium to workout to use our IP to grow to learn to develop to be motivated to be in spot.

Yeah, and we've put over 100000 people through KF advance and the thing that we've.

Weve found it wasn't the original intent, but the technology platform that we built is incredibly powerful.

And we're using that platform around career transition. So there's been a number of engagements with the unfortunate decisions. The companies have had to make and we'll probably continue house to make around what their workforce looks like.

They want to be.

Very sensitive and they want to treat people the right way and part of all is sheltering their transition.

And so we've we've definitely seen an up tick and some really marquee wins there.

So I would I feel really good.

About where our consulting businesses today, despite what I said about new business down in June I mean look the world shut down.

But I feel really good about where that consulting business and you'll see when we unfortunately had to rightsize. Our workforce. We were very purposeful in how we did that and you'll see that the number of consultant really didn't change much we had a contingent.

Who playbook that we dusted out a year ago and part of that playbook, we knew what we were going to do.

And part of that was driving change within our along within our own organization until we were careful about preserving muscle.

Okay very helpful perspective. Thank you one more for me, maybe shifting gears to your digital business.

Can you just talk about the recent acquisitions you completed how is this going integration wise, how they performed during the downturn and how much did they add contribute to revenue in the fourth quarter. Thank you well yeah. Thank you Tim we'd all we've integrated that business. So we don't we don't disclose that that separately I would tell you that it's bad.

Incredible the.

You know there are at least in the United States 15 million salespeople, not only that but what we picked up our tremendous learning capabilities around project management and the like so.

I can point to a couple wins in career transition we're actually.

That was.

In part.

Due to.

To the people and the IP that we picked up through the Aspen acquisitions. So as you think about different work needs to get done and how.

Companies are gonna have to engage with customers and what that customer experience looks like.

And what they do around their sales force I'm very very bullish on what we can do without business and we're also today bundling.

ER, our services, which I think you know that God, that's very unique.

For a professional services for so if we are four as an example, if we are I'm doing a search for a chief revenue officer.

We are bundling in diagnostics that we can do very little cost.

Around their their sales force.

Okay. Thank you very much.

And our next question comes from George Tong of Goldman Sachs. Please go ahead.

Hi, Thanks, good morning.

Good morning, I didn't help full details around new business trends in March April May and June can you unpack those by executive search by geography, and perhaps consulting you called out RPL, but just a little bit additional detailed thereby months, we'll be very helpful. Thank you.

Yeah, Let me let me, let me kind of stepped back and then Bob and Greg If you can kind of fill and let me.

First say, let me look at trailing four mines and I would I would generally say that the way. The business has operated in a crisis that we haven't seen in 100 years, but as we thought about the company and what we were building.

We obviously wanted to create something that had real impact for clients or was that was number one to enable people in organizations to exceed their potential but also part of it was.

To to diversify.

Our platform. So when you look at the trailing four months, a and you look at global Mi business first of all its down 15%.

When you unpack that you'll find.

That RPL, new business is actually up 72%.

Over those four months digital.

He is up 2%.

And the most cyclical on the other end of the curve, which we thought it would be.

Was professional search that was down 36%.

Let me put an asterisk there that we actually saw as you would expect that was the most cyclical going down. It was also the most cyclical coming up in June.

Executive search was knocks it was down 33% and consulting was less cyclical than search I'd say, 27%. So I think that bad broad he says.

And look this is four months I'm not going to sit here and say that's going to last forever, but I do believe that's pretty good evidence that the strategy that we laid out for us.

About diversifying Dover diversifying the conflict company not only geographically by by the services. We offer holds walking and it holds up when you look at.

The last three months as we talked about again.

June was better than May and May was better than April when you look at the month of June.

Just stand alone.

The first thing I would say is there was no deterioration.

In the back half of June versus the first half. So all this crop around negative square roots and all the all these symbols people throw out we did not see that I'm not saying, we're not gonna see it up.

But we didn't say that within the month of June if you want to be that myopic.

In the month of June global New business was down 23%.

When you start to unpack that by region, you'll find that North America was down 24, EMEA was down 23, APAC was down 16, APAC went into the crisis earlier allegedly came out of it sooner.

Despite all the news that we're saying today.

In Beijing.

When you look at it by line of business solely on the month of Gen. You'll find a search was down 33% consulting was less cyclical at 29.

Digital was actually up.

A few percentage points and RPL Pos was down 17, but you really can't look at that 17 because RPL.

He is very lumpy and we had some increased despite this whole pandemic.

We have we've had some incredible wins.

In the RPL business, So Bob and Greg do you want to add anything to that.

Yeah, just just a couple of points you you're right Gary our PEO business in those wins that we head into fourth quarter, a significant percentage of came from the Asia Pacific region itself.

So what was in Singapore and when it was in Australia.

Dosing I would add is you know as you know weve.

Well take a look at the new business activities over the past four or five months.

The one thing that's clear as there's really no discernible patterns that emerge.

One one month.

You know, we couldn't be doing fairly fairly poorly and new business and then.

Pops back up again.

It was really choppy lot of sought to.

Activity, which I think is what you expect.

Environment.

People are trying to deal with.

You know the working from home in the current from academic and stuff.

But.

Geographically.

Yes, it was not a lot of differentiation.

Amongst the different geography so.

That would be on everything I would have had Gary.

Okay. Thanks, Bob.

Great and just a follow up on EBITDA <unk> your goal of maintaining EBIT done neutrality can you talk a little bit more about that the over what timeframe you hope to achieved that goal and if that really was a statement around margins or EBITDA dollars.

Well.

I would first say, we're we're not providing guidance that would be my my first com. If if you were to tell me when the biology, you know I I really do believe this is a triangulation of cash biology and psychology.

So to the extent that you're fortunate enough to have cash either as a business.

Or individually you've got.

An incredible amount of freedom.

Korn ferry is blast that we have that financial freedom.

Biology is going to determine the endpoint.

And the thing that's in the middle which is really our business that we offer the clients.

Is really around psychology, how do you how do you get work done differently. How do you motivate how do you inspire how do you develop how do you pay that's exactly what Korn ferry is all about so I think we are much better position today than we were say in 2008 in 2009.

So to answer your question I'd I'd first step back and say if you tell me when the humanitarian crisis ends I can tell you. How these operating boundaries show number two I think a ceos charges around stakeholders.

So it is a it is again, a triangulation shareholders employees and your customers and I think you've got to walk that balance and particularly in a time when a lot of people are suffering.

We have to be very very cognizant of our own colleagues and they're well being and so we have to balance those constituencies within that stake holder paradigm.

So for this quarter for the first quarter. The July corridor, we have established a boundary.

Yeah, but neutrality.

How and if that changes.

Will really depend on the humanitarian crisis and that is something that I just can't per day, I mean, you see it right now you see the spike up to 50000 cases, that's that's hard to predict so we're trying to to run that balance.

And we also want to accelerate through the turned you know it's much like driving a car you don't you don't you know you break well ahead of the turn and that's what we did a year ago with our contingency playbook. What you want to do is step on the gas through the term units. That's why we've got that ample balance sheet that's why.

We took the actions that we took.

And Gary I would just.

Add to that George our operating boundary is a minimum of EBITDA neutral.

So it's not that we're going to operate the business to EBITDA, new which was can be a minimum of EBITDA neutral.

Got it very helpful. Thank you.

And our next question comes from Mark Mccollum.

Our Baird. Please go ahead.

Good morning, and good afternoon, depending on where you are.

Gary I really appreciate the fossil comments that you had this one clarifying statement.

When you say EBITDA neutrality, do you mean breakeven or what exactly does EBITDA neutrality need.

It means a minimum of EBITDA breakeven.

Okay.

And you do hubs.

You know results through June I know, you're not giving guidance and we're not expecting it but I'm wondering if there's any way of kind of giving a frame for like if you know revenue is down by you know 29 or 30% on the consulting side.

Slide that would typically translate over to blank as it relates to margins is there any way of.

Giving some sort of guide rails, just with regards to not necessarily guidance, but just an understanding of like okay. You know what does this mean because you've done a great job in terms of managing the expenses, thus far and associated with that can you talk a little bit about some of the restructuring actions.

The cost savings that they will that they will drive on an annualized basis going forward.

Okay. Let me let me try a couple Bob can add that Mark if I missed something just just come back and again, Bob you can comment on the revenue to margin all first start.

With a new business.

To revenue so when you look at the organization if you take the.

Search businesses, so both executive search and professional search.

Those generally that so that's 45% of the company today.

Those generally converts to revenue within 90 days.

So if you take the trailing four quarters of sport quotas trailing four months.

Those search businesses are down call. It 35%. So I think you can.

Reasonably do some mathematics, and I tell you that engine.

Search executive search was down 33%, although professorship professional search was actually a much much different story.

So that's that stop piece of it.

The I.

I would say on both the consulting and digital business. Let me just lumped together for a second what you'll find there is that new business.

Generally converts.

To revenue within the first 12 months that about two thirds. So about two thirds of the new business in consulting and digital.

Floater revenue within 12 months, so again substantially different than search the balance goes over probably 13 to 35 months the RPL business.

What you would find there is.

Probably less than 50%, but probably more than 25%.

Would get recognized of new business would get recognized in 12 months the balance would get recognized over you know 13 to 35 months. So that's that's one way to kind of.

Think about the mathematics.

New business.

Translating.

So rather than though.

Bob do you want to add anything to Mark's question. There yeah, so mark them to make sure I understand you're suggesting are questioning whether incremental dollars of revenue how that translates to margin.

Right, So specifically Bob.

You know and Gary Thank you for the for the clarity with regards to the revenue flow through just thinking about the let's take the most simple case you know in terms of executives and professional search where you know roughly the new business trends are basically can accounted for two to revenue over 90.

Okay. So we have a pretty good understanding of where the you know the revenue numbers going to be for for that if were down by.

29 or 30.

3%.

What would that end up doing to EBITDA margins would that be.

With that would we stay at that breakeven, but even level, we'd be at a 5% level, 10% how does that how does that translate or how do how should we think about that I know whats in it and I'm not taking it does guidance I'm, just saying if you're framing something like that where it's relatively your guide.

You know where the revenue goes how should I should investors expect the margins to flow.

Yeah, I think that you know as you as you think about the revenue has gone down Theres a couple of things that are complicating.

I'm not trying to skirts question, but just couple of things that complicated depends on which line of business.

You know experiences the worst downturn as you know searches sure.

But the 24, 25% EBITDA margin digital is even more profitable and so I so lot of its going to depend on.

What a line of business, how the revenues fall.

You know.

Themselves [noise].

The only thing it complicates the two is Gary talked a lot about the new business and how it.

It translates to revenue.

What we're also seeing Mark is the new business, we're seeing a real shift.

In the mix of our new business May. So if you look at you break it out between smaller engagements you know see those below.

500000, whether it's in digital or consulting.

We're generally seeing declines in new business at that level. If you go 500000 above we're actually seeing new business growth year over year.

So you've got the not just the you overall decline in business, but you have a shift in the mix of decide you the engagements, which makes it even more challenging to step back if there will be up or down 29%. This is what's going to happen.

To our EBITDA margin.

But I guess Mark if your question is hey, it consulting is down just take the consulting piece of the business. If it is down you know, 30% or so would we expect breakeven EBITDA yeah, we would.

Okay, and what about on the on the search side Gary.

I would I would say that that would be positive EBITDA.

Okay, Great and then can can you talk a little bit about on the consulting side, how much of the decline in terms of new business. Obviously these are unprecedented.

Times, and it's really hard to unpack things.

But how much of the decline in consulting do you think is due to the fact that we have to work from home relative to.

Relative to just the financial constraints and the uncertainty that's out there is there is there a sense that you have that.

From from that perspective in other words, you know yeah.

In a work from home environment for a prolonged period. The is that really the constraining factor as opposed to the financial uncertainty.

Yeah. Good yeah. Good. Good question, you know, we pivoted hard towards digital having said that when you. When you look at our let me just take the advisory business together, both consulting and digital the reality is we had a very big and we have today, a very big learning business.

Assessment and learning is 25% of the company.

And when we candidly look into Marilyn.

A lot of that delivery of learning was classroom.

And so that yacht devastated and we made a hard push like we were before we went to the digital platform, we've incorporated outspend, but the reality as we work where we needed to be in terms of nor is anybody you know delevering things virtually.

So to give you some idea how hard we pivoted.

Yeah in April and May we've done more virtual delivery.

Development than we did in the prior 10 months.

So we have gone hundred 80 degrees hard on all of our development capabilities, whether that's inclusion whether it's a simulation of the whole thing we have absolutely gone digitally now.

So you're going to see.

The impact of that you know that stoppage essentially of the economy for a couple months, you're definitely going to see that.

In our first quarter, there's no question about it and when you look at it.

That specific question, where it really has hit Korn ferry and I think it would hit anybody that's in that there was in the development or training of are learning business for the most part not everybody, but but that definitely hit us hard because that just stopped I mean everything sales effectiveness training unique.

And so now we are pivoting and we've been pivoting from my feeling very very hard and so when you look at some of these you know new wins marquee wins, we have now such as you know career transition services all of that's virtual I mean, it's absolutely all virtual I think the other thing that's gonna be really.

The interesting is our assessment you know we've assessed 70 million executives and out we have an assessment for everything you know we have half a billion.

Profiles on people and so the thing you know the thing that's going to be an interesting is going forward in a more virtual world for sure over the next several months you know when it comes to hiring.

You know that the physical interaction that's not gonna be what it what it was and I think that people are gonna have to rely more on who somebody is and the assessment rather than the personal bias. They have one are actually doing an interview so Dan.

Play really nicely into Korn ferry stance.

And then how would you rank your youre your consulting practices in those areas relative to some of the leaders within the space deny were the best where the biggest it is I have no question no doubt we are its eight digits, it's it's a bit.

It's a nice size business.

So we've we've certainly.

I'm seeing some very good activity there.

Our or strategy business is about 10% that is not as deep as it needs to be for sure. So that is not at all when you look at the bulge bracket strategy firms. It doesn't you know again, we've got we've got to you know a lot of opportunity there ahead of us.

We've got to build that.

So that's you know at least that that goes to how how I'd rank. It our assessment in development is world class absolutely World Class No question about it our rewards business is 10% and I'm going to say that's world class as well.

Great. Thank you.

And our next question comes from Mark ready with.

<unk>. Please go ahead.

Hey, Hello, everyone.

Hey, Marty Marty.

So, let's just start with if you could update or views on use of cash and maybe some of the opportunities that are there I wasn't sure. If you could maybe address the acquisition opportunities that may be a presented by the deal that business challenges that are better environment.

Well there will be you know we went in with a year ago. When we when we brought out our contingency playbook. One other thing is that weve.

We actually took an accelerated effort that was meeting a lot of companies and.

We you know in terms of the I think we've done 13 acquisitions over maybe 12 or 13 years and.

For most of those there wasn't a book those were those were relationships we develop so we.

We went into that pretty hard a year ago, we've already seen a couple of those come our way we passed on those so I do believe that's going to be an opportunity for Korn ferry.

As this pandemic subsides I think they you know again that the triangulation here as cash biology in psychology, and you know cash gives you a substantial freedom and substantial freedom to in Boston grow depth and capability. So our first.

You know, obviously I think we've had a pretty balanced approach to how we do capital allocation between dividends stock buy backs acquisitions and our people. Obviously this pandemic puts puts a little bit different.

Characteristic now again, we're starting from a position of strength when you when you look at our that our balance sheet.

So those opportunities will undoubtedly we're still.

Actively.

I'm doing the same thing we've always done which is which is you know meeting companies and operating the business to accelerate.

Through the turn but I think that you know given what we've seen over the last few days, which you know I mean anybody could have predicted three or four weeks ago.

That this thing is going to come in waves.

And that that's the reality.

And you know when this thing started we thought it would be you know 18 to 24 months that it was going to come in waves and the real endpoint is the biology, it's when there's a either a vaccine or a therapeutic answer that's widely available and that's not happening in the next two or three month. So.

I think we're going to you know, we're going to run out right balance of shareholders employees customers.

We'll continue that that balanced view of capital allocation.

And we will have opportunities there's no question about it.

Okay, Great and then I wondered if you could spend a little can't talking about you know the e. The overall umbrella of the change of culture that but the June customers are currently and embarked on that particular journey I was wondering if you could share maybe some of the interactions that that Korn ferry had with them do you get some.

It's that the initial stages of that are now taking place in maybe are they taking place a higher up the ladder or the C. Suites. If you will more so than it was before just wanted to get sort of share what that process looks or feels like to you as opposed to those of us looking to move from the outside looking in thanks.

I think that the the first a few months people are playing defense and.

You know cash was was not just killing it would guide so everybody was really for the most part there's obviously some exceptions, but I think when you look at it generally people, we're playing defense and trying to protect.

Their employees get them, a move to a virtual environment.

And so again don't take this the wrong way, but that was a bit pre season I think the regular season, we'll start here and I think there's gonna be advances and there is gonna be retreats, but the great companies are going to be those that go on the offsets.

And dot to a great companies do when there's a crisis that separates great from good great companies accelerate through the term so I think what you're gonna, saying barring some major locked down.

Is that you know you're gonna have be more ways of this virus.

That's for sure people are going to have to learn with that they're gonna have to learn to deal with that rests governments are going to be very generous I think for the most part.

And I think companies over a period of time are going to move to off that's right now they still habits fully some somehow.

Not gonna say, everybody, but but people are gonna start to move to offense, whether that is in July whether that's in October.

I I can't really say, but there's no doubt that that will happen.

I appreciate the commentary any color. Thank you.

It appears there are no further questions Mr. Barrington.

Okay, well listen I want to thank you for listening to the call and I'm, just I'm never been more proud of our company and our colleagues and all the things that we've accomplished in.

You know, let's face it you know in event that hasn't happened in in 100 years, but then also with America dealing with the issue of race and I'm proud to Korn Ferry has taken a leading voice in the so thank you very much for your time and we'll talk to you here.

And a couple of months, thanks, very much bye bye.

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[music].

Ladies and gentlemen, thank you for standing by welcome to the Korn Ferry fourth quarter fiscal year 2020 conference call. At this time, all participants are in a listen only mode.

Following the prepared remarks, we will conduct a question 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 web site at Korn Ferry Dot 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 Branson, Let me first read.

A continuation statement to our investors certain statements made in this call today, such as those relating to future performances performance plans and goals.

Constitute forward looking statements within the meaning.

Oh, the private securities.

Legend.

But like gay shouldn't 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, uncertainties, which are beyond the company's control.

Additionally, 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 S E C, including the company's quarterly report for the quarter ended.

January 31st Twentytwenty. The Companys current report on form 8-K filed on May 11, 2020, and the company's soon to be filed annual report for fiscal year 2020.

Oh, so some of the comments today may.

Reference non.

GAAP financial measures such as.

Constant currency amount EBITDA and adjusted EBITDA a.

Investor Relations section of the company's website at Www Dot Korn ferry dot com with that I'll turn the call over to Mr. Berntsen. Please go ahead Mr. Burton.

Okay. Thank you Amy good afternoon, everybody and thanks for joining US you know the last several months.

Or unlike anything most of us of experts in Norwalk towards long overdue calls for social equality.

Persistent global and domestic in recovery curves.

The only certain data there is uncertainty.

Amid all this change.

We'd be remiss smell that you're working on has all the heroes you know, it's Ben truly up lifting the city humanity around us or healthcare workers.

Other first responders and all of those who are committed to making our world to say for better.

The more equal plunge I've never been more proud.

About four and how we've responded during these collins.

And we sized our business to the current reality wolper zoo preserving tremendous muscle.

Which we believe will allow us to accelerate through the term.

We took a strong voice in the world hosting multiple covert 19, Webinars, which were attended by over 20000 leaders.

<unk> for sure elevating our ongoing focus on continued commitment to not only diversity, but much more importantly [noise].

Closure.

Diversity is up styles.

Inclusion is a behavior.

And we're committed to continuing that conversation beyond the pledge group action.

Now, let me comment briefly on our fiscal fourth quarter fee revenues were down about 7.9% at constant currency as the impact to the virus accelerated through the quarter Oh adjusted EBITDA margin was almost 16% maybe delivered 60 seconds of adjusted.

Yes.

Full year revenues were 1 billion nine and we delivered approximately 300 million of adjusted EBITDA.

And $2 or 92 cents of adjusted NPS.

Now for the future. There's no question that the magnitude of humanitarian an economic impact brought on by the virus far outweighs what anyone could have expected a few short months ago.

The pace the magnitude of the decline caused by this global health crisis is unprecedented.

At least than the last 100 years.

But with the crisis. There was also tremendous opportunity and we believe that includes real tangible opportunities Korn ferry.

Almost every company on the plan is and will have to reimagine their business and I believe in the next two years, there's got to be more change than in the lost him quite simply different work needs to get done.

Work needs to get done differently.

Let me get work done differently companies will need to rethink their org structure roles and responsibilities, how they compensate engage and developed a workforce let alone the type of Cowen <unk> higher.

And how they hire that telling in a virtual world.

Which will depend to even a greater extent.

On a softer.

And as a reminder, our assessment and learning business, you've almost 25% of the company.

No. So these are Korn ferry businesses and this is on top of our M&A change management.

Virtual sales of active dose and customer experience services, let alone the d. and I services, but but we offered to the marketplace, that's real opportunity for us and as an organizational consulting for them, we enable people in organizations to exceed their potential new exceed potentiate.

All people made an abundance of opportunity development and sponsorship, which is absolutely foundational or service offerings.

We're also using this time of changes and opportunity to Reimagine our business.

For example, we're moving from analog to digital delivery.

Our assessment and learning business, which as I just mentioned, it's 25% of the company in a way that makes our IP more relevant and scalable on the recruiting side were further refining a platform processes such as they are video in technology and on the administrative funds were continuing.

To further consolidate our activities.

The operating a one korn ferry approach to deliver greater efficiencies across the entire organization.

When I look back during the great recession.

Our revenue was up almost 60%.

Four quarters from the trough.

Eventually growing five docs, so almost 2.1 billion revenue run rate.

Annual revenue run rate a few months ago, we believe the opportunity to grow after the pandemic subsides wise in front of us where a much different company today.

Oh firms recovery could be substantially different with a pronounced upswing based on a broader and deeper nexsan business.

So undertake this journey, we're gonna be agile flexible and responsive to the environment.

And our clients. Fortunately, we're facing this crisis from a position of strike when you consider we have a solid balance sheet.

With high levels of cash and liquidity.

And we've taken Swift and decisive actions to protect the company and more importantly preserve it's muscle. We've also seen some green shoots and new business and client wins.

April may and June stabilize down approximately 30% year over year.

And sequentially June was up approximately 18% over Matt.

The agenda was better than may or May was better than Jim in terms of new business. We've also said operational guard rails and our business design to preserve our position of strength and enable the firm to invest into the recovery, we're committed to maintaining at least neutral EBITDA. This preserves the muscle of the flowing.

And our ability to fully harness the opportunities in the recovery and we will maintain our dividend this quarter.

As we discussed in the last earnings call, we continue to assess the changing health and economic environment and the impact it has on our forward visibility.

A city states in countries reopened their economies, there's been a significant resurgence of covert 19 cases in a number of places.

In some cases this has resulted in the delay or even cancellation of plans to reopen.

Quarter stuff was 21.

In wrapping up my remarks or want to leave you with US you know at some point.

We'll be looking at this virus through the rear view mirror.

And I truly believe that we have the right strategy with the right people the right time to accelerate the through the turn like we've done before we have demonstrated track record of doing though.

So now I'm joined by virtually by Bob Rozek, and break devote Chuck and I'll turn it over to your Bob.

Thanks, Gary and good afternoon, and good morning, everyone I'll start with a few important highlights for the full year in the fourth quarter.

Fiscal year 20, before I address new business trends.

For the full year fiscal 20.

Our fee revenue was 1.93 billion, which was essentially flat year over year. Our adjusted EBITDA margin was our adjusted EBITDA I should say was 301 million in the adjusted EBITDA margin was 15.6%.

As Gary indicated adjusted fully diluted earnings per share were 2092 cents.

Now turning to the most recently completed quarter fourth quarter fee revenue was 440.5 million, which was down 7.9% year over year measured at constant currency.

In the fourth quarter fee revenue for executive search was down 10% globally, our PEO and pro search was down 9% consulting down 14% in digital grew 14% and all that said constant currency.

Adjusted EBITDA in the fourth quarter.

It was approximately $70 million with a 15.8%.

Adjusted EBITDA margin.

Our adjusted fully diluted earnings per share in the quarter were 60 cents.

Our balance sheet and liquidity remained very strong at the ended the fourth quarter cash and marketable securities totaled 863 million and that's up about 95 million year over year.

And then when you pull out amounts reserve for deferred compensation.

In accrued bonuses.

That's our what we define as our investable cash.

That balance at the end of the fourth quarter was approximately $532 million, that's up about 150 million a year over year.

At April 30, 2020, we have undrawn capacity of $646 million on our revolver. So we have close to $1.2 billion in liquidity to manage our way through call with 19, and as Gary indicated to invest back into the business through the recovery.

The last the from had outstanding debt at the end of the fourth quarter of about 400 million.

Finally, due to the negative economic impact of Koby 19.

We did take swift and decisive actions to downsize our cost base as previously announced we took cost actions that were targeted at compensation as well as gene a spend and we have initially reduced our cost base by about $300 million on a run rate basis.

We believe these actions will help us manage the business to maintaining our minimum operating boundary of adjusted EBITDA neutrality.

Throughout the covert crisis.

And in the current environment meal, maintaining operational flexibility is critical for us.

It will allow us not only to preserve the franchise, but as I indicated will allow us to invest.

Into the recovery, Greg you want to go through some of the operating segments sure. Thanks Bye.

Let's start with the digital segment global fee revenue for cap digital was 69 million in the fourth quarter and up approximately $7 million were 14% year over year measured at constant currency, the subscription and licensing component of cats digital fee revenue in the fourth quarter was approximately 21 million which was.

Up $6 million year over year and was flat sequentially.

Adjusted EBITDA in the fourth quarter for Caf digital was $17 million with a 24.5% adjusted EBITDA margin.

Which limited our consultants ability to execute and complete advisory assignments at client sites.

Adjusted EBITDA for consulting in the fourth quarter was $11.1 million with an adjusted EBITDA margin of 9.2%.

Our appeal in professional search generated a global free revenue of $82 million on the fourth quarter with both component is down approximately 9% year over year at constant currency.

Adjusted EBITDA for RPL professional search in the fourth quarter cycle from $7 million that said adjusted EBITDA margin of 15.4%.

Finally for executive search global fee revenue in the fourth quarter fiscal 20 bunch approximately $168 million.

Which compared year over year and measured in constant currency was down approximately 10%.

At constant currency, North America, and EMEA were each down 10% year over year at a pack was down 16%.

The total number of dedicated executive search consultants worldwide at the end of the fourth quarter was 556.

Now nine year over year end down 26 sequentially.

Annualized fee revenue production per consultants in the fourth quarter was $1.18 million.

And the number of research assignments over worldwide in the fourth quarter was 1229, which was down approximately 28% year over year.

Adjusted EBITDA for executive search in the fourth quarter was approximately $47.5 million with an adjusted EBITDA margin of 28.3%.

Now I'll turn the call back over to Bob to highlight some of our recent monthly trends great. Thanks, Greg So globally year over year decline in must be business as we exited fiscal year 20.

Entered fiscal year 21 appeared to stabilize.

Our PEO.

New business measured year over year was down approximately 20% in March in 34% in Asia.

Starting our new fiscal year made up approximately 13% year over year instantly down 26%.

For the past two years acute enhanced sequentially better than maybe it kind of in the five 7% rate.

Correct.

Okay. So.

They will.

Yes.

Obviously at this point, we still don't know july's new business yet.

With regard to IPO.

New business in the fourth quarter was once again strong with 109 million of Global Awards, which was comprised of 72 million of new clients in 37 million of renewals and extensions.

In the near term the new business pipeline for our BPO remains strong.

That concludes our prepared remarks, we'd be glad to answer any questions that you have.

Our first question comes from Tim Mulrooney with.

William Blair. Please go ahead.

Good morning.

Hey, Tim.

[laughter], given where two months through the first quarter can you just talk about the recent trends that you're seeing in the consulting business and can you maybe break that down and what you're seeing by geography in the types of consulting services that are holding up maybe better or worse in the San Dimas.

Well the on the on the consulting side Weve clearly seen a uptick in our.

Dan I business. We've we've we took a pretty proactive stance both in co that 19.

And with respect to social equality and rice.

And so we have definitely saying.

You know quite a bit of activity in the marketplace.

When you just isolate a gen new business.

You would find that the consulting new business just in the month engine is down about 29%.

And if youre to look over the trailing four months you would find that the consulting business is down about this.

You know approximately so.

I believe that.

Really up to this point.

And don't take this the wrong way, but it's been a bit pre season for companies I mean every company in the world.

It is gonna have to change how they do business different work needs to get done in work needs to get done differently.

And.

That's essentially the definition of culture, how an organization get things done.

So whether it is looking out there.

Or strategy, whether it's looking at roles and responsibilities, whether it's how they deal with customers virtually whether it's how they improved sales effectiveness virtually.

Whether it's M&A restructuring all of those things play and took Korn ferry platform today, which is substantially different.

And you know 12, 13 years ago and the great recession. The other thing we've seen is a pretty significant uptick in career transition services.

Several years ago, we started the business called cap advance.

And the thinking behind cap advance was to give professionals a gymnasium to work out to use our IP to grow to learn to develop to be motivated to be in spot.

And we've put over 100000 people through KF advance and the thing that we've.

We found it wasn't the original intent, but the technology platform that we built is incredibly powerful.

And we're using that platform.

Around career transition so there's been a number of engagements with the unfortunate decisions that companies have had to make and we'll probably continue house to make around what their workforce looks like.

They want to be.

Very sensitive and they want to treat people the right way and part of all.

His sheltering their transition.

And so we've we've definitely seen an up tick and some really marquee wins there.

So I would I feel really good.

About where our consulting businesses today, despite what I said about new business down in June I mean look the world shut down.

But I feel really good about where that consulting business and you'll see when we unfortunately had to rightsize. Our workforce. We were very purposeful in how we did and you'll see that the number of consultant really didn't change much we had a contingent.

Playbook that we dusted out a year ago and part of that playbook, we knew what we were going to do.

And part of that was driving change within our own within our own organization.

Until we were careful about preserving muscle.

Okay very helpful perspective. Thank you one more from me, maybe shifting gears to your digital business.

Incredible the.

There are at least in the United States 15 million salespeople, not only that but what we picked up our tremendous learning capabilities around project management and the like so I could point to a couple wins and career transition we're actually that.

Was.

In part.

Due to.

To the people and the IP that we picked up through the Aspen acquisitions. So as you think about different work needs to get done and how.

Companies are again, they have to engage with customers and what that customer experience looks like.

And what they do around their sales force I am very very bullish on what we can do without business and we're also today bundling.

ER, our services, which I think.

That does that's very unique.

For a professional services for.

So if we are four as an example, if we are I'm doing a search for a chief revenue officer.

We are bundling in diagnostics that we can do very little cost.

Around their sales force.

Okay. Thank you very much.

And our next question comes from George Tong of Goldman Sachs. Please go ahead.

Hi, Thanks, good morning.

Good morning, it's helpful details around new business trends in March April May and June can you unpack those by executive search by geography, and perhaps consulting you called out RPL, but just a little bit additional detailed thereby months, we'll be very helpful. Thank you.

Yeah, Let me let me, let me kind of stepped back and then Bob and Greg If you can kind of fill and let me.

First say, let me look at trailing four mines and I would I would generally say that the way the business has operated in a crisis that we haven't seen in 100 years.

But as we thought about the company and what we were building.

We obviously wanted to create something that had real impact for clients that was that was number one to enable people in organizations to exceed their potential but also part of it was.

To to diversify our platform. So when you look at the trailing four months.

And you look at global Mi business first of all its down 15%.

When you unpack that you'll find.

That RPL, new business is actually up 72%.

Over those four months digital.

Is up 2%.

And the most cyclical on the other end of the curve, which we thought it would be was professional search that was down 36%.

Let me put an asterisk there that we actually saw as you would expect.

That was the most cyclical going down it was also the most cyclical coming up in June.

The executive search was knocks it was down 33% and consulting was less cyclical than search I'd say, 27%. So I think that that broad he says.

And look this is four months I'm not going to sit here and say that's going to last forever, but I do believe that's pretty good evidence that the strategy that we laid out for us.

Diversity Dover diversifying the come to a company not only geographically by by the services. We offer holds walking and it holds up when you look at.

The last three months as Weve talked about again.

June was better than May and May was better than April when you look at the month of June.

Just stand alone.

The first thing I would say is there was no deterioration.

But we didnt say that within the month of Joan if you want to be about myopic.

In the month of June global New business was down 23%.

When you start to unpack that by region, you'll find that North America was down 24, EMEA was down 23, APAC was down 16, APAC went into the crisis earlier allegedly came out of it soon or.

Despite all the news that we're saying today.

In Beijing.

When you look at it by line of business solely on the month of Gen.

You will find a search was down 33% consulting was less cyclical at 29.

Digital was actually up a few percentage points and RPL Pos was down 17, but you really can't look at that 17 because RPM.

He is very lumpy and we had some increased despite this whole pandemic.

We have we've had some incredible wins.

And they are PEO business, so Bob and Greg do you want to add anything to that.

Yeah, just just a couple of points you are right, Gary our PEO business in those wins that we had in the fourth quarter a significant percentage of came from Asia Pacific region itself.

So what was in Singapore, and what was in Australia.

The other thing I would add is as you know weve.

Look at the new business activities over the past four or five months to the one thing that's clear as there's really no discernible pattern that emerge.

On one one month.

We could be doing fairly.

Fairly poorly in new business and then in.

Pops back up again.

So it's really choppy lot of sought to.

Activity, which I think is what you expect.

Environment.

People are trying to deal with.

You know the working from home in the current from academic and so forth.

But.

Geographically.

Again, there's not a lot of differentiation.

Amongst the different geography so.

That would be on anything I would add Gary.

Okay. Thanks, Bob.

Well.

So to the extent that you're fortunate enough to have cash either as a business.

Or individually you've got.

Incredible amount of freedom.

Korn ferry blast that we have that financial freedom.

Biology is going to determine the endpoint.

And the thing that's in the middle which is really our business that we offer to clients.

He is really around psychology, how do you how do you get work done differently. How do you motivate how do you inspire how do you develop how do you pay that's exactly what Korn ferry is all about so I think we are much better position today than we were say in 2008 in 2009.

So to answer your question I'd I'd first step back and say if you tell me when the humanitarian crisis and I can tell you. How these operating boundary shift number two I think as Ceos charges around stakeholders.

So it is a it is again, a triangulation shareholders employees and your customers and I think you've got to walk that balance and particularly in a time when a lot of people are suffering.

We have to be very very cognizant of our own colleagues.

And they're well being and so we have to balance those constituencies within that stake holder paradigm.

So for this quarter for the first quarter, but July corridor, we have established a boundary.

Ah, yes, but neutrality.

How and if that changes.

Will really depend on the humanitarian crisis and that is something that I just can't per day, I mean, you see it right now you see the spike up to 50000 cases.

That's that's hard to predict so we're trying to to one that balance.

And we also want to accelerate through the Terry you know, it's much like driving a car you don't you don't you break well ahead of the turn and that's what we did a year ago with our contingency playbook, which you want to do is step on the gas through the term units. That's why we've got that ample balance sheet that's why.

We took the actions that we took.

And Gary I would just.

To that George our operating boundary is a minimum of EBITDA neutral.

So.

Yeah, we're going to operate the business to EBITDA, which was can be a minimum of EBITDA neutral.

Got it very helpful. Thank you.

Our next question comes from Mark Mccollum with Bar Baird. Please go ahead.

Hi.

Good morning, and good afternoon, depending on where you are.

Gary I really appreciate a thoughtful comments that you had just one clarifying statement.

When you say EBITDA neutrality, do you mean breakeven or what exactly does EBITDA neutrality.

It means a minimum of EBITDA.

Breakeven.

Okay.

And you do hubs.

Slide that would typically translate over to blank as it relates to margins is there any way of.

No, giving some sort of guide rails, just with regards to not necessarily guidance, but just an understanding of like okay.

You know what does this mean because you've done a great job in terms of managing the expenses, thus far and associated with that can you talk a little bit about some of the restructuring actions and the cost savings that they will that they will drive on an annualized basis going forward.

Okay. Let me let me try a couple Bob can add that Mark if I Miss something just just come back and again, Bob you can comment on the revenue come margin all first start.

With a new business.

To revenue so when you look at the organization if you take the.

Search businesses.

So both executive search and professional search.

Those.

Generally that so that's 45% of the company today.

Those generally converts to revenue within 90 days.

So if you take the trailing four quarters of four quarters trailing four months.

Those search businesses are down call. It 35%. So I think you can.

Reasonably do some mathematics and I'd tell you that in June.

Search executive search was down 33%, although professorship professional surge was actually a much much different story. So that's that stop piece of it.

The.

I would say on both the consulting and digital business. Let me just lumped together for a second what you'll find there is that new business.

Generally converts.

To revenue within the first 12 months that about two thirds. So about two thirds of the new business in consulting and digital.

Floater revenue within 12 months, so again substantially different than search the balance goes over probably 13 to 35 months the RPL business.

What you would find there is.

Probably less than 50%, but probably more than 25%.

I would get recognized of new business would get recognized in 12 months the balance would get recognized over.

13 to 35 months. So that's that's one way to kind of.

Think about the mathematics.

New business.

Translating.

So rather than though.

Right so.

Typically Bob you know and Gary. Thank you for the for the clarity with regards to the revenue flow through just thinking about the.

Take the most simple case in terms of executive and professional search where you know roughly the new business trends are basically can accounted for two to revenue over 90 days. So we have a pretty good understanding of where the you know the revenue numbers going to be for for that if we're down.

Down by.

29 or 30.

3%.

What would that end up doing to EBITDA margins would that be.

With that would we stay at that breakeven, but even level, we'd be at the 5% level, 10%. How does that how does that translate are hard to how should we think about that I know, it's it and I'm not taking it as guidance I'm, just saying, if you're framing something like that where it's relatively clear guide.

You know where the revenue goes how should I should investors expect the margins to flow.

Yeah, I think that you know as you as you think about the revenue has gone down there's there's a couple of things that are complicating.

I'm trying to skirts question, but a couple things that complicated depends on which line of business.

You know experiences the worst downturn as you know searches sure profitable at the 24, 25% EBITDA margin digital is even more profitable and saw so lot of its going to depend on.

What a line of business, how the revenues fall.

You know it enough themselves [noise].

The only thing it complicates it too is Gary talked a lot about the new business and how it.

It translates to revenue.

What we're also seeing Mark is the new business, we're seeing a real shift in the mix of our new business may. So if you look at and you break it up between smaller engagements you'll see those below.

500000, whether it's in digital or consulting.

We're generally seeing declines in new business at that level. If you go 500000 above.

Actually seeing new business growth year over year, and so you've got the not just the you overall decline of business, but you have a shift in the mix of the size of the engagements which makes it.

Even more challenging to step back if there will be up or down 29%. This is what's going to happen.

To our EBITDA margin.

But I guess Mark if your question is hey, if consulting is down just take the consulting piece of the business. If it is down you know, 30% or so would we expect breakeven EBITDA yeah, we would.

Okay, and what about on the on the search side Gary.

I would I would say that that would be positive EBITDA.

Okay, Great and then can can you talk a little bit about on the consulting side, how much of the decline in terms of new business. Obviously these are unprecedented on times and it's really hard to unpack things.

But how much of the decline in consulting do you think is due to the fact that we have to work from home relative to.

Relative to just the financial constraints and the uncertainty that's out there is there is there a sense that you have that.

From from that perspective in other words, you know yeah today in a work from home environment for a prolonged period.

Is that really the constraining factor as opposed to their financial uncertainty.

Assessment and learning is 25% of the company.

And when we candidly look in the mayor.

A lot about delivery of learning was classroom.

To give you some idea how hard we pivoted.

Yeah in April and May we've gotten more virtual deliberate.

Development than we did in the prior 10 months.

So we have gone hundred 80 degrees hard on all of our development capabilities, whether that's inclusion whether its simulations.

The whole thing we have absolutely gone digitally now so you're going to see.

The impact of that that's stoppage essentially of the economy for a couple of mines, you're definitely going to see that.

In our first quarter Theres no question about it and when you look at it.

That specific question, where it really has hit Korn ferry and I think it would hit anybody that's in that there was in the development or training or are learning business for the most part not everybody, but but that definitely hit us hard because that just stopped I mean everything sales effectiveness training unique.

And so now we are pivoting and we've been pivoting for months now I'm very very hard and so when you look at some of these you know new wins marquee wins, we have now such as you know career transition services all of that's virtual I mean, it's absolutely all virtual I think the other thing that's going to be really.

The interesting is our assessment you know, we've assessed 70 million executives and.

We have an assessment for everything.

You know we have half a billion.

You know that the physical interaction that's not going to be what it what it was and I think that people are gonna have to a lot more on who somebody is and the assessment rather than the personal bias. They have one they're actually doing an interview so Dan.

Could play really nicely in the Korn Ferry sands.

That's great Gary can I, just squeeze one more and just with regards to deny organizational structuring and potentially coveting sales training to be sales training in a virtual world and how that can be done more effectively how big are those individual pieces and.

And then how would you rank your youre your consulting practices in those areas relative to some of the leaders within the space deny where the best where the biggest it is I have no question no doubt we are.

It's eight digits, it's it's a bit it's a nice sized business.

So we've certainly.

I'm, saying some very good activity there.

Our or strategy business is about 10% that is not as deep as it needs to be.

For sure so that is not at all.

When you look at the Bulge bracket strategy firms. It doesn't you know again, we've got we've got to you know a lot of opportunity. There ahead of US we've got to build that.

So that's you know at least that that goes to how how I'd rank. It our assessment in development is world class absolutely World Class No question about at our rewards business is 10% and I'm going to say that is world class as well.

Great. Thank you.

And our next question comes from Mark ready with.

Siddhanti. Please go ahead.

Hey, Hello, everyone.

Mark.

So, let's just start with if you could update or views on use of cash and maybe some of the opportunities that are there wasn't sure. If you could maybe address all acquisition opportunities that may be presented by the deal that business challenges that are better and these items.

Well there will be we went in with a year ago. When we when we brought out our contingency playbook. One other thing is that Weve that we actually took an accelerated effort that was meeting a lot of companies and.

We you know in terms of the I think we've done 13 acquisitions over maybe 12 or 13 years and for most of those there wasn't a book those were those were relationships we develop so we.

We went into that pretty hard a year ago, we've already seen a couple of those come our way we passed on those so I do believe that's going to be an opportunity for Korn ferry.

As this pandemic subsides I think the you know again that the triangulation here as cash biology in psychology, and you know cash gives you.

Substantial freedom and substantial freedom.

Two in Boston grow depth and capability so our first.

You know, obviously I think we've had a pretty balanced approach to how we do capital allocation between dividends stock buybacks acquisitions and our people. Obviously this pandemic puts puts a little bit different.

Characteristic now again, we're starting from a position of strike. So when you when you look at our that our balance sheet.

So those opportunities will undoubtedly we're still working actively I'm doing the same thing we've always done which is which is you know meeting companies and operating the business to accelerate or through the turn but I think that you know given what we've seen over the last.

Few days, which you know I mean anybody could have predicted three or four weeks ago.

That this thing is going to come in waves.

And that's the reality and you know when this thing started we thought it would be you know 18 to 24 months that it was going to come in waves and the real endpoint is the biology, it's when there's a either a vaccine or a therapeutic answer that is widely available and that's not how.

Softening in the next two or three month so I.

I think we're going to we're going to run that white balance of shareholders employees customers, we'll continue that balance view of capital allocation.

And we will have opportunities there's no question about it.

Okay, Great and then I wondered if you could spend a little time talking about.

The overall umbrella of the change of culture that but the June customers are currently embarked on that particular journey I was wondering if you could share maybe some of the interactions that the Korn ferry has had with them do you get a sense that the initial stages of that are now.

Taking place in maybe are they taking place a higher up the latter or the C. Suites. If you will more so than it was before just wanting to get sort of share what that process looks or feels like to you as opposed to those of us looking to move from the outside looking it. Thanks, I think that the the first a few months people were playing defense.

And.

You know cash was was not just killing it would god. So everybody was really for the most part there's obviously some exceptions, but I think when you look at it generally people, we're playing defense and trying to protect.

Their employees get them, a move to a virtual environment.

And so again don't take this wrong way, but that was a bit pre season I think the regular season, we'll start here and I think there's going to be advances and there was going to be a retreats, but the great companies are going to be those that go on the offsets.

And that's what great companies do when there's a crisis that separates great from good great companies accelerate through the term so I think what you're gonna, saying barring some major lock down.

Is that you know you're gonna have be more ways of this virus.

That's for sure people are going to have to learn with that they're gonna have to learn to deal with that risk.

Governments are going to be very generous I think for the most part and I think companies over a period of time are going to move to off that right now they still how that's fully sub somehow I'm not gonna say, everybody, but but people are going to start to move to offense whether that.

Is in July whether that's in October.

I can't really say, but there's no doubt that that will happen.

I appreciate the commentary in the call. Thank you.

It appears there are no further questions Mr. Burlington.

Okay, well listen I want to thank you for listening to the call and I have just never been more proud of our company and our colleagues and all the things that we've accomplished and you know let's face. It you know and event that hasn't happened in in 100 years.

And also with America.

Dealing with the issue of race and I'm proud to Korn ferry has taken the leading voice and though so thank you very much for your time and.

We'll talk to you here and a couple of months, thanks, very much bye bye.

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