Q1 2021 Korn Ferry Earnings Call

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Ladies and gentlemen, thank you for standing by and welcome to the court fairy first quarter fiscal year 2021 conference call. At this time, all participants are in listen only mode.

Following their 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.

Well, if our web site at Korn Ferry Dotcom, a copy of the financial presentation that we will be reviewing with you today.

Before I turn the call over to your host Mr., Gary Burnison, Let me first read a cautionary statement to investors.

Certain statements made in the call today, such as those relating to future performance plans and goals constitute forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995.

Although the company believes the expectations reflected in such forward looking statements are based on reasonable assumptions.

Investors are cautioned to people to caution not to place undue reliance on such statements actual results in future periods may differ materially.

Lee from those currently expected or desired because of a number of risks and uncertainties.

Whichever 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 others reports filed by the company with the FCC, including the company's annual report for fiscal year 2020, and in the Companys soon to be filed quarterly report for the quarter ended July 31st 2020.

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 Dot Korn ferry Dot com.

With that.

I will turn the call over to Mr. Burnison.

Mr. Burnison. Please go ahead Sir.

Okay. Thank you Stephen and good afternoon, and good morning, everybody.

It's been six month sense. The pandemic was officially declared and I think the world.

Is that the beginning of an iron man TSRE Apple on yeah, it's not just the marathon, but to try out sort out they don't want to have insurance agility change. In fact, you know I think over the next two years, we're gonna see more change than we've seen in the past 10.

Change, we'll circle humanity.

And then business different work will need to get done then work will need to get done differently. Almost every company on the pounding on the planet is gonna have to reimagine their business, whether that's rethinking their organizational atmosphere their structure roles responsibilities Oh, they compensate now they engage.

How they develop their workforce.

There's change is gonna be all around us, they're going to need to higher learning agile diverse talent and do so in a more inclusive eat those and in an increasingly digital world and that's the essence of.

Of corn ferries business to enable people in organizations to exceed their potential to be more of them. You know in early March Oh, we were announcing the best results in our history, a record fee revenue and a continued transformation.

From a mono line from two an organizational consultancy and then the world temporarily pause.

Certainly the up pause temporarily impacted our business.

During the first quarter of our fiscal year, we generated about 344 million in fee revenue, which was down about 28% constant currency, but I think the key word is temporary as we alluded on our last call. We're continuing to see green shoots with.

July new business better than June June at better than May and may better than April.

Trailing new business for the three months ended August was down about 13% year over year, combined which is obviously more positive than we saw in our first quarter and what we saw when the world stopped in April.

In fact August new business was only down about 6% year over year.

So really good news July new business was up 34% over June.

So again, you know green shoots that we're saying and I think on more than anything I'm proud I'm proud of our organization.

Motivated by how we've positioned ourselves.

For the opportunity ahead, and you know we face this crisis.

From a position of strength not only when you.

Consider the breadth and depth of our solutions, but when you consider our balance sheet and the foundation of the firm.

That was bad.

Grounded any an IP and data.

And that continues to be the backbone of Korn ferry, we've got rewards data on over 20 million people 25000 companies.

We've done almost 70 million assessments, we have.

Thousands of organizational benchmark data, we've got thousands of success profiles every year, we train and develop a million professionals a year and certainly not you know last but not least is we place a candidate each business. Our every three minutes and so were you know we're using the.

This time of change not only to have an impact with our clients, but also to reimagine our own business.

And that includes moving from analog to digital.

Including in our assessment and learning business, which you know today, it's almost 25% of the company and we're certainly shifting that business I mean, we've done more virtual sessions in the last couple of months and we've done in the last you know many many months that the pipeline is good we pick.

But it very quickly.

I I can't be proud of our team and when you look at the the up tick care month over month in both our consulting and digital new business.

You you can say that something's working in the in on the recruiting side. That's another place where we are ria imagining that business as well through a <unk> technology and and a lot of a platform that we use in RP a we've taken this IP we've taken it out to the marketplace.

Very proud in terms of the steps we've taken I think our biggest opportunity as a company is to recast the Korn ferry brand.

We recently launched a leadership you curriculum that helps leaders take on today's challenges and more importantly, and that all the calls for change were amplifying our voice not only on diversity, but also the equity and inclusion both within Korn ferry.

And among our clients and we know from our research that diversity as a family.

Engagement isn't a motion.

But inclusion is a behavior.

And so our focus on deny.

It's about actually it's about eight years ago Ah almost actually two days ago eight year anniversary of us, making an investment in a company at that time was called global Novations, we've turned that into what I consider to believe the absolute doffs deny consulting.

Business in the World and as I mentioned, our July consulting new business with before highs month in our history.

And I think I was driven in part by the strong voice we've taken.

Not only around the pandemic, but also around Vietnam and I'm also proud and pleased to say there were launching leadership you for humanity and that's a nonprofit venture of the Korn Ferry charitable Foundation.

Focusing on developing the total mosaic inside communities and within corporations.

Well one of our partners will be the executive leadership Council.

Absolutely preeminent organization their mission is to develop increase the number of successful block executives around the goal. So yeah around the globe and our goal is to develop a million new leaders from diverse background.

Using our Korn ferry advance and leadership you platforms and so not only I think if we demonstrated that we.

We say, what we mean, but we're not just talking about it we're being about it and providing a systemic solution.

Sure systemic issue.

And so out of Tomorrow's change in new order is emerging and Korn ferry is going to help drive that change, helping people and organizations be more than.

With that I I'm joined here by Bob Rozek, and Greg can vote shock and so a before we entertain questions I'll turn it over to you about.

Great. Thank Gary and good afternoon, and good morning.

Before I jump into the first quarter results I wanted to just elaborate a couple points that Gary talked about.

I think he's absolutely right concerning the amount of change that will take place in the next to even three or four years I'm already seeing in our clients.

Truly believe that Korn ferry is uniquely positioned to lead companies through this change you know that data IP and know how that Gary talked about really sits at the center of our organization that permeates all of our solutions.

And that provide the common Herman I language for talent, but it's really core to our one Korn ferry integrated approach to helping clients. So they're already is business issues through the most valuable asset, which obviously is that people.

Again, I believe we're uniquely positioned because we're the only for that has ended and data IP and know how to address every aspect of an employee engagement with his or her employee or.

Not only do we have first mover advantage, but my opinion.

Position and our collection of assets, it's virtually impossible replicate.

So as I sit here today.

This wave of change.

With that collection of assets is solution, we've assembled my optimism for corn thirtys future growth prospects have never been.

Now, let me turn my attention to the first quarter.

I'll start with a few highlights.

Before turning it over to Greg and then I'll come back I address a recent new business trends.

So I just first quarter fiscal year 21, our fee revenue was 344 million down about 28% in constant currency.

More importantly, our monthly fee revenue trends within the quarter showed signs of stabilization.

Consolidated fee revenue in May was down about 34% year over year, well June and July were down, 27% and 26% respectively.

For each of our service offerings, we saw the revenues slowly at different rates, which really was in line with our expectation and reflects the diversification and mix shifts that we've been communicated.

Specifically fee revenue in the first quarter measured at constant currency was down 37% for executive search.

35% or professional search.

Or consulting was down 26%.

RPL was down 22% digital was down 2%.

Driven by the revenue contraction or consolidated adjusted EBITDA for this quarter was.

10.6 million with an adjusted EBITDA margin of 3.1% and our adjusted fully diluted loss per share.

18 cents.

Our balance sheet and liquidity remains strong.

End of the first quarter cash and marketable securities totaled $733 million.

Excluding amounts reserve for deferred comp at for who bonuses.

Actually net of the funds used to rightsize firms are investable cash balance.

Ended at first quarter was about $511 million and that's up about $150 million year over year.

We continue to add undrawn capacity of 645 million and our revolver. So altogether, we have close to $1.2 billion and liquidity.

To manage our way through the Cobiz 19 crisis, it to invest back into the business through the recovery.

Last we had about $400 million, an outstanding debt at the end of quarter.

Finally during the quarter, we completed our restructuring it seems to site, but from where the anticipated current levels of revenue as you will recall in April just before the end of our fiscal fourth quarter about like 20, we announced a number of cost action is targeted at both compensation expense.

Which included layoffs furloughs and across the board salary cuts as well as other actions focused on the reduction of DNA.

Combined with the actions completed in the first quarter, we have initially reduced our cost base by about $321 million and.

Im now going to turn the call over to Greg.

Each segment in more detail.

Thanks, Bob starting with our digital segment global fee revenue for KFC digital was $56 million and the first quarter and down approximately $2 million or 2% year over year measured at constant currency.

Subscription licensing component or pay it gives you don't see revenue in the first quarter was approximately 21 million, which was up $6 million year over year flat sequentially.

Business and that first quarter for the digital segment was down approximately 3% globally year over year at constant currency with a subscription license income totaled approximately 40%.

Adjusted EBITDA first quarter for Caf digital was $7.9 billion with a 14.2% adjusted EBITDA margin.

Now turning to consulting in the first quarter consulting generated $99 million at the revenue, which was down approximately 26% year over year at constant currency.

As clients have settled into their new work from home protocols and have become more familiar with our virtual delivery capabilities new business for consulting services has begun to improve.

Measured year over year at constant currency, new business in the first quarter for our consulting segment was down approximately 4%.

By North America, where new business was up 11% year over year.

Adjusted EBITDA for consulting in the first quarter was $6.6 billion with an adjusted EBITDA margin of 6.6%.

RPL professional search generated a global fee revenues of $68 million in the first quarter, which was down 27% year over year at constant currency.

RPL for you see revenue was down approximately 22% and professional search fee revenue was down approximately 35% year over year measured at constant currency.

Adjusted EBITDA for RPL professional search in the first quarter was $6 million, we're going to adjusted EBITDA margin of 8.8%.

Finally for executive search global fee revenue in the first quarter fiscal 21 was approximately $120 million, which compared year over year in measured at constant currency was down approximately 37%.

At constant currency, North America was down 38% of both EMEA and APAC were down 35%.

The total number of dedicated executive search consultants worldwide at the end of first quarter was 510.

Down 59 year over year down 46 sequentially.

Annualized fee revenue production per consult during the first quarter was $900000.

And the number of new assignments open worldwide. The first quarter was 1115, which was down approximately 34% year over year.

Up 9% sequentially.

Adjusted EBITDA for executive search in the first quarter was approximately $8.1 billion with an adjusted EBITDA margin of 6.7%.

I'll turn the call back over to Bob to discuss some of our recent months a new business trends great. Thanks, Greg.

Globally year over year declines in monthly business exiting fiscal year 21, Q1, entering the second quarter.

Continue to stabilize.

Excluding new business awards for our PEO global new business measured year over year. It was down approximately 31% may down 25% in June rebounding to down 5% in July.

Measured sequentially do new business was up 17% over May in July new business was up 34% compared to June.

Summer vacations August the seasonally slow month enormously is lower relative July relative to July.

Measured year over year August new business was stable in down about 6%, which is in line with what we saw in July.

Lumpy new business trends it varied by segment and have in some cases, Ben choppy month to month.

Digital new business was up 3% year over year June down 5% year over year in July and up 10% in August.

Likewise consulting business was down 28% year over year in June rebounding to up 34% in July and up 10% in August.

For executive search new business was down 34% year over year June improving sit down 27% in July and was down 19% in August.

Finally professional certain new business was down 15% year over year falling to down 23% in July and August.

With regards to ARPO strong quarter of the new business.

56 million of Global awards and that was comprised of 32 million of new new clients in 24 million of renewals and extensions and we continue to have a strong pipeline.

New business in the our appeal.

Approximately two months it passed since our last earnings call.

At the remain significant uncertainty about the ultimate impact that probing 19.

Society and global economies.

Currently governments are struggling to balance reopening in reengaging in an effective way.

Yes, the maintenance of an environment that fosters the health and safety everyone.

It really is no playbook. This effort takes on many forms and there's not a clear path to success.

Further it's unclear whether certain governmental eight programs that were put in place to provide financial assistance impacted businesses and individuals whether they will remain in place or for how long.

The unprecedented in nature of the current environment combined with many unanswered questions and rapidly changing data points like the recent acceleration of corporate layoffs.

And the potential outcome of the U.S. presidential election that really continues to cloud the near term predictability of our business.

Inconsistent with our approach in the last two earnings calls, we will not issue any specific revenue or earnings guidance for the second quarter fiscal year 21.

That concludes our prepared remarks, we're glad to take any questions you may have.

Ladies and gentlemen will now begin the question and answer session of today's conference. If you wish to ask a question. Please depressed a one followed by the zero in your Touchtone phone, you'll hear tone, indicating that you placed yourself in Q and all questions will be pulls in the order you receive you may removed yourself at any time by depressing the pound key on your Touchtone phone.

And if using a speakerphone please pick up your handset for depressing the keys one moment. Please for our first question.

Our first question will come from the line of George along please go ahead.

Hi, This is George.

Good morning, you indicated that July new business trends were down 5% year over year, whereas August new business was down 6% year over year could you talk about what contributed to the moderation in the piece of improvement in new business trends overall and perhaps by segment.

You know if you looked at the good news is obviously the headline numbers on the corner on the quarter were not spectacular, but you know the world stopped in April and you're going to see that with GDP.

But what we have seen is a very steady.

Upswing in new business and as Bob indicated.

July was better than June, which was which was better than may. So that's really good news I wanted to look at August overall, we were down about 6% executive search was down 18%. If you just isolate.

The month of.

Our guest and consulting and digital were actually up 10%. So I think that when you. When you look at the platform as a whole the business is reacting.

Almost in line with what we thought it would do and when you look at the drivers.

Consulting.

And digital I would say I would point to number one transformation and the fact that every company.

You know different work needs to get done work needs to get done differently. So every company in the world is gonna have to reimagine their business and that starts with the organization and its people and when there is transformation. There's there's usually a pause and then the next step is with people. So we've certainly.

The same.

We're starting to see early signs of that in our consulting and digital business I think the other broad stroke I would put on the new business trends is our dxi business.

Which is.

Before this was about a you know mid.

Eight figure business.

And we've seen over the last few months or about a 50% up to a in how we can help companies.

I'm not just deal with diversity, because that's a fact, but more importantly, how you deal with inclusion which is a behavior.

So I would I would point to those too and then I would point to one other which ties to transformation, which is around developing a workforce and creating a more learning agile workforce that can operate in a digital world.

With an inclusive eat though so those are I think the broad strokes on the business you are saying, obviously an up tick in search.

Which is good and then from an industry standpoint, you know it's much like you would probably intuitively think.

The consumer area.

Has seen improvement, but not as not as much as say life Science life Sciences spend as you would guess.

Certainly stronger.

And so those would be the broad strokes, obviously energy has been challenged over the past few months.

But that would be my kind of 38000 foot year.

Yeah, Hey, George.

You know on the Wise counsel Toby.

Our last earnings call, we actually put a slide into the earnings call presentation is posted.

That shows the new business by each only the business.

On page seven.

Great that's helpful and as a follow up.

Could you provide some perspectives around how you expect the.

Trends that you're seeing in new business to translate into revenue or fee performance it sounds like.

Clients aren't can swing so retention rates aren't changing so it's really the pace of new business. That's ultimately going to drive fee revenue performance. It sounds like it's ultimately delays rather than cancellation. So could you provide some perspectives on how you expect the translation of new business into fee revenue.

Yeah, we've seen on the you know the search businesses are rather straightforward that's going to be you know that translates to revenue generally.

Over 90 days and when you look at the.

Consulting.

And digital business you'd find that essentially.

You know 50% of that gets recognized and say within 12 months and then the balance is going to be over the next 13, the 35 months and the RPL business is not materially different than that and what I would say there's been a couple of other trends to we've certainly shift.

Seen a shift towards bigger engagements that was a strategic pillar of ours going back a couple of years, we're now really starting to see at more impactful in.

Engagements Scott that's something that is coming through and I think the other thing that Bob could maybe allude on is when you look at the digital business. We thought we've all we've talked for a while about moving now business to a subscription based model in that digital business you know we obviously.

Made a push.

Towards digitizing now, but the reality is when this pandemic hit still a lot of the business was delivered in.

In classroom and we have gone well I mean, we are all over that moving that to a digital offering and one of the things is to increase the amount of subscription based.

Business from from digital so Bob do you want to comment on that.

Yeah. So George just so just so you know the subscription business and I'll give it to over the last three quarters, including.

Q1 was right around $21 million today of demonstrates the durability of that revenue.

In the current environment that we're operating.

The a piece of that.

Better news is if you look at the new business first a subscription.

It was about $23 million in Q1, that's up 42% kind of year over year.

Even quarter sequential it's up about 60%.

So again as Gary indicated part of this strategy.

In the diversification is also creating more durable revenue streams that we're starting to see that see that take shape I mean, even you know when we talked about the.

The larger engagements when you when you stratify, the you know whether its digital or consulting.

Instead of a large engagements for do though we consider that over to 50 for consulting we consider that oversight and good.

We're seeing growth in those large engagements.

Year over year in quarter sequential.

Versus the smaller more transactional engagement, that's where the EBIT decline. So again this were either data points at this point, but we are starting to see really the strategy come to light that we've been talking about.

Got it very helpful. Thank you.

Yes.

Our next question will come from the line of Tobey Sommer. Please go ahead.

Oh, Thank said just a quick follow up I could on the new business trends, what contract duration like or new business trends duration.

If you could speak about a little bit by segment.

And in particular, the deny wins that you have or those on the longer side, just trying to think about as far as how to play out model. Thanks.

Yeah, we hope that the the deny or is.

It's definitely it's not going to be 90 days, but it's not going to be as long as the balance of the portfolio companies.

There was going to be real change people are from what I can tell talking to Ceos. It's people are taking this very very seriously.

Typically in the United States So I.

I would.

Guess that much of that we'll have them you know a shorter tail and so if I described at the search businesses, how the tale of say 90 days or so.

And the consulting digital Rpos businesses have the revenue recognition of say, 50%.

Within 12 months. So then the balance over say.

36 months I think this will be the deny business will be somewhere in between.

Okay. Thanks, that's helpful.

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How should we think about the temporary cost Cogs being re absorbed into the bill will again from a modeling perspective.

Pretty significant variable for us to contemplate.

I would think about it when we laid out the cost cuts.

Our goal.

Was this number one I guess as I step out this was a humanitarian crisis.

And so we pulled out of contingency play book, a year ago and did a number of things to prepare for a turn obviously, we didnt envision this kind of turn.

But when we in early March.

Obviously saw this in China felt a third week in January.

As we looked at this we said why do you know this is there this is a humanitarian crisis.

And let's go into this with a view of preserving.

As much muscle as we possibly can to accelerate through the turn.

And last time when I go back 12 years Korn ferry his business grew five fold from the trough.

Obviously over a period of years.

Both in organically or inorganically and within four quarters or the trough the business was up 60%.

So we said, okay, let's try to save as many jobs as we possibly can.

Unfortunately, we did have to make the decision to let go.

Some very very good people, which troubled loans and then we took some other auction.

That we're more temporary in nature and so when you looked at it in total.

On an annualized run rate, we said we would.

Reduce the cost base by about $320 million.

Essentially.

Half of that.

As a more permanent in nature.

And half of it would be.

Variable.

And so when you look at.

This quarter on that variable piece.

Into the first quarter something like that Bob can provide.

Specific numbers the way that you know we're we're we're not providing guidance just given you know how quickly the world seems to change from day to day.

And the way that I would kind of look at this is just say okay. You did.

$345 million in revenue.

In fee revenue this quarter, which obviously reflected the world stopping in April and if that were to go up say I'm picking pick a number say 25 million how would that margin expand and I would probably point you too.

On that first 25 million it would probably go.

Hundred 150 basis point.

And as you go up the ladder in 25 million dollar increments.

As you each rung up that latter you're going to see more leverage and more flow through to give it a.

So that's kind of how I would think of it in very very broad strokes. Bob can you clarify any of that is that about right.

No, it's actually pretty spot on Gary the the percentage you talked about 40 is actually 41% so you're spot on in.

Yeah, and all the model that you laid out is exactly what we're now we view of the world.

[noise]. Thank you if I could ask another one with that in mind investors looking at.

Businesses, all storm or trying to see what they'll be like one.

Things are more normal and we're just worried about economic forces and not the humanitarian crisis you articulated.

What what kind of revenue level do you think the company would need to hit to operate at the old EBITDA margins of around 16% since.

That kind of analysis is gonna be integral though long only building a position amid this turmoil.

Well I think yeah [laughter].

I hear you I think you first half to opt to look at you know do you do you believe in the Companys strategy of creating a preeminent organizational consultancy taking strategy synchronizing, where you know in organization in town driving superior performance I think were that the very very beginning.

Of that journey, so what I would say is number one it really kind of does depend on the mix of business in what happens here.

I think theres going to be again more change in the next two years in in the last 10 years that change is going to encompass a lot of different factors, including the C suite.

Because I think what you're going to find is for a whole host of reasons, there's going to be a lot of chairs that are going to get reshuffle.

People may make personal decisions, there could be demographic issues and considerations.

There could be a number of things, but that would not surprise me in the lease that wants companies get passed this neutral zone.

And really moved off and I'm, not suggesting that companies haven't done.

Clearly, there's been a number that half, but now you're really going to determine winners and losers. So you're absolutely right Korn ferry and its past performance, we from a loss truck grew the company fivefold.

And.

From the trough in 12 years ago within four quarters It grew 60%.

So you know it depends on number one if you consider this to be a trough.

If you do and you apply that same sort of logic.

To where we were in the first quarter I think you could reasonably conclude that we would be back at those margin levels of you know for sure. So we think we've taken the rights style.

Not only on the cost side, but much much much more importantly on the topline side about how we can help companies.

Really really deliver on change and whether that's deny whether its sales effectiveness, whether it's M&A, whether its transformation or was it whether it's the reshuffling of a C suite.

I feel very confident.

In that.

Okay. If we just take the mix shift out of it can you be at the old margin at a lower revenue level because of the cost cuts you take now yes.

Thank you.

We have a question from the line as Sam Cuss warm. Please go ahead.

Hey, everyone. How do you guys are doing while my question relates to executive search are there certain client groups that demand has trended particular, better or worse that throughout the quarter here.

Could you.

Got a little muffled could you repeat that I'm, sorry, one more time.

Yeah with an executive search are there certain client groups that demand is trying to particular better or worse and throughout the quarter.

That are trending better or worse.

Yes, yes.

Well.

When you when you look at it you know clearly.

The life Sciences area.

Has for sure.

Trended better.

On the other tasks and have it theres been certain aspects of the industrial business.

Such as energy.

That that haven't trended as well and so those would probably be the barbells and I'd also say that.

Professional services.

Has not trended well.

[music].

But given what we're seeing in manufacturing activity and all of that I'm not so sure.

That those trends that I just alluded to would continue.

What I would say those are the.

The outliers things like wealth management asset management have have.

I have done reasonably well in this in this environment.

Thanks, I mean, that's helpful. Maybe switching gears on all that.

In prior cycles, when coming out of recession.

Are there more favorable opportunity for market share capture from struggled from hundreds or even additional acquisition opportunities.

For sure you know we've been on one of the things we did a year ago.

Is we plan of a lot of M&A suits and as you know we've done 13 acquisitions in 12 of those were really kind of sole source sourced where the company wasn't necessarily for sale, we plan as a lot of M&A suits.

Going back a year ago. So there will there will undoubtedly.

Do those kind of opportunities when when we look at the market.

We size the market.

Somewhere between 200 $250 billion.

And when you look at that market sizing you would find that the areas of learning and development represent a disproportionate size about market.

And so we are keenly focused.

On growing that learning and development business.

The executive search market.

Although incredibly strategically important to Korn ferry.

And an advantage that.

Other professional services firms do not have I.

I think that executive search market is probably no no more than $5 billion.

The professional search market.

Is probably four or five times the size of.

The executive search market. So we look at that as a as a.

Much broader market.

And we also focus on the you know the RPL piece of the business as well which has continued.

To deliver incredible quality.

Renewals as well as new logo. So we think that theres that opportunity and there is that opportunity to also bundle.

Services together.

Yes, I'm very helpful color.

Is this is Bob just to just to elaborate on point given made earlier too when you think about the cost savings. There you put in place Gary mentioned about 50% of those.

Relate to position eliminations, 50% or other actions.

It's a very conscious decision on our part two to do that so we retained.

You know as Gary indicated the muscle to enjoy more than our fair share. The recovery. So as you think about us coming out the other side of this.

Participation.

In that recovery, we've got the company positioned to enjoy more than our fair share that.

Thanks answers guys.

No question from a line of Mark Mark on please go ahead.

Oh, thanks for taking my questions.

One just as it relates to the.

Some of the cost actions that you took.

Over the last five months.

From the permanent side, what percentage of that has already gone through here in the in the first quarter or are there are there more benefits to see in terms of.

The permanent reductions as it relates to the financials.

Bob out you should answer that.

Now, let me take that Mark I would I would think about it again more from the perspective, because again, we're trying to balance.

The temporary cuts.

We've got a program in place for the organization.

The share some of the economics.

To the employees so the the sort of use the impact of the pay cuts, but as you think about how we think about it the way that kinda Gary described it in.

If you assume the trial was this quarter and you have $25 million commits you're going to get you know 150.

Basis point margin improvements.

To probably around maybe a little bit north of 400.

I mean dollars in revenue once you get passed that point.

You you'd be looking at more normalized flow through.

Just.

Right.

Then.

Gary.

You know you've described this as a you know as potentially a try apalon.

You've been through multiple cycles, obviously, there's this one's unprecedented in multiple respects, but.

How do you think most of your clients are going to basically react in terms of.

Going into offense engaging in terms of you know.

Some of the changes that you know that you could help them with what Scott pacing do you think kind of look like and in terms of re shuffling organisations. How how quickly do you think that's going to occur.

I think the elephant in the room is fiscal stimulus and you know there's as you know I mean, there's a substantial the punch falls by Big time, So don't know the really hard piece of the algebra is gauging.

The fiscal stimulus and whether that continues as you know there's there's some countries without scheduled to and in October.

That's certainly has an overriding impact on the economic landscape, but I I would say we are starting to see weve clearly seen it in the DNA space, There's no doubt about it but in terms of transformation. Yes. We are we are starting to see that and I just ice for.

Firmly believe that there is more change here in the next two years and then in the last 10 years and I think that.

Don't take this the wrong way, but it's been it's been a bit pre season up till very very recently and I do believe.

That you know culture for me the definition is how an organization gets things done.

I think it's going to be.

Incredibly widespread and I think that that a lot of it changes that were saying you know people are not going to go back.

So I am envisioning and you can see it in our consulting business.

You know I I do envision that to be pretty widespread but I think the overarching question there is.

Is the stimulus question.

Because that impacts companies liquidity impacts the degree of change they can actually.

Actual wise and that one's hard.

To handicap my intuition would be that for any politician and it would be very very hard to stop spiking the punch ball.

But you never know.

Well.

Yeah John.

Data.

A data point on that.

<unk> is we.

Looking at the second quarter, whether its money coming back to Korn ferry or money going to our employees were estimating that level.

He is going to drop by about 30% from what we saw in the first quarter.

So it's a pretty it is a it's a big factor as Gary indicated.

In terms of what we see going forward.

I mean, if we don't see a resumption with regard set stimulus I mean do you anticipate that perhaps some that choppiness that we've seen.

From month to month in some of the businesses could.

Continue.

Yes, I mean, how could you have 50% of Americans, making more unemployment employed right. I mean, that's a you know there's some start smoking data points, you know better than I and yeah, that's a definite risk factor.

Okay.

Can you talk a little bit about some of the new business trends that you indicated on them on a monthly basis.

You know in terms of experience.

What what drove some of that.

You know the Choppiness like weather big engagements that were coming through and then may.

And then.

You know some pull back and I'm.

Talking about specifically we like.

Professional search you ended up seeing some improvement.

You know there in terms of corn from June to July.

I mean, it was getting better from May to June and then dropped off in July was that related to.

You know the spike in terms of of co varied and you know same thing with digital on the flip side.

Salting ended up jumping dramatically in July was that Deanna.

Yeah, Yeah, so you're you're obviously right I mean, as Bob said one of the things we try we talked about this for for a while we tried to move the organization towards being in the business outcome business. So moving the solutions.

More you know anchored around outcomes and business impact. So we've certainly seen a shift as Bob indicated towards larger engagements and I think you're going to see that you're going to see that on the consulting side in particular, where there could be.

You know in any particular Mont there could be a large engagement that his head in so we you know we see that and we're.

Very you know I think.

Some of the most validating things to me have been not only the stance we've taken publicly around issues, but some of the wins and these are major companies that have turned over either part of their leadership development to us their leadership journeys, helping companies move from analog to did.

Digital these are major wins with brand name logos.

That Korn ferry never would have done 12 years ago. So the company's position completely differently today in the in so yes, you're absolutely going to see some of that.

Isn't going to be like the RPL business that tends to be really lumpy.

I'm not I'm not sure, but clearly that yes, you're absolutely right to professional searching I wouldn't I.

I Wouldnt read too much into that you know clearly in June we saw a huge upswing in professional search.

So again you know you had you had pent up demand from the world stopping in April so I'm not so sure I would read much into that but I do think that overall when you look at the consulting and digital business you would point to transformation you point to deny and you would point to a learning and development.

And obviously you know some of those things ARX are very related right.

Absolutely and married give you some.

Some data points on it you know the new business in there or digital business year over year. The engagements above 250 was actually up 5% quarter sequentially was up 13%.

Our consulting new business in redraw line.

For large engagements there 500000.

It was actually up.

80% year over year, and almost 50% of quarter sequential.

So you can see the real shift as Gary indicated towards.

Strategic shift towards large engagements.

That's fantastic can you talk a little bit about two different things one.

What you're doing in terms of changing and transforming yourself.

Some elements are relatively obvious in terms of like the sales training.

Piece and moving to virtual but what are some of the other elements that are changing and what would some of the longer term impacts be on the margin structure and then secondly, when we think about some of the leadership development in analog to digital engagements that you're doing deny is fairly obvious and turn.

So what you'd be doing for clients, but can you talk about the engagements that you're seeing like the specifics with regards to types of engagements that you're seeing now from some of the larger clients that are where you're seeing some of those big growth rates.

The broad brush is analog to digital and so.

Companies are increasingly looking at their workforce and saying.

You know how learning agile are we you know to make that moved from analog to digital it's not only strategy, but then you've got to say, okay. What kind of workforce do you. How soon do you have people that are.

Our mentally agile strategically agile.

People agile and so we have I realize he that will go in and say Okay. This is this is where you're trying to move the company Directionally. Now. This is what we think it's gonna look like in two years and so what type of workforce do you need and then measure that workforce today and then if there's a gap. Okay. These are the learning journeys that you go too so I.

I would say.

That is absolutely.

You know number what in terms of abroad thesis.

That is that's number one as you said the deny as is yes. It maybe it is more obvious but I'll tell you.

Even though it on the surface, it's more obvious it via its it's much more systemic it is it is hard much harder for organizations to drive that change not around diversity [noise].

But around the behavior of inclusiveness and so that that is again a leadership journey.

We havent seen much around the M&A space on but we have you know pretty deep solutions around that I wouldn't be surprised if not you know consented at some point here.

Sales effectiveness you know, we've got a very very what I consider to be world class business there.

We have been helping companies you know how you engage with customers virtually.

That is a big topic of conversation today, and so and so you've you've seen that I think with our own business.

We we are.

Trying to do that the same thing it's a number one I think our biggest opportunity is to recast the brand and to make the brand synonymous with organizational performance and so.

Hopefully people have seen what we've done there in terms of that making the brand more elastic I think socket for us just like our clients is analog to digital and that's not just in our learning business and assessment business, which as you know like almost 25%. It's also.

In our core recruiting businesses.

And we're pushing very very hard.

Around what we can do there in terms of using.

Our technology, and AI and things that we use and RPL business across the entire recruiting platform. So that would probably that would be number two we obviously continue to look at M&A.

No there is theres nothing Thats executable right now, but we're obviously you know we planted a lot of seed. There are then the fourth pieces, our own talent and whether that is.

Developing from within or adding talent from the outside that's another leg of you know our playbook that we said we would try to actualize here you know accelerating through the turn.

Great. Thanks, a lot I appreciate the color.

And our last question will come from a line of Marc Riddick. Please go ahead.

Hi, Good morning, I wanted to just touch on and thanks for the the detail that you provide up to this point I just wanted to touch a little bit on maybe where you are with a with marquee accounts in the progress that's been been made there certainly you know with everything going on and just all.

I wanted to get a sense of with the the folks that were kind of in that marquee group. If you will if the the actions that you're seeing there or the plans that you're seeing there deferred them than maybe the rest of the clientele. If there any particular trees that we should be thinking about as far as maybe what somebody your marquee customers are doing.

As opposed to others. Thanks, Yeah, I'll make some I'll make some broad comments and then maybe Bob if theres any data that you happened to have at your fingertips, We really do believe that when you look at a world class professional services from 35% to 40% of the portfolio would be driven by loyal repeatable sustaining climb.

And subscale.

That's where we are moving to that's our true north we have.

About 300 accounts between Marchionne regional that we would consider.

As as part of that we need to continue to develop from within and bring in account leaders, which is a completely different game.

And Korn Ferry has played in the past so we've got to be aggressive in that I will say that I can't mention the wins, but there's been some some really validating wins with major loco major logos, who not only picked our so solution because.

Of our technology platform. So we started a b to C business that is relatively small and financially, but we've put a 100000 people through that around being the world's gymnasium to exercise your career well as part of that we developed what has now been validated as a world.

Loss platform technology platform and so some of the wins.

And in fact, we've we've even gotten into career transition services.

Some of those wins are actually due to are fabulous team.

In the Caf advanced business and the platform that we've built but the other reason is that some of those wins.

Then from a marquee and regional accounts, where weve been had a dedicated effort you know for many quarters and so I think you know clearly when I look at some of the marquee wins from marquee accounts, Bob I don't know if there's any data that you happen to have.

Sure our finger tips, yeah, yeah. So mark just so if you go back to where we finished last year the mark in regional accounts were about 30% to 33% of our total revenue.

As Gary just alluded to the the program we put in place with account liters account managers.

Again is demonstrating that our strategy is paying off the larger engagements.

First quarter.

Our key regional accounts was about the same as where we ended last year, but with the larger change that we're seeing a larger engagements we absolutely expect.

You know that group of accounts to grow as a percentage of total revenue.

The next couple of years.

Okay. That's certainly encouraging and then I guess the final question for me as and you touched on this a little bit as far as the you know the potential of acquisitions I guess, maybe I can maybe asking a slightly different way is are there any pieces that you look at now that you feel as though would be.

The you know that corn for is missing or things that you would like to enhance I know you've talked about you know a enhancing the the you know the digital and recurring revenue streams and things, but I was wondering if there any observations over the last few months that has made any shifts and some of the the over.

We're all acquisition wish list. Thanks the.

The organizational strategy and learning and development clearly our are our big pieces and as you said that the digital aspect of that I. You know the if you look at our research what would it would suggest is that for number one the number one predictor.

AXOS is learning agility, but on on top of that for people to actually even find their potential let alone exceeded people need opportunity in our research whether it's on.

Female leaders black leaders.

Across the board you have to have opportunity you have to have mentor ship you have to have sponsorship in there needs to be development. So we believe that learning and development, albeit it's going to be delivered completely differently at least for the next few years that that's a that's a place that is sustaining.

And where Korn ferry wants to help people exceed their potential for share side I'd point to those two.

Obviously, we have some other lenses, but that would probably be though the biggest.

I would now like turn the conference call back over to Mr. Burnison for any closing remarks.

Okay, well listen I, thank everybody for joining US you know clearly.

The first quarter, you know headline numbers or you know, we're not spectacular but the good news is that the company is position.

To accelerate through the turn and more importantly, when you look at theme that that the new business.

It's clearly encouraging so our business.

In essence is to enable people in organizations to exceed their potential and I think this company is is better positioned than it's ever been so with that thank you very much for your time have a good rest of your day. Thank you.

Ladies and gentlemen, todays conference call will be available for replay for one week started today at three PM Eastern time running through the day September 10th ending at Midnight you may access the ATM <unk> executive playback service by dialing 8662 071.

Zero for one and entering the access code to four zero.

7985, and our international participants May dial four zero to 970.

0847, and once again using access code 407985. Additionally, the replay will be available for playback at the company's website www.

Korn ferry dotcom in the Investor Relations section, ladies and gentlemen, we like to thank you for your attendance in today's quarterly meeting and thank you for using the service have a wonderful day you may now disconnect.

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Ladies and gentlemen, thank you for standing by and welcome to the court very first quarter fiscal year 2021 conference call. At this time, all participants are to 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. Weve also made available in the Investor Relations section.

Our website <unk> Korn ferry Dot com.

The other financial presentation that we will be reviewing with you today.

Before I turn the call over to your host Mr., Gary Burnison, Let me first really 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.

Awful, but company believes the expectations reflected in such forward looking statements are based on a reasonable assumptions and investors are cautioned to people to caution not to place undue reliance on such statements actual results in future periods might differ material.

Are you from those currently expected or desired because of a number of risks and uncertainties.

Beyond the company's control additional information concerning such risk.

Uncertainties can be found in the release relating to this presentation.

And the periodic and others reports filed by the company with the FCC, including the company's annual report for fiscal year 2020.

In the Companys someone to be filed quarterly report for the quarter ended July 31st 2020.

Also some of the comments today may reference non-GAAP financial measures such as constant.

Currency, a mild EBITDA and adjusted EBITDA additional information concerning these measures, including reconciliations to the most.

Readily 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.

The company's website at Www Dot Korn ferry Dot com.

With that.

I will turn the call over to Mr. Burnison.

Mr. Burnison. Please go ahead Sir.

Okay. Thank you Stephen and good afternoon, and good morning, everybody.

It's been six month sets. The pandemic was officially declared and I think the world.

Is that the beginning of an iron man three after one yeah, it's not just a marathon, but to try out tried out in one of of endurance agility change in fact, I think over the next two years, we're gonna see more change than we've seen in the past 10 change we'll circle.

Now to do.

And then business different work will need to get done then work will need to get done differently. Almost every company on the panel on the planet is gonna have to reimagine their business, whether that's rethinking their organizational atmosphere their structure roles responsibilities, while they compensate how they engage.

How they develop their workforce.

There's change is gonna be all around us, they're going to need to higher learning agile diverse talent and do so in a more inclusive beat those and in an increasingly digital world and that's the essence of.

Corn ferries business to enable people and organizations to exceed their potential to be more than you know in early March Oh, we were announcing the best results in our history, a record fee revenue and a continued transformation.

From a modeling from two an organizational consultancy and then the world temporarily pause.

Certainly the up pause temporarily impacted our business.

During the first quarter of our fiscal year, we generated about 344 million in fee revenue, which was down about 28% constant currency, but I think the key word is tempered as we alluded on our last call, we're continuing to see green shoots with.

July new business better than June June about or the May and may better than April.

Trailing new business for the three months ended August was down about 13% year over year, combined which is obviously more positive than we saw in our first quarter and what we saw when the world stopped in April.

In fact August new business.

Was only down about 6% year over year. So really good news July new business was up 34% over June.

So again green shoots that we're saying and I think on more than anything I'm proud I'm proud of our organization a motivated by how we've positioned ourselves.

For the opportunity ahead, and you know we face this crisis.

From a position of strike not only when you.

Consider the breadth and depth of our solutions, but when you consider our balance sheet and the foundation of the firm.

That was bad.

Grounded in the United data.

And that continues to be the backbone of Korn ferry, we've got rewards data by over 20 million people 25000 companies.

We've done almost 70 million assessments, we have.

Thousands of organizational benchmark data, we've got thousands of success profiles every year, we train and develop a million professionals a year and certainly not you know last but not least is we place a candidate each business. Our every three minutes and so we're we're using the.

This time of change and not only to have an impact with our clients, but also to reimagine our own business.

And that includes moving from analog to digital.

Including in our assessment and learning business, which you know today, it's almost 25% of the company and we're certainly shifting that business I mean, we've done more virtual sessions in the last couple of months than we've done in the last you know many many months the pipeline is good we pick.

It is very quickly.

I I can't be proud of our team and when you look at the the uptick here month over month in both our consulting and digital new business.

You can say that something's working in the in on the recruiting side. That's another place where we are ria imagining that business as well through <unk> technology, and and a lot of a platform that we use in RP a.

We've taken this IP, we've taken it out to the marketplace I'm very proud in terms of the steps we've taken I think our biggest opportunity as a company is to recast the Korn ferry brand.

We recently launched a leadership you curriculum that helps leaders take on today's challenges and more importantly, and that all the calls for change were amplifying our voice not only on diversity, but also the equity and inclusion both within Korn ferry.

And among our clients and we know from our research the diversity as a family.

Engagement is in a motion.

But inclusion is a behavior.

So our focus on denied.

About actually it's about eight years ago Ah almost actually two days ago, eight year anniversary of us, making an investment.

In a company at that time was called global Novations, we've turned that into what I consider to believe the absolute dogs or did I consulting business.

In the World and as I mentioned, our July consulting new business was before highest month in our history.

And I think I was driven in part by the strong voice we've taken.

Not only around the pandemic, but also around the at night and I'm also proud and pleased to say there were launching.

Leadership, you for humanity, and that's a nonprofit venture of the Korn Ferry charitable foundation focused on developing the total mosaic inside communities and within corporations.

Well one of our partners will be the executive leadership Council.

Absolutely preeminent organization their mission is to develop increase the number of successful block executives around the goal. So yeah around the globe and our goal is to develop a million new leaders from diverse background.

Using our Korn ferry advance and leadership you platforms and so not only I think if we demonstrated that we.

We say, what we mean, but we're not just talking about it we're being about it and providing a systemic solution.

To a systemic issue.

So out of Tomorrow's change in new order is a merger and Korn ferry is going to help drive that change, helping people and organizations be more than.

With that I I'm joined here by Bob Rozek, and Greg to vote shots and so before we entertain questions I'll turn it over to you about.

Great. Thanks, Gary and good afternoon, and good morning.

Before I jump into the first quarter results I wanted to just elaborate.

Thanks, Gary talked about.

I think he's absolutely right concerning the amount of change that will take place in the next to even three or four years.

We're already seeing in our clients I truly believe that Korn ferry is uniquely positioned to lead companies through this change you know that data IP and know how that Gary talked about really sits at the center of our organization that permeates all of our solutions that provide that.

And harmonized language for talent.

Really core to our one Korn ferry integrated approach to helping clients. So they're already is business issues through the most valuable asset, which obviously is that people.

Again, I believe we're uniquely positioned because we're the only or it has ended and data IP and know how to address every aspect of it employees engagement with his or her employer.

Not only do we have first mover advantage, but my opinion.

Position and our collection of assets virtually impossible replicate.

So as I sit here today.

Hey book change.

With that collection of assets and solution, we've assembled my optimism for corn thirtys future growth prospects have never been.

Now, let me turn my attention to the first quarter.

I'll start with a few highlights.

Before turning it over to Greg and then I'll come back on our address a recent new business trends.

So I just first quarter fiscal year 21.

Fee revenue was 344 million down about 28% in constant currency.

More importantly, our monthly fee revenue trends within the quarter showed signs of stabilization.

Consolidated fee revenue in May was down about 34% year over year, well June and July were down, 27% and 26% respectively.

For each of our service offerings, we saw the revenues slowly at different rates, which really was in line with our expectation and reflects the diversification and mix shifts that we've been communicated.

Specifically fee revenue in the first quarter measured at constant currency was down 37% for executive search.

35% or professional search.

Our consulting was down 26%.

RPL was down 22% in digital was down 2%.

Driven by the revenue contraction or consolidated adjusted EBITDA for this quarter was.

10.6 million with an adjusted EBITDA margin of 3.1% and our adjusted fully diluted loss per share.

18 cents.

Our balance sheet and liquidity remains strong.

End of the first quarter cash and marketable securities totaled $733 million.

Excluding amounts reserve third topic for food bonuses.

Actually net of the funds used to rightsize the firms are investable cash balance.

Ended the first quarter was about $511 million and that's up about $150 million year over year.

We continue to have undrawn capacity of 645 million and our revolver. So altogether, we have close to $1.2 billion in liquidity.

To manage that way to the Cobiz 19 crisis and to invest back into the business through the recovery.

Last we had about $400 million in outstanding debt at the end of the corridor.

Finally during the quarter, we completed our restructuring actions to cite the firm so the anticipated current levels of revenue.

As you will recall in April just before the end of our fiscal fourth quarter about like 20, we announced a number of cost action is targeted at both compensation expense, which included layoffs furloughs and across the board salary cuts.

As well as other.

She is focused on the reduction of DNA.

Combined with the actions completed in the first quarter, we have initially reduce our cost base by about $321 million annually.

I'm now going to turn the call over to Greg.

Segment in more detail.

Thanks, Bob starting with our digital signal global fee revenue for KFC digital was $56 million and the first quarter and down approximately $2 million or 2% year over year measured at constant currency.

Subscription licensing or pay at digital see revenue in the first quarter was approximately 21 million, which was up $6 million year over year flat sequentially.

New business and the first quarter, but additional segment was down approximately 3% globally year over year at constant currency with a subscription license income.

Currently 40%.

Adjusted EBITDA in the first quarter for Caf digital was $7.9 billion with a 14.2% adjusted EBITDA margin.

Now turning to consulting in the first quarter consulting generated $99 million a fee revenue, which was down approximately 26% year over year at constant currency.

As clients have settled into their new work from home protocols have become more familiar with our virtual delivery capabilities new business for our consulting services has begun to improve.

Measured year over year at constant currency, new business in the first quarter for our consulting segment was down approximately 4%.

By North America, where new business was up 11% year over year.

Adjusted EBITDA for consulting in the first quarter was $6.6 billion, what's going to adjusted EBITDA margin of 6.6%.

RPL professional search generated global fee revenues of $68 million at the first quarter, which was down 27% year over here at constant currency.

Rpls here see revenue was down approximately 22% and professional service fee revenue was down approximately 35% year over year measured at constant currency.

Adjusted EBITDA for our young professional surge in the first quarter was $6 million with an adjusted EBITDA margin of 8.8%.

Finally for executive search global fee revenue in the first quarter fiscal 21 was approximately $120 million, which compared year over year and measure that constant currency was down approximately 37%.

At constant currency North America was down 38% are both EMEA and Asia Pac were down 35%.

The total number of dedicated executive search consultants worldwide at the other first quarter was 510.

Down 59 year over year.

Down 46 sequentially.

Annualized fee revenue production per consult during the first quarter was $900000.

And the number of new assignments open worldwide. The first quarter was 1115, which was down approximately 34% year over year, but up 9% sequentially.

Adjusted EBITDA for executive search in the first quarter was approximately $8.1 billion with an adjusted EBITDA margin of 6.7%.

I'll turn the call back over to Bob to discuss some of our recent months a new business trends great. Thanks, Greg.

Locally year over year declines in lumpy you business exiting fiscal year 21, Q1, you're entering the second quarter.

Continue to stabilize.

Excluding new business awards for our PEO global new business measured year over year was down approximately 31% may down 25% in June rebounding to down 5% in July.

Measured sequentially June new business was up 17% over May in July and new business was up 34% compared to June.

Summer vacations August the seasonally slow month, and normally is lower relative July relative to July.

Measured year over year August new business was stable in down about 6%, which is in line with what we saw in July.

Lumpy new business trends have varied by segment and have in some cases bed choppy month to month.

Digital new business was up 3% year over year June down 5% year over year in July and up 10%.

Yes.

Likewise consulting business was down 28% year over year in June rebounding to up 34% in July and up 10% in August.

Our executive search new business was down 34% year over year in June improving sit down 27% in July and was down 19% in August and finally professional search new business was down 15%.

Year over year falling to down 23% in July and August.

With regards to IPO strong quarter of new new business.

With 56 million of Global awards and that was comprised of 32 million of new new clients and 24 million of renewals.

And extensions and we continue to have a strong pipeline of new business in the our appeal.

Approximately two months it passed since our last earnings call yet there remains significant uncertainty about the ultimate impact of Cobot 19.

Site and global economies.

Currently governments are struggling to balance reopening in reengaging in an effective way.

Against the maintenance of an environment that fosters the health and safety everyone.

So there really is no place. This effort takes on many forms and there's not a clear path to success.

Further it's unclear whether certain governmental eight programs that were put in place to provide financial assistance impacted businesses and individuals whether they will remain in place or for how long.

The unprecedented nature of the current environment combined with many unanswered questions and rapidly changing data points like the recent acceleration of corporate layoffs.

And the potential outcome of the U.S. presidential election that really continues to cloud the near term predictability of our business.

Consistent with our approach.

The last two earnings calls, we will not issue any specific revenue or any guidance for the second quarter fiscal year 21.

That concludes our prepared remarks, we're glad to take any questions you may have.

Ladies and gentlemen will now begin to question and answer session of today's conference. If you wish to ask a question what used to press to one followed by this year on year Touchtone phone, you'll hear tone, indicating an issue place yourself in Q1, all questions will be pulled in the order received you may remember yourself at any time by depressing the penalty on your Touchtone phone.

And if using a speakerphone. Please pick up your had said before depressing the keys one moment. Please for our first question.

Our first question will come from the line of Georgia Long. Please go ahead.

Hi, This is George.

Good morning, you indicated that July new business trends were down 5% year over year, whereas August new business was down 6% year over year could you talk about what contributed to the moderation in the piece of improvement in new business trends overall and perhaps by segment.

You know if you looked at the good news is obviously the headline numbers on the corner on the quarter were not spectacular, but the world stopped and in April and you're going to say, though with GDP.

But what we have seen is a very steady.

Upswing in new business and as Bob indicated.

July was better than June, which was which was better than may. So that's really good news I wanted to look at August overall, we were down about 6% executive search was down 18%. If you just isolate.

The month of August and consulting and digital were actually up 10%. So I think that when you. When you look at the platform as a whole the businesses reacting.

Almost in line with what we thought it would do and when you look at the drivers.

Consulting.

And digital I would say I would point to number one transformation and the fact that every company you know different work needs to get done work needs to get done differently. So every company in the world is gonna have to reimagine their business and that starts with the.

Organization and its people and when there's transformation, there's there's usually a pause.

The next step is with people. So we've certainly seen there.

We're starting to see early signs of value in our consulting and digital business I think the other broad stroke I would put on the new business trends is our dxi business.

Which is.

Before this was about a you know Ned.

Eight figure business and we've seen over the last few months or about a 50% up.

In how we can help companies.

I'm not just deal with diversity.

Because that's a fact, but more importantly, how you deal with inclusion which is a behavior.

So I would I would point to those too and then I would point to one other which ties to transformation, which is around developing a workforce and creating a more learning agile workforce that can operate in a digital world.

With an inclusive.

So those are I think the broad strokes on the business you are saying, obviously an uptick in search.

Which is good and then from an industry standpoint, you know it's much like you would probably intuitively think.

The consumer area.

Has seen improvement, but not as not as much as say life Science Life Sciences, then as you would guess.

Certainly stronger and so those would be the broad strokes, obviously energy has been challenged over the past few months.

But that would be my kind of 38000, but yes.

Yeah, Hey, George Notter Casino on the Wise Counsel Toby.

Our last during this call we actually put a slide into the earnings call presentation is posted.

That shows the EWP business by each only the business.

On page seven.

Great that's helpful and as a follow up but could you provide some perspectives around how you expect the trends that you're seeing in new business to translate into revenue or fee performance it sounds like.

Clients art can swing so retention rates are changing so it's really the pace of new business. That's ultimately going to drive fee revenue performance. It sounds like it's ultimately delays rather than cancellation. So could you provide some perspectives on how you expect the translation of new business into fee revenue.

Yeah, we've seen on the you know the search businesses are rather straightforward that's going to being you know that translates to revenue generally.

Over 90 days and when you look at the.

Oh consulting.

And digital business you'd find that essentially.

No 50% of that gets recognized and you know say within 12 months and then the balance is gonna be over the next 13 to 35 months and the RPL business is not materially different than that and what I would say there's been a couple of other trends to we've certainly shift.

Seen a shift towards bigger engagements that was a strategic pillar of ours going back a couple of years, we're now really starting to see at more impactful a engagement Scott that's something that is coming through and I think the other thing that Bob can maybe a lid on is when you look at the digital business, we thought we've all.

We've talked for a while about moving now business to a subscription based model in that digital business. You know, we obviously made a push.

Towards digitizing out, but the reality is when this pandemic hit so a lot of the business was delivered.

In classroom and we have gone well I mean, we are all over about moving that to a digital offering and one of the things is to increase the amount of subscription based business from from digital So Bob do you want to comment on though.

Yeah. So George just so you see no the subscription business and I'll give it to you over the last three quarters, including.

Q1 was right around $21 million to that demonstrates the durability of that revenue.

In the current environment that were operated.

The the piece of that I think it is better news is if you look at the new business first a subscription.

Offerings. It was about 23 and a half million dollars in Q1, that's up 42% kind of year over year, and even quarter sequential it's up about 16%.

So again as Gary indicated part of this strategy.

In the diversification is also creating more durable revenue streams over you know, we're starting to see that see that take shape I mean, even you know when you talked about the.

The larger engagements when you when you stratify, the whether its digital or consulting.

Instead of a large engagements for do go we consider that over to 50 per consulting we consider that over 500.

We're seeing growth in those large engagements.

Year over year quarter sequential.

Versus the smaller more transactional engage because that's where the.

The decline. So again. This you know were these are data points at this point, but we are starting to see really the strategy come to life that we've been talking about.

Got it very helpful. Thank you.

Our next question will come from the line of Tobey Sommer. Please go ahead.

Thanks, just a quick follow up I could on the new business trends.

What contract duration like or new business trend duration and.

If you could speak about a little bit by segment and in particular, the D. and high wins that you have or those on the longer side, just trying to think about as far as how to play out in the model. Thanks.

Yeah, we hope that the the deny is its definitely it's not going to be 90 days, but it's not going to be as long as the balance of the portfolio companies.

There's going to be real change people are from what I can tell talking to Ceos. It's people are taking its very very seriously.

Typically in the United States, So I would.

Guess that much of that we'll have them you know a shorter tail and so if I described at the search businesses, how the tale of say 90 days or so.

And the consulting digital Rpos businesses have the revenue recognition and say 50%.

Within 12 months. So then the balance over say.

36 months I think this will be the deny business will be somewhere in between.

Okay. Thanks, that's helpful.

[music].

How should we think about the temporary cost Cogs being real absorbed into the Bill will again from a modeling perspective, it's a.

Pretty significant variable for us to contemplate.

I would think about it when we laid out the cost cuts.

Our goal.

Was this number one I guess as I step out this was a humanitarian crisis.

And so we pulled out of contingency play book, a year ago and did a number of things to prepare for a turn obviously, we didnt envision this kind of turn.

But when we in early March.

Obviously saw this in China about a third week in January.

As we looked at this we said why didn't you know this is there this is a humanitarian crisis.

And let's go into the us with a view of preserving.

As much muscle as we possibly can to accelerate through the turn.

And last time when I go back 12 years corn carries business grew five fold from the trough.

Obviously over a period of years.

Both in organically or inorganically and within four quarters or the trough the business was up 60%.

So we said, okay, let's try to save as many jobs as we possibly can.

Unfortunately, we did have to make the decision to let go.

Some very very good people, which troubled dose and then we took some other auction.

That we're more temporary in nature and so when you look at it in total.

On an annualized run rate, we said, we would reduce the cost base by about $320 million.

Essentially half of that was.

More permanent in nature.

And half of it would be.

Variable.

And so when you look at.

This quarter on that variable piece.

You'll probably find a 40% or so of that variable came back in may maybe a little bit loss.

<unk> into the first quarter something like that Bob can provide.

The specific numbers the way that you know, we're we're not providing guidance just given you know how quickly the world seems to change from day to day.

And the way that I would kind of look at this is just say okay. You did.

$345 million in revenue.

Fee revenue this quarter, which obviously reflected the world stopping in April.

And if that were to go up say, you know tick and pick a number say 25 million, how would that margin expand and I would probably points you too.

In that first 25 million it would probably go up you know 100 150 basis point.

And as you go up the louder and 25 million dollar increments.

As you each rung up out loud or you're going to see more leverage and more flow through to give it a.

So that's kind of how I would think of it and very very broad strokes Bob It out can you clarify any of that is that about right.

No, it's actually pretty spot on Gary the the percentage you talked about 40 is actually 41% so you're spot on in.

Yet another the model that you laid out is exactly what were we view of the world.

[noise]. Thank you if I could ask the other one with that in mind investors looking at the businesses I will start we're trying to see what they'll be like one.

Things are more normal and we're just worried about economic forces and not the monetary crisis you articulated.

What what kind of revenue level do you think the company would need to hit to operate at the old EBITDA margins of around 16% says.

That kind of analysis, we're going to be integral though long only building a position amid this turmoil.

Well I think yeah [laughter].

I hear you I think you first half the Alberta Lucky.

Do you do you believe in the Companys strategy of creating a preeminent organizational consultancy taking strategy synchronizing with you know an organization in town driving superior performance I think were that the very very beginning.

Of that journey, so what I would say is number one it really kind of does depend on the mix of business in what happens here I think theres going to be again more change in the next two years than in the last 10 years and that change is going to encompass a lot of different factors, including the C suite.

Because I think what you're going to find is for a whole host of reasons, there's going to be a lot of chairs that are going to get reshuffle.

People may make personal decisions, there could be demographic issues and considerations.

There could be a number of things, but that would not surprise me in the lease that once companies get passed this neutral zone.

And really moved off Ensign I'm, not suggesting that companies haven't done that clearly there's been a number that half, but now you're really going to determine you know winners and losers. So you're absolutely right Korn ferry and its past performance, we from a loss truck grew the company.

Five fold.

And.

From the trough in 12 years ago within four quarters It grew 60%.

And so you know it depends on number one if you consider this to be a trough.

If you do and you apply that same sort of logic.

To where we were in the first quarter I think you could reasonably conclude that we would be back at those margin levels. You know for sure. So we think we've taken the right Scott not only on the cost side, but much much much more importantly on.

Topline side.

How we can help companies.

Really really deliver on change and whether that's Dan I, whether its sales effectiveness, whether it's M&A, whether its transformation or was it whether it's the least shuffling of the C suite I feel very confident in that.

Okay. If we just take a mix shift out of it can you be at the old margin at a lower revenue level because of the cost cuts you take now yes.

Thank you.

We have a question from the line as Sam Cuss warm. Please go ahead.

Okay.

Hey, everyone. How do you ever doing while my question relates to executive search are there certain client groups that demand has trended, particularly about a year or worse that throughout the quarter here.

Can you get it got a little muffled skins, you repeat that I'm, sorry, one more time.

Yeah with an executive search are there certain client groups that demand is trying to particular better or worse and throughout the quarter.

That are trending better or worse.

Yes, yes.

Well.

When you when you look at it you know clearly.

The life Sciences area.

Has for sure.

Trended better.

On the other and have it theres been certain aspects of the industrial business.

Such as energy.

That how that trended as well and so those would probably be the barbells and I'd also say that professional services has not trended well.

But given what we're seeing and manufacturing activity and all of that I'm not so sure.

That those trends that I just alluded to would continue.

What I would say those are the.

The outliers things like wealth management asset management have have have done reasonably well in this in this environment.

Thanks, Thats helpful. Maybe switching gears on all that.

In prior cycles, when coming out of recession.

We are there more favorable opportunity for market share capture from struggled from hundreds or even the additional acquisition opportunities.

For sure you know we've been on one of the things we did a year ago.

Is we plan of a lot of M&A students and as you know we've done 13 acquisitions in 12 of those were really kind of sole source source, where the company wasn't necessarily for sale. We plan, there's a lot of M&A suits.

Going back a year ago. So there will there will undoubtedly do those kind of opportunities when when we looked at the market.

We size the market.

Somewhere between 202 hundred $50 billion.

And when you look at that market size thing you would find that the areas of learning and development represent a disproportionate size of that market.

And so we are keenly focus.

On growing that learning and development business.

The executive search market, although incredibly strategically important to Korn ferry.

And an advantage that.

Other professional services firms do not have I.

And I think that executive search market is probably no no more than $5 billion.

The professional search market is probably four or five times the size of.

The executive search market. So we look at that as a as a.

Much broader market.

And we also focus on the you know the RPL piece of the business as well, which has continued to.

To deliver incredible quality.

Renewals as well as new logos. So we think that theres that opportunity and there is that opportunity to also bundle.

Services together.

Yes.

Hello.

It's this is Bob just to just to elaborate on the point Gary made earlier too when you think about the cost savings there we put in place Gary mentioned about 50% of those.

Relate to position eliminations, 50% or other actions.

It's a very conscious decision on our part two to do that so we retained.

You know as Gary indicated the muscle to enjoy more than our fair share. The recovery. So as you think about us coming out the other side of this.

Participation.

Net recovery, we've got the company position to enjoy more than a fair share that.

Thanks answers guys.

No question from a line of Mark Mark on please go ahead.

Oh, thanks for taking my questions.

One just as it relates to the the some of the cost actions that you took.

Over the last five months.

From the permanent side, what percentage of that has already gone through year end up in the first quarter or are there are there more benefits to see in terms of.

The permanent reductions as it relates to the financials.

Bob you should answer that.

No I mean, because that Mike I would I would think about it again more from that perspective, because again, we're trying to balance.

The temporary cuts.

Got a program in place for the organization.

To share some of the economics.

To the inquiry. So the the you know sort of mute the impact of the pay cuts, but as you think about out we think about it the way that kinda Gary described it in.

If you assume the trial was this quarter in you have $25 million commits you're going to get you know 150.

Basis point margin improvements.

Up to probably around maybe a little bit north of 400.

Million dollars in revenue once you get past.

Point.

You'd be looking at more normalized load school.

Great.

And then.

Gary.

You know you've described this as a.

You know is potentially a trade off the line.

[music].

You've been through multiple cycles, obviously, there's this one's unprecedented and multiple respects, but.

How do you think most of your clients are going to basically react in terms of going into offense engaging in terms of you know.

Some of the changes that.

You know that you could help them with what's that pacing do you think kind of look like and in terms of re shuffling organisations. How how quickly do you think that's going to occur.

I think the elephant in the room is fiscal stimulus and you know there's as you know I mean, there's a substantial the punch falls by Big time, so that the really hard piece of the algebra is gauging the fiscal stimulus and whether that continues as you.

You know, there's there's some countries without scheduled to and in October.

That's certainly has an overriding impact on the economic landscape, but I I would say we are starting to see weve clearly seen it in the DNA space, There's no doubt about it but in terms of transformation. Yes. We are we are starting to see that and I just ice for.

Finally believed that there is more change here in the next two years and then in the last 10 years and I think that.

You know don't take this the wrong way, but it's been it's been a bit pre season up till very very recently and I do believe.

That you know culture for me the definition was how an organization gets things done I think it's going to be.

Incredibly widespread and and I think that that a lot of the changes that were saying you know people are not going to go back.

So I am envisioning and you can see it in our consulting business.

You know I I do envision that to be pretty widespread but I think the overarching question there is.

He is the stimulus question.

Because that impacts companies liquidity impacts the degree of change they can actually.

Actual wise and that one's hard.

To handicap my intuition would be that for any politician and it would be very very hard to stop spiking the punch fall.

But you never know.

Well.

Okay, well give you a data a data point on that.

You know is we.

Looking at the second quarter, you know, whether its money coming back because barrier money going to our employees were estimating that level.

He was going to drop by about 30% from what we saw in the first quarter.

So it's a pretty it is a it's a big factors carry indicated.

In terms of what you see going forward.

Yes, I mean, if we don't see a resumption with regard such stimulus I mean do you anticipate that perhaps you know some that choppiness that we've seen.

From month to month in some of the businesses Kurt.

Continue.

Yes, I mean, how could you have 50% of Americans, making more unemployed that employed right. I mean, that's out there some start pulling data points and you know better than eyes, and yeah, that's a definite risk factor.

Okay.

Can you talk a little bit about some of the new business trends that you indicated on a on a monthly basis.

You know in terms of experience.

What what drove some of that.

Choppiness like where they're big engagements that were coming through and then May and then.

You know some pulled back and I'm.

Talking about specifically we like.

Professional search you ended up seeing some improvement you know there in terms of corn from June to July.

I mean, it was getting better from May to June and then dropped off in July was that related to you know the spike in terms of of Colgate and.

Same thing with digital on the flip side consulting ended up jumping dramatically in July was that Deanna.

Yeah, Yeah, so you're you're absolutely right I mean, as Bob said one of the things we try we talked about this for for a while we tried to move the organization towards being in the business outcome business. So moving the solutions.

More.

Anchored around outcomes and business impact. So we've certainly seen a show as Bob indicated towards larger engagements and I think you're going to see that you're going to see that on the consulting side in particular, where there could be you know in any particular mind there could be a large engaged.

And that has yet and so we you know we see that and we're.

Very I think <unk>.

Some of the most validating things to me have been not only the stance, we've taken publicly around issues, but some of the wins and.

These are major companies that have turned over either part of their leadership development to us their leadership journeys, helping companies move from analog to digital.

These are major wins with brand name logos.

Korn Ferry never would have done you know 12 years ago. So the company's position completely differently today in the in so yes, you're absolutely going to see some of that.

Is it going to be like the RPL business that tends to be really lumpy I'm not I'm not sure, but clearly that yes, you're absolutely right. The professional search you know I wouldn't I.

I wouldn't read too much into that you know clearly in June we saw a huge upswing in professional search, but you know again you know you had you had pent up demand from the world stopping in April so I'm not so sure I would read much into that but I do think that.

Overall, when you look at the consulting and digital business you would point to transformation you point to deny and you would point to learning and development.

And obviously you know some of those things are are very related right.

Absolutely and married could be some.

Some data points on that you have the new business in there or digital business year over year. The engagements about 250 was actually up 5% quarter sequential was up 13%.

Our consulting business and we draw a line.

For large engagements there 500000.

It was actually up.

80% year over year, and almost 50% of course sequential.

So you can see the real shift as Gary indicated towards.

Strategic shift towards large engagements.

That's fantastic can you talk a little bit about two different things one.

What you're doing in terms of changing and transforming yourself.

Some elements are relatively obviously in terms of like the sales training.

Piece and moving to virtual but what are some of the other elements that are changing and what would some of the longer term impacts be on the margin structure and then secondly, when we think about some of the leadership development in analog to digital engagements that you're doing deny is fairly obvious and term.

So what you'd be doing for clients, but can you talk about the engagements that you're seeing like the specifics with regards to types of engagements that you're seeing now from some of the larger clients that are where you're seeing some of those big growth rates.

The broad brush is analog to digital and so.

Companies are increasingly looking at their workforce and saying.

You know how learning agile are we you know to make that moved from analog to digital it's not always strategy, but then you've got to say, okay. What kind of workforce do you. How soon do you have people that are.

Our mentally agile strategically agile.

People agile and so we have I realize he that will go in and say Okay. This is this is where you're trying to move the company Directionally. Now. This is what we think it's going to look like in two years and so what type of workforce do you need and then measure that workforce today and then if there's a gap. Okay. These are the learning journeys that you go too so I.

I would say.

That is absolutely.

You know number what in terms about broad thesis died is that's number one as you said the deny as is yes. It maybe it is more obvious but I'll tell you that even though it on the surface. It's more obvious it via its it's much more systemic it it is.

Or much harder for organizations to drive that change not around diversity.

But around the behavior of inclusiveness and so that is again a leadership journey.

We havent seen much around the M&A space, but we have you know pretty deep solutions around that I wouldn't be surprised if not you know kicks in at some point here.

Sales effectiveness you know, we've got a very very what I consider to be world class business there.

We have been helping companies you know how you engage with customers virtually.

That is a big topic of conversation today, and so and so you you've seen that I think with our own business.

We we are.

Trying to do that the same thing it's a number one I think our biggest opportunity is to recast the brand and to make the brand synonymous with organizational performance and so.

Hopefully people have seen what we've done there in terms of that making the brand more elastic I think socket for us just like our clients is analog to digital and that's not just in our learning business and assessment business, which as you know like almost 25%. It's also.

In our core recruiting businesses.

And we're pushing very very hard.

Around what we can do there in terms of using.

Our technology and AI and the things that we use and our PEO business across the entire recruiting platform. So that would probably that would be number two we obviously continue to look at M&A.

No there is theres nothing Thats executable right now, but we're obviously you know we planted a lot of seed. There are then the fourth pieces, our own talent and whether that is.

Developing from within or adding talent from the outside that's another leg of you know on a playbook that we said we would try to actualize here you know accelerating through the turn.

Great. Thanks, a lot I appreciate the color.

And our last question will come from Allied of Marc Riddick. Please go ahead.

Hi, Good morning, I wanted to just touch on and thanks for the the detail that you provide up to this point I just wanted to touch a little bit on maybe where you are with a with marquee accounts in the progress that's been been made there certainly you know with everything going on I'm just all.

So wanted to get a sense of with the the folks that were kind of in in that marquee group. If you will if the the actions that you're seeing there or the plans that you're seeing there deferred them than maybe the rest of the clientele. If there any particular trees that we should be thinking about as far as maybe what you know some of your marquee customers are doing.

As opposed to others. Thanks, Yeah, I'll make some I'll make some broad comments and then maybe Bob on if Theres any data that you happened to have at your fingertips, We really do believe that when you look at a world class professional services from 35% to 40% of the portfolio would be driven by loyal repeatable sustaining CLI.

And some scale.

That's where we are moving to that torture north we have about 300 accounts between Marchionne regional that we would consider.

As as part of that we need to continue to develop from within and bring in a account leaders, which is a completely different game.

Then Korn ferry has played in the past so we've got to be aggressive in that I will say that I can't mention the wins, but there's been some some really validating wins with major loco major logos, who not only ticked ours so solution because.

Our technology platform. So we started a b to C business that is relatively small and financially, but we've put a 100000 people through that around being the world's gymnasium to exercise your career well as part of that we developed what has now been validated as a world class.

<unk> platform technology platform and so some of the wins.

And in fact, we've we've even gotten into career transition services.

Some of those wins are actually due to are fabulous team.

In the Caf advance business and the platform that we've built but the other reason is that some of those wins.

Then from a marquee and regional accounts, where weve been had a dedicated effort.

For many quarters and so I think you know clearly when I look at some of the marquee wins from marquee accounts, Bob I don't know if there's any data that you happen to have.

At your fingertips, yeah, yeah. So.

Mark just so.

If you go back to where we finished last year the Marchionne regional accounts were.

Out, 30% to 33% of our or total revenue.

You know as Gary just alluded to the the program we put in place with account leaders account managers.

Again, demonstrating that our strategy is paying off the larger engagements the first quarter.

American regional accounts was about the same as where we ended last year, but with the larger change that we're seeing a larger engagements we absolutely expect.

You know that group of accounts to grow as a percentage of total revenue.

The next couple of years.

Okay. That's certainly encouraging and then I guess the final question for me as and you touched on this a little bit as far as the you know the potential of acquisitions, but I guess, maybe I can maybe asking a slightly different way is are there any pieces that you look at now that that you feel as though would be.

The you know that Korn ferry is missing or things that you would like to enhance I know you've talked about you know a enhancing the the digital and recurring revenue streams and things, but I was wondering if there any observations over the last few months that has made any shifts and some of the the over.

For all acquisition wish list. Thanks, the no the organizational strategy and learning and development.

Clearly our are our big pieces and as you said the digital aspect about <unk> you know the if you. If you look at our research what would it with some Josh is that for number one the number one predictor.

AXOS is learning agility, but on on top of that for people to actually even find their potential let alone exceeded people need opportunity in our research whether it's on.

Female leaders black leaders.

Across the board you have to have opportunity you have to have mentor ship you have to have sponsorship in there needs to be development. So we believe that learning and development, albeit it's going to be delivered completely differently.

Place for the next few years that that's a that's a place that is sustaining and where Korn ferry wants to help people exceed their potential for show side I'd point to those two.

Obviously, we have some other lenses, but that would probably be though the biggest.

I would now like turn the conference call back over to Mr. Burnison for any closing remarks.

Okay, well listen I.

Thank you everybody for joining US you know clearly.

The first quarter headline numbers or you know, we're not spectacular but the good news is that the company is position.

To accelerate through the turn and more importantly, when you look at the but that the new business.

Clearly encouraging so our business you know in essence is to enable people in organizations to exceed their potential and I think this company is is better positioned than it's ever been so with that thank you very much for your time have a good rest of your day. Thank you.

Ladies and gentlemen, todays conference call will be available for replay for one week started today at three PM Eastern time running through the day September 10th ending at Midnight you May access the ATM <unk> executive playback service by dialing 8662 zero 710 for one and.

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