Korn Ferry 2027 Q1 Earnings Call

Thanks, Regina, and thank you, everybody, for joining us. I am going to have the team walk through the numbers. But first, I would just comment that our performance was absolutely outstanding. All regions are up, and it marks our sixth consecutive quarter of top-line growth, which underscores the strength of our strategy. We remain focused on executing with discipline, investing in opportunities that will drive sustainable impact, and create lasting value for our shareholders. All of which reflects the confidence we have in our strategic direction and long-term outlook. As I reflected during our previous quarterly call, I used to talk about opportunities measured in the hundreds of millions of dollars. Today, I think in terms of opportunities measured in the billions. Last week, we took another significant step in that direction with the completion of our combination with AMS.

This brings together two iconic brands and creates a global leader in talent and organizational consulting. AMS is a world-class firm that propels our We Are Korn Ferry strategy to be the world's conductor of talent and organizational orchestration. We now offer one of the most comprehensive organizational talent solution portfolios in the world. The combined firm has nearly 17,000 colleagues in more than 130 offices. Complementary strengths and more expansive industry coverage, all united in a shared commitment to accelerate our clients' success. Together with AMS, we have profound operational capability, delivering technology-enabled talent solutions at scale, supported by long-term contracted client relationships. We've deepened our client-centric approach as we expand the breadth of our solutions with every relationship. Here are just a couple examples. At a global energy company, we're supporting their strategic and talent transformation, impacting 60,000 roles across 200 business units.

Or a global consumer products company with more than 100,000 employees turned to us for worldwide delivery of org design, analytics, and workforce planning. At the heart of how we serve our largest clients is Talent Suite, powering our work and enabling better people decisions at scale. In fact, more than 90% of our Marquee and Diamond accounts have an active Talent Suite subscription today. I couldn't be more excited about the evolution and the trajectory of our firm. Today's Korn Ferry has a unique ability to serve our clients across the entire talent spectrum. Search is about identifying talent. Workforce Solutions is scaling that talent, and Talent and Organizational Solutions is unlocking their potential. There's no question that technology will continue to play a significant role in the future, bridging the imbalance of supply and demand of labor. But it's not technology alone.

People are the catalyst for organizational success. Human beings, not human doings. It's a belief that defines who we are, and that's why Korn Ferry is in the people business. With that, Bob, I'll turn it over to you.

Great. Thanks, Gary, and good afternoon or good morning, everyone. Our financial performance continues to steadily improve and outpace the broader industry. In the first quarter of FY27, our fee revenue grew for the sixth consecutive quarter with strong earnings growth and steady profitability. Our improving performance in this ever-changing business environment really continues to underscore both the effectiveness of our strategy, the hard work and talent of our colleagues, and our operational excellence. Before reviewing the quarter in detail, as we announced on our fourth quarter earnings call for fiscal year 2026, we are now reporting our financial results of the company in three geographic segments: the Americas, EMEA, and APAC. This new reporting structure aligns with our We Are Korn Ferry go-to-market initiatives, and actually with how our clients engage with us.

To assist with the transition from a global solution focus to regional geographies, the slides posted in our investor presentation include three new solution groupings within each geographic region. The three new solution groupings are Search, which is the old executive search and professional search, Talent & Organizational Solutions, which is comprised of consulting and digital, and Workforce Solutions, which is comprised of RPO and interim. Turning to our first quarter performance highlights. Estimated remaining fees under existing contracts grew 14% year-over-year to $1.92 billion, led by global new business growth in Workforce Solutions. Our internal business referral rate increased to 29.4% of consolidated fee revenue. It is up by about 300 basis points year-over-year, and our Marquee and Diamond accounts remain steady at about 40% of consolidated fee revenue.

Both of these metrics really demonstrate the fee revenue synergies we are creating with our We Are Korn Ferry go-to-market activities. Our consolidated new business grew 12% year-over-year, and fee revenue grew in all regions and all industry groups. Fee earner productivity, which we measure as new business per average fee earners annualized, grew year-over-year in all regions. I will talk a little bit about the company results. Consolidated fee revenue grew 7% year-over-year to $756 million, again, marking our sixth consecutive quarter of growth. Earnings and profitability also remained strong. Adjusted EBITDA grew $8 million or 7% year-over-year to $128 million. Adjusted EBITDA margin was flat year-over-year at 17%, and adjusted diluted earnings per share grew $0.12 or 9% year-over-year to $1.43.

As previously mentioned, our estimated remaining fees under existing contracts were $1.92 billion at the end of the quarter, and we estimate about 56% or $1.1 billion will be recognized within the next four quarters, and the remaining 44% or $835 million will be recognized beyond the next year. Turning to our regional results, fee revenue in the Americas grew 9% year-over-year to $442 million, led by growth in search and workforce solutions. EMEA fee revenue continued to strengthen, growing 4% year-over-year to $228 million. Growth was broad-based with strength in all solution groups. In APAC, fee revenue inflected to growth in the first quarter, reaching $87 million, up 1% year-over-year, led by search. Finally, we continued to maintain a disciplined, balanced approach to capital allocation, over the quarter.

During the quarter, we paid $30 million of dividends and invested $15 million in capital expenditures. In the future, we will be inclined to use investable cash for the reduction of debt associated with the acquisition of AMS. However, we will also closely monitor our share price and use capital for that if we find that more attractive. Turning to our outlook for the second quarter of FY 2027, assuming no further changes in worldwide geopolitical conditions, economic conditions, financial markets, and foreign exchange rates, and including the addition of AMS, now it is only for two months, September and October, our second quarter fee revenue is expected to range from $860 million to $878 million. Our adjusted EBITDA margin is expected to range from 16.8%-17.2%, and adjusted diluted earnings per share are expected to range from $1.30 to $1.40 per share.

We have a page in the investor deck and provide some guidance assumptions. You will find adjusted diluted earnings per share includes the net after-tax impact of the 2 months of incremental intangible asset amortization.

Incremental interest, net interest expense, and incremental shares issued in connection with the acquisition of AMS. In closing, we remain focused on executing our We Are Korn Ferry go-to-market initiatives, which are driving deeper, more durable client relationships. Additionally, with the recent addition of AMS to the Korn Ferry family, we will strengthen our position in RPO and interim while broadening our capabilities into contingent workforce solutions and early career and campus recruiting. AMS has a substantial backlog of multi-year contracts and long-tenured client relationships. Going forward, it is our goal to deepen the value of those client relationships, introducing clients to all that Korn Ferry offers. Together with AMS, we are a much stronger company with greater capabilities to drive client business performance through their most precious asset, which is their people. With that, we would be glad to answer any questions you may have.