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#Okay, thank you, everybody.
But first, I just want to say thank you to our colleagues at Korn Ferry, and I'll tell you why.
Because this quarter was the best top line results in the company's history.
To say that I'm proud is an absolutely ---+ that's just an understatement.
The firm is on a roll.
We generated $443 million in fee revenue in the quarter, which is up about 10%.
Profits were solid, adjusted EPS was $0.67, adjusted EBITDA was about $70 million.
Asia knocked the cover off the ball, Asia was up 17%, Europe was up 10% and North America was up about 6%.
And from an industry perspective, financial services was absolutely spectacular.
That business grew about 36% or so in the quarter.
It's been 2 years to the day, almost ---+ actually, it's 2 years and 3 days since we completed the acquisition of Hay Group and I ---+ although we've still got a lot of work to do, there's no doubt about it, I will tell you that this has been a game changer.
Korn Ferry has evolved into an organizational consulting firm.
So what does that mean.
Well, most clients can develop a sound strategy, but they often struggle to make it stick.
And that's where Korn Ferry comes in, combining a client strategy with their talent to drive superior performance.
And a strategy without talent is helpless and talent without strategy is hopeless.
And that's what we did.
We combined these essential elements for our clients' success, and that's what makes our firm unique.
And so there are really 2 aspects to our business.
First, we help companies design their organization, the structure, roles, responsibilities, as well as how they compensate, develop and motivate their people.
And secondly, we help organizations select and hire the talent that they need to execute the strategy.
The acquisitions that we've made over the years, the talent that we're developing internally and bringing on-board, as well as our real relentless focus on solutions align toward our clients' business outcomes, it's making, I think, a notable impact.
The investments we've made, I think, have not only enhanced our performance, but they've strategically repositioned the company forever, providing a platform to both shape and accelerate our growth in the years ahead.
So I'll leave my comments right there.
I'd only say, as we enter this calendar 2018, we're going to continue our strategic commitment to building the preeminent organizational consultancy, a firm that changes people's lives and that enables organizations and people to exceed their potential.
So with that, I'm joined here with Bob <UNK> and <UNK> <UNK>.
So I'll turn it over to you, Bob.
Great.
Thanks, <UNK>, and good afternoon, everyone.
As usual, I'm going to start with a few key highlights.
First, as <UNK> mentioned, fee revenue in the second quarter reached an all-time high, with all 3 lines of our major business segments achieving strong year-over-year growth.
Globally, the fee revenue in the second quarter was approximately $443 million.
It's a growth of over 10% year-over-year at actual foreign currency rates and nearly 9% at constant currency.
Growth was strongest in the talent acquisition businesses, Executive Search and Futurestep, which grew year-over-year by approximately 13% and 17%, respectively.
For Executive Search, fee revenue growth in the second quarter was broad-based, with growth in North America, Europe and Asia PAC regions of 9%, 19% and 33%, respectively.
We're also pleased with the 6% year-over-year growth that we saw in the Hay Group, which reflects not only the addition of new talent, but our focus on larger solutions and our go-to-market activities as well.
Second, in the quarter, we continued to invest for growth.
On a quarter sequential basis, we hired an additional 17 net new fee earners, 6 of those in Executive Search and another 11 at the Hay Group.
Many of the new consultants we have on-boarded over the last several quarters are currently making a real positive impact.
We had a record quarter of new business in all 3 lines of business, which not only contributed to our record overall revenue in the quarter but positions us very well for the second half of fiscal '18.
We expect these new hires to further contribute to growth over the next few quarters as the productivity ramps.
Third, our adjusted EBITDA, as <UNK> mentioned, in the second quarter reached $69.6 million, an improvement of almost 10% compared to last year's second quarter.
And then, finally, we continue to return capital to shareholders with the payment of our quarterly dividend and the repurchase of our stock.
Over the last 5 quarters, we have now repurchased approximately 2 million shares, that's about 3.5% of our outstanding fully diluted share base and we've used about $58 million of our $150 million authorization.
Now turning to new business trends.
First, for Executive Search segment.
Globally, new business wins in the second quarter continued to improve and reached a record high.
In the second quarter, consolidated Executive Search new business was approximately $180 million and that was up about 15% year-over-year, again driven by strength in North America, Europe and Asia.
Similarly, new business growth in the second quarter for Hay Group was strong, coming in at a record $216 million, and that's up double digits measured year-over-year.
And finally, in the second quarter, Futurestep achieved an all-time high in new business, with total awards of approximately $149 million.
This includes $28 million in single search, and then on the RPO side, it was about $121 million, $5.5 million of that is an extension of an existing client relationship, about $52.5 million is an expansion of an existing client relationship and then about $63 million relates to new customer wins.
And the majority of that RPO revenue will be realized over 4 to 5 years.
At the end of the second quarter, total cash in marketable securities were $414 million, that's up about $24 million compared to the second quarter of fiscal '17.
And then when you exclude amounts reserved for deferred comp arrangements and accrued bonuses, our investable cash balance was about $185 million, and that's up about $30 million year-over-year.
As of the end of the second quarter, we had about $246 million of debt outstanding.
And then, finally, our adjusted diluted earnings per share were $0.67 in the quarter, it's up about 13.5% year-over-year, and on a GAAP basis, fully diluted earnings per share were $0.64.
With that, I'm going to turn it over to <UNK>, who will review the operating segments in a bit more detail.
Great.
Thanks, <UNK>.
As previously discussed, monthly new business activity in the second quarter ramped for all of our operating segments, just ahead of our seasonally slower third quarter.
Globally, for Executive Search, new business awards in the months of September and October were up year-over-year by 13% and 22%, respectively, and we saw strength in the month of November, which was also up year-over-year.
If monthly new business patterns remain consistent with prior years, we expect Executive Search new business awards to trough sequentially to a seasonal low in December, then rebound to a quarter peak in January.
For the Hay Group, the third quarter is also typically a seasonally weaker quarter for both new business and revenue, as time off during the year-end holidays results in less time with clients to execute backlog as well as win new assignments.
However, we do expect the Hay Group to benefit in the third quarter from both the surge in new business awards secured in the second quarter as well as the continued ramp-up in productivity of many of our recent consultant hires.
Also as previously mentioned, Hay Group new business awards improved each month during the second quarter and the month of November was strong, up over 14% year-over-year.
With regards to Futurestep, both business under contract and the pipeline of potential new business opportunities remained strong and should drive continued growth in the third quarter.
As we previously mentioned, in the second quarter we continue to hire fee earners and select support staff in all of our operating segments.
At the end of the second quarter, our net consultant counts are up 21 in Executive Search and 37 at the Hay Group on a year-to-date basis.
As is usually the case, in the short term, many of these new hired consultants will not immediately bill at full capacity and, therefore, will create near-term downward pressure and earnings and margins, especially in our seasonally slower third quarter.
Now considering these factors, assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, and under the existing U.<UNK> tax law, we expect our consolidated fee revenue in the third quarter to range from $406 million to $426 million, with growth in all of our lines of business and we expect our consolidated adjusted diluted earnings per share to range from $0.54 to $0.62.
And then, finally, consistent with prior quarters, our financial results in the third quarter include the amortization of integration and acquisition costs of approximately $2.3 million for retention bonuses related to the Hay Group acquisition.
When you include these costs, we estimate that the fiscal '18 third quarter fully diluted earnings per share, as measured by U.<UNK> GAAP, will likely be in the range of $0.51 to $0.59.
And with that, we'll conclude our prepared remarks, and we'd be glad to answer any questions that you have.
Well, we do have goals for ROIC.
And we would clearly expect to be at least 11%, 14%, maybe 15%.
I mean, that obviously depends on where you are in the cycle, but that's kind of the gating that we'd put around it.
It didn't grow at all.
And I think that the reality is, as we've really started to look at the opportunity there, there's been a couple of things that have really struck us.
Number one, the opportunity to create a platform that companies could use to hire people, to assess people, to develop people and pay people is absolutely there.
And we have the [IP] to be able to deliver on that promise.
That's number one.
But the second is, quite frankly, we've got some work to do, in terms of making that dream a reality.
I still believe very, very strongly that the business has the opportunity to double or triple, actually, over time, and it is certainly a very scalable business.
But we're going in and really taking a hard look at the customer interface, how they experience it, and we're making some pretty substantial changes to what that offering will really be.
We're looking at the pricing of the business.
Some of that pricing, you're locked in for more than a year.
But the opportunity is absolutely there.
But we've still got some work to do and we also have to continue to develop talent in that business, as well as augment talent from the outside.
Well, we've ---+ certainly, we have been very aggressive and it's not ---+ it's been very, very broad-based.
We've brought in people that have professional account management experience.
We've brought in people that are, what we would call, solution architects.
So it has been aggressive.
I would not anticipate that same level of aggressiveness for the next 1 to 2 quarters.
I think the reality is that our expense base has grown substantially.
I believe we still have capacity, a lot of capacity.
And quite frankly, we've got to kind of recalibrate this products business.
We've got work to do there.
So I think that for those reasons, it's not going to be as aggressive at it was, say, going back 9 months.
No, it's impossible to ---+ without a lift in the products business, no.
It's almost impossible because of the substantial reduction in billable hours and time.
I don't know what you'll lose in this quarter if it's 7, 8, 9 days.
I mean, it's a pretty big number.
So there's just no way to really make up for that sequentially.
Yes, and I would say ---+ Tobey, this is Bob, even when all of our folks are fully ramped up, you're still going to see a sequential drop Q2 to Q3, for the reason <UNK> just articulated as well, the fact that Q2 is a seasonally high quarter for products revenue because there's a lot of renewal activity that happens during that quarter.
Yes.
I think, Tobey, we've done some internal analysis, but I would prefer to wait until we see where everything settles down, and at that point we'll come out with a more formalized point of view.
I don't ---+ look, I don't ---+ we have a ---+ look, we have a new leader in the business.
That has had an impact for sure, no doubt about it.
But the team that we have is really, really good.
And so we have tried to push, over the last several quarters, to orient ourselves towards more impactful, larger assignments.
Secondly, we've try to push the organization towards a solutions mentality.
And so I would, actually ---+ I would attribute it to those things, obviously to the extent that you can develop talent from within or augment from the outside, that's a big plus.
But I don't think there's been enough time to really put points on the board.
And so I would attribute to those other 3 things than kind of this new talent per se.
Yes, so the ---+ I would say, if you go back and you look at historical patterns in Futurestep, the third quarter is generally flat or even down a little from second quarter, again, because of the year-end holidays and we would expect that same pattern to exist this year.
If you go in and look at the business, the business is roughly 45% single search, 55% RPO.
Well, I think, look, if things play out the way they ---+ it appears right now, you're at a point where wages will be rising.
Wages rising is a good thing for everybody.
But I would say that ---+ I would hope that we could look at that at more like $1.4 million, maybe $1.5 million, I mean, why not.
So, yes, I would tend to ---+ and I think this quarter we were like $1.3 million, something like that, yes, $1.3 million.
So I would ---+ I think you could [see yourself] to, for sure, like $1.4 million.
And possibly, I think that ---+ to the more that we integrate ourselves as one rather than being 3 or 6 or 9, I think if we integrate ourselves as one firm, those are not just possibilities, it becomes a reality.
Yes, I think the pipeline remains pretty strong.
I would say, and we've seen this in the past when Byrne has a new business ---+ Futurestep has a new business that it wins, the maturity or the sort of advanced stage of the pipeline changes a little bit.
So the dollar value remains at a high level, but the maturity or the stage of completion of the proposals is probably a little bit earlier.
We have.
In terms of the new business, we've certainly seen ---+ we've got some nice wins, high 6-figure, 7-figure wins, particularly around M&A and talent development.
So that's ---+ I think that overall, as we continue to move the portfolio hopefully towards bigger assignments, that obviously changes the ---+ it changes everything, the value proposition, it changes the economics as well.
It did.
The U.K. is the flagship of the company.
We've got 750 people there, the business is outstanding.
That business performed, again, incredibly well in the quarter.
It was.
Europe was clearly part of it, not only the U.K. I would say that we have seen, probably as you would expect, I mean, good activity in commercial banking, consumer banking, wealth management, insurance, those have all been good, as well as private equity.
So when you look at the sectors within financial services, you're going to see pretty strong across the sectors.
And from a geographic perspective, you're also going to find it relatively balanced in terms of growth.
It really hasn't changed since the last call, but it certainly has changed over several quarters, no doubt about that.
And so we are an organizational consulting firm and as we go to continue to integrate ourselves around one firm, we have seen people from strategy backgrounds, the big 4, some of the branded HR providers, we've certainly seen an uptick in activity from those sources.
It's ---+ today it's about 20% of the firm, 20% of the portfolio.
When you look at world-class professional services companies you'd find, it would be anywhere from 20% to 30%.
So we certainly ---+ we would not see it at 30%.
But we would see it in the low 20s in terms of percent of the overall portfolio.
I think we made really good progress in the quarter.
I'm not satisfied, but I'll just ---+ one of the contributors to that large Futurestep new business orders in the quarter was from a marquee account.
And it's just amazing to ---+ for me to kind of contemplate how much impact we can have with some of these clients versus, say, a decade ago.
Okay.
Again, I want to say thank you to our colleagues.
Obviously, thank you to our shareholders as well and to our board.
Special time of the year, and so I'd pass on seasons greetings to everybody, and we look forward to speaking to you in the new calendar year.
Thanks, everybody.
