Korn/Ferry International Aktie

We're joined by Bob Rozek, who is the CFO of the company. Bob, thank you for being here with us today.

Thank you for the invite.

Of course. So let's start at a high level with Korn Ferry's strategy. The company has expanded well beyond executive search over the past couple of years, pushing into consulting, digital, workforce solutions, recently acquired AMS, which I know we'll talk more about. Can you discuss how this broader portfolio has changed Korn Ferry's growth profile and overall cyclicality?

Yes. So part of the initial strategy in terms of expanding our solution set with our clients was really all about moving away from a highly cyclical, highly transactional, monoline business into something that has more revenue durability, resilience and so on. If you think about our executive search business, George, it converts from signing to closure within three months. So you constantly have to go and sell the next search, whereas now we have long-term relationships. At the end of the first quarter, we were about $1.9 billion in backlog, right? So that's work that we've sold but have yet to deliver, so very different. Then with AMS coming on board, they have very large client relationships and their backlog is about $1.5 billion. And if you think about us at $1.9 billion, we're a $3 billion company, they're at $1.5 billion, and they're about $650 million company that shows you the size and scale of their client engagements.

And so today, we're going to have about $3.5 billion -- almost $3.5 billion backlog. So a very different profile for our organization. Not to mention when you look at the assets that we have and the services and solutions we provide, we basically fulfill every talent need that a client has, not just finding a body when somebody leaves or they get terminated, but providing end-to-end talent solutions for clients.

Recently, the company has shifted to more of a regional operating model, carving the business up into the Americas, EMEA and in APAC as the primary integrators of solutions across the company. What changes operationally under this new model? And how do you think it's going to improve execution and growth?

Yes. So really, what changes, this is all about becoming much more client-centric. And in order to do so, you have to meet clients where they're at, which is on a local basis. And what we found over time is, Gary and I would manage the business, we were really focused on solutions. So I'd go to Mathias and say, "Hey, what's going on in digital," or "Lesley, what's going on in consulting?" And we're creating a device in this -- within the business. So everybody became siloed. And as we step back, and we said, okay, that was -- that work for us to a point, but it's not going to help us get to the next level. We have to bring our organization together before we split it up.

And so the whole concept behind the regions was to do that and really focus on clients. And what we've done operationally now. So Gary drives all of our go-to-market activities. And we get on a call every other Monday. We look at all the new business we've won. We look at all of our marquee and diamond accounts. All our must-win opportunities, and he's got his whole leadership team doing that. So no longer are we going, again, to the individual solutions and seeing what they're doing. It's what we're doing collectively as a team.

And then on the operating side, that's where my responsibility is coming in. I still look at the business regionally and by solution, by solution groupings, because as I think about resource decisions and so on, it would be really hard to do it just at the regional level. So we've kind of broken it up, and that's the operating model that we've got in place. That we're following now. On the go-to-market side, if I go back to May 1 of last year, the -- what we measure is what we call our business referrals. So one solution refers something to another solution. It was about 25%. We were stuck there for about 4 quarters. And then as we started with this new operating model, we saw that start to ramp up, and we just finished Q1 at almost 29.5%. So we're seeing real kind of cause and effect, if you will.

And on that topic of cross-referrals, where do you think that 30% can go to over time?

I'd be surprised if you don't get it up to at least 35% at some point in time. And I think the -- bringing AMS on, I think, is going to be a real accelerant for us in that they're probably -- or not probably, definitely the most buttoned-up company that we've bought, really good talent in the organization. And their solutions sort of complement -- even though some of the same stuff that complements ours. So they're strong in financial services, we're strong in industrial. They've got -- we have an interim business where we place individuals. They have what they call contingent workforce solutions, where they're actually outsourcing the acquisition of contract labor. So it's not like you're taking two things and just bringing them together. They're actually -- they're actually additive to each other.

Let's talk more about AMS because it really does significantly expand Korn Ferry's workforce solutions, what made AMS the right strategic fit for the company? And why is this the right time for the transaction?

Yes. So they had been owned by private equity. I think that the OMERS was the most recent, was their third private equity. So it was probably about a 15-year period. And they built -- they have a really nice business. They're very buttoned up, and I think they had themselves to a point, where they were tired of being getting ground down by PE. And they were looking for how do we take this organization to the next level, and we happen to have a phenomenal platform that we could plug them into, right? And I think, as I said, the complementary nature of it, it just made sense at this point in time for us to do that.

AMS specifically adds contingent workforce solutions, early career, skill creation, tech consulting, all of those solutions. Which capabilities do you think represent the largest incremental revenue opportunity for Korn Ferry?

Yes. The one that -- maybe you get a different answer if you ask Gary versus I. I personally think the contingent workforce solutions. As a CFO, if somebody came in to me and said, "Hey, your contract spending is probably inefficient, you're probably spending more than you even think you are. I'll take that over for you. We'll get it all organized, and I'm going to save you whatever the 6%, 7%, 8% a year." That's a fairly easy value proposition, an interesting one. Gary is pretty excited about the, call it, ECC, it's the early campus in -- early career and campus recruiting. They do that primarily in Europe. And they service PwC, Deloitte, Goldman Sachs, firms like that, bringing that over to the U.S., I think, is also a huge opportunity.

Now AMS is quite large. It's going to basically double your employee count, your colleague base and then also expand your geographic presence to 120 countries. What do you think are the most important integration priorities given the scale, and what are the potential execution risks as you think about the next year?

Yes. I would say one of the most important things that we're going to do is obviously we have to bring them on to our system. And we've got a great integration playbook to do that. Our plan is to have them flipped over into our systems come May 1 of next year. It's going to be a heavy lift, but I'm extremely confident that we're going to get there. A team that I have in place is phenomenal. The one thing that I find very interesting about this is, we're $3 billion with about 9,000 people. They're $650 million with 8,000 people, but what they've done is they've created these global capability centers, so in Pune, in Philippines, Monterrey. And us being able to leverage those, I think, is a real huge opportunity when we go through the integration aspect because they've got very low-cost labor in those locations.

So that's what I'm excited about. And I think the other -- all the go-to-market activities, which, again, it's kind of, like, what Gary is driving to me, that's the biggest opportunity coming through all this. But you know we talk about a business that's $650 million in revenue, $100 million of adjusted EBITDA and taking that up to $140 million within the year. Very, very confident that we'll be able to do that as we exit the 1-year anniversary. The run rate of EBITDA at that point will absolutely be at a $140 million level.

Right. And so the $650 million in revenue, how would you characterize the growth of AMS stand-alone? Is it growth accretive, growth neutral to Korn Ferry?

I would say it's -- they're -- if I go back and look at us historically and them historically, and I take out M&A for us, I would say we're probably about the same.

Okay. Similar growth profile.

Figure, 6%, 7%.

And then so getting the $100 million EBITDA at AMS up to $140 million EBITDA for AMS in a year, how much of that $40 million growth comes from synergies? Revenue synergies and cost synergies, and how much comes from just inherent growth within the business from scale, operating leverage, et cetera?

Yes. Right now, we're just planning on getting there through synergies...

Synergies alone. Okay.

Synergies, yes. Yes, and I would say, we, again, have a phenomenal playbook. So we'll get -- we're very confident we'll get there. The lion's share of it early on will probably be more aligned to cost synergies. You got a lot of G&A costs. They had a lot of costs that the PE guys put on. That stuff just goes away. So we'll have the lion's share through cost synergies. And then over time as we become more familiar with them, and they become more familiar with us, that's when you would see the revenue synergies kick in.

Makes sense. And then can you walk a little bit through the EPS accretion dynamics near term and then longer term when you would expect it to be EPS accretive?

Yes. So when we initially did the modeling and the companies that we buy. When you do the valuation for the opening balance sheet, one of the assets that are on there is customer relationships. And for us, historically, those have been about 15% of the purchase price. In this case, we knew their relationships are stronger. So when we modeled it, we modeled it at about 20%. PwC does our valuation work. It actually came back at 33%. So the amortization is higher than what we had anticipated. But if I step back from that to me, that's actually a good thing because that means that those customer relationships are very valuable, right? And that's what's important for us.

If you look at what we -- where we are today, and you look at what the guidance is for the second quarter, the EPS tick down. We did $1.43, down -- we guided to $1.35. Their EBITDA covers the incremental amortization and so on. It's actually the incremental shares that we issued that make it dilutive. But if you step back, and you take the $40 million, tax-effect it at our effective tax rate, it ends up with about $29 million in net income. You divide that by 55 million shares, and you're creating $0.52, $0.53 of value right there. And that assumes that we don't pay down any debt. We don't buy any shares back. So there's upside to that. And then when you start to get the revenue synergies, further upside.

So first quarter is going to be EPS dilutive, but by the end of the first year, EPS accretive?

Yes.

Got it. Let's talk a little bit more about revenue drivers for the company. So Korn Ferry has now delivered six consecutive quarters of positive fee revenue growth. What are the more cyclical businesses of the company telling you or currently signaling about the current economy and broader labor market?

Yes, I would say that the -- if you look at that 6% growth, a good chunk of it has been delivered through the talent acquisition businesses, whether it's executive search, pro search, RPO or interim. And we're starting to see a lot more confidence in hiring decisions being made. Each business is a little bit different, executive search. You have, we call it Peak 65, but you have a lot of baby boomers who are reaching retirement age. And they want to go off and do something different or maybe they just want to work part time. And so we're seeing a lot of volume through our executive search business. On the Professional Search side, we're actually adding [ fee earners. ] And if you think about that business, George, Exec Search is probably a $5 billion or $10 billion marketplace somewhere in between there.

Pro Search is about $25 billion. And our Exec Search business is roughly $1 billion today. Our Pro Search business is probably about $250 million. So there's an enormous amount of market for us to go after. On the interim side, we're starting to see that business really pick up. And I think if you look at our peer set, we're actually doing better than they are because of being part of the Korn Ferry ecosystem. It's really the people who refer work into interim because, kind of, what we do with talent acquisition.

And AMS will make that stronger.

Absolutely.

So within your search business, you've moved upmarket more. You're winning more deals that are senior-level assignments. What's your outlook for engagement volumes and pricing given that mix shift upmarket? And how much additional runway do you see from this upmarket shift?

Yes. I think from a pricing perspective, I mean, the pricing model stays the same. It's 1/3 of the first-year cash comp. But as you move upmarket, obviously, you're dealing with people who make more money, so you get a higher average fee. And we've seen that grow over the past 4 or 5 years. The one area that is part of what Gary does with this client-centricity. So every day, we get e-mails on all the new business we've won the day before. And at first, it's like, oh, man, I got to go through another 50 e-mails, but now actually, as you pay attention to it, the one C-suite area that I'm finding really predominant now as CFO, has been, I see a lot of CFO churn happening at this point in time. I think there's really good runway left in terms of people getting to the point where it's time to hang it up and go on and do something different.

Peak 65, I think, is in the early stages. I would say on professional search, again, we're playing at higher levels. So somewhat insulated from AI. I think some of the early narrative around AI was -- nobody was ever going to work again. And now you're back to it's not really -- it's going to be more of an efficiency tool. And I think as people got the tool out into employees' hands, if you just let everybody do it to their own liking, how do you ever capture that productivity, like, you're doing something different, and I'm doing something different. And so one of the things we're doing is, as I said to our guys that we got the tool in everybody's hands, but now we got to figure out an organized way to capture that productivity. And when you start to do that, and you start to look at a job and deconstruct that job, it's pretty easy to realize AI is not going to replace that job. It might impact certain tasks, but it's not going to replace it.

So I think the pendulum has swung on the whole AI thing, and it's creating actually a tailwind for us where I need people with different skills, right? It's creating new jobs that we haven't seen in the past. So on the Pro Search side, that's where I think we're seeing a lot of the uptick that -- in volume that we are. I think interim is -- it went through a very rough time, right, decline for whatever was 36 months in a row. And I think we're starting to see that pick back up again. And RPO business, if I think about what we guided for Q2, they're back into triple-digit fee revenues now.

If we look at performance across the different regions, what would you say is driving the differences in performance across the Americas, EMEA and APAC? And how would you characterize the pipeline in each of those regions?

I would say -- the pipeline for each of the regions is good. I would say Asia is probably the most impacted by the conflicts in the Middle East, which early on was kind of surprise to me, but probably shouldn't have been, but they're very reliant on resources coming through the strait. And so they've really been impacted. That business for us is kind of just stable right now, not growing dramatically. Europe was somewhat immune to the Middle East. Now we're starting to see it have some impact. So our growth in Europe in the first quarter was about 4% or 5%. It was down, but about 4% or 5%. And America seems to just be chugging along, like, as if it's -- the Middle East is not an issue.

Yes. If we look at performance within your talent and organizational solutions business, what do you think it would take for that business to accelerate in growth and potentially reach a target of double-digit growth?

Yes. I think a couple of things. There's -- as we elevate the level of engagement that we're doing in that business, you're naturally extending the sales cycle. And I think given some of the uncertainty with the Middle East and so on, the sales cycle that's longer already, people are taking longer and longer to sign deals. So I think we need resolution on some of the uncertainties that exist in the macro environment today. The other thing we've done in the digital business, we have an annual performance cycle that we go through. And we have a number of underperforming, call it, enterprise sellers in digital that we asked to move on, hired new people on. And so they need some time to ramp up. So it's probably going to be through the end of this fiscal year before they really hit their stride. So I think it's a combination of that and then the macro settling down a bit.

You've combined consulting and digital together into the new segment. Can you dissect how those two businesses are performing if they're separating the performance, or if they're growing similarly together?

Yes. The -- both of those businesses are growing similar. We separated them, I don't know, I can't remember, it was 5 or 6 years ago, in the thought process as well. If you isolate the digital business, it's going to help our trading multiple. And those businesses really belong together. If I get to tell everybody, there should never be a consulting engagement that doesn't include digital, and there should never be digital that doesn't include consulting because digital is where we have all of our foundational assets when you think about data, IP, science, behavioral science. And if our consultants aren't consulting around that, what are they talking about, right? So that -- those two businesses really belong together. So I'm looking forward to -- and we've got two good leaders now that are very collaborative, Lesley and Mathias, get along really well. So it's just we just got to get the macro to settle down and have the new folks ramp up and that business will be fine.

Yes. Recently, you launched your new Talent Suite, and that does have a benefit to your digital business and other parts of your business. Can you talk about how much Talent Suite should be a catalyst for Korn Ferry?

Yes. I think it's -- one of the things I'm trying to get folks to do is to separate Talent Suite from Digital. I mean it happens to be associated with Digital, but that's where the tech is built, if you will. But it really supports the whole firm, right? If you think about everything that we do, all the assets that we have, whether it's assessments, it's pay data, it's development content. All of that lifts the entire firm. So what Talent Suite did is to put it on a common platform and made it easier to access, easier to use.

I think with the work that we're doing on AI, it's going to make it a lot easier to take bits and pieces and bring it together to create unique and interesting insights that nobody else can do because nobody has the type of data or assets that we have. And one of the things we're working on right now is sort of repositioning in the market because I think there's a misconception that people think that this is Talent Suite, and it's not. It's just -- Talent Suite is an enabling platform. And really what we're selling is talent intelligence. And so that's the work that we're doing now on trying to reposition it. But it should be -- once -- when any software you roll out, we had some stability issues, past all that now. And now we need to really just drive it into everything that we do in the firm.

Yes. You've seen some pretty healthy RPO new business activity in recent quarters. Can you talk about that? What's driving the new logo wins? And then within existing RPO contracts, how volumes are performing?

Yes. Volumes are definitely coming back within the existing contracts. That's why they're back into triple digits in terms of fee revenue. We have a pretty differentiated offering. What that business has done over time, we've done a really nice job of integrating our foundational assets into their offering. So the assessments, like, if you're going into a company, you're going to hire 1,000 people at this level a year. We'll take the top 25, assess them, and you create a profile of what good looks like in that organization. And then as our recruiters are out recruiting for them, people that they're talking to take the same assessment. And so when we show up, you have resumes of individuals that look like what good looks like in that organization. They bring our pay data into the offering. So we know if you only want to pay somebody whatever $60,000 a year or $70,000 a year, it's going to take longer because the standard is actually $85,000. So all of that intel we bring it to the recruiting process, it gives us a bit of a differentiated offering.

Your largest clients are known as Marquee and Diamond accounts. Can you talk about how your largest clients are performing, how growth within Marquee and Diamond accounts compares versus your overall revenue?

Yes. For the most part, those accounts every quarter grow faster than the rest of the company. Today, they represent about 40% of our consolidated fee revenue. If you go back in time, it was probably in the low 30s. So we continue to invest in those accounts. What I'm really excited about, and we're going through that right now is bringing the very large AMS clients into our program. And that's going to have the impact of that really supercharging the size of that program relative to the rest of the company.

Right. And how do Marquee and Diamond accounts grow relative to overall Korn Ferry faster by...

I would say if you go back over the past 3 or 4 years, it's probably 300 to 400 basis points faster.

Great. Let's talk a little bit about margins. So Korn Ferry saw 17% EBITDA margins in fiscal 1Q. It's targeting medium- to longer-term margins of 16% to 18%. What are the primary drivers that you think could move margins above or below that range?

Yes, I would say there's nothing that comes to mind that would drive us below that range. I would say once we -- if you just take AMS, and you drive them from 100 to 140, you're at the top end of that range right there, right? So to the extent -- and we do have a great track record to the extent we go past the 40, that gives us the opportunity to go above that range. And I think to the extent that the search businesses continue to fire on all cylinders, that's very profitable for us. And once we get the digital component of talent or org, where we need it to be, it does 30%, 31% EBITDA margins. So I see a real opportunity to go above that range. I don't see us falling below the -- even where we're at now in the 17%.

Now interim search does have lower margins than the other businesses of Korn Ferry. Can you think -- talk about how mix could impact margin performance? And if there are other areas of the business that you may push into that could be accretive or additionally dilutive to margins?

Yes. Actually, with the interim business, when we buy them, their margins are kind of 6% to 7%. Our interim business today is doing the same as our RPO businesses. It's right around 15%. So we've driven a lot of synergies into it. And we have an organization that's plug-and-play. And most of those businesses are underinvested, not well managed. So it's easy for us to pick them up and bring them into our system. And then once we do that, and you start to get the flywheel effect from the revenue synergies, you get a lot more volume going across a pretty stable cost base. So we've been able to take those up to about 15%. I would say if we went out and bought just another interim business the size of AMS, that would obviously have downward pressure because it's just the mix of our earnings would change. But to me, it's more about getting the synergies right now on AMS and getting our -- the digital portion of Talent and Org Solutions where we need it to be.

Right. The AMS deal does transform your balance sheet a bit. You are taking around $600 million, $580 million of additional revolver proceeds to fund -- finance the deal, used around $300 million of cash on hand. Can you talk about what your expectations are for delevering the balance sheet? How quickly you can do that, and then plans for free cash flow deployment after that?

Yes. So right now, we've got a little bit north of $1 billion of debt on the balance sheet, and our gross leverage ratio is about 1.7x. From a capital deployment perspective, if I go back over the past two years, two years ago, we bought back about $100 million of stock. Last year, we bought about $115 million. And that's capital that we have the ability to make a decision with. Now some of that will get consumed as we drive cost synergies. I would say, as I look forward to the end of this year, I would say a minimum of $50 million to $60 million of that will be available for us. And our inclination is to paydown debt first. Now having said that, if there were some substantial dislocation, it would be an opportunity to buy stock. We would look -- do the math and whichever makes more sense, we would do. But right now, our inclination is focused on debt paydown.

And then once you get the debt paid down, presumably, you would be open to M&A. How are you thinking about your M&A strategy following this large transaction? Are strategic larger acquisitions off the table for now as you ingest and digest this larger deal, or are you going to be back to the market looking for transformative strategic deals?

I would say you probably won't see us do something of this size within the next year. We got to digest what we -- the bite we just took. And then after that, there's not -- there's -- I think about the target environment, it's not rich with companies of this size. They come along every now and then. You'll probably see us go back to more of the $100 million, maybe $150 million, $200 million tuck-in type deals.

And as you think about those tuck-ins, which areas of the business are you most interested in growing inorganically?

Yes. The interim business is interesting to us for a whole host of reasons. One, I think, the change in dynamics in the labor market would lend that to lead us to say, well, that's an area you want to continue to invest in. I think the success we're seeing with the cross-selling or referring across is also something that's interesting to us as well. So you probably see us continue on the interim side. Leadership and Professional Development is something that we would be interested in doing as well.

Great. Well, we're just about out of time. Bob, thank you for the great discussion.

Very good. Thanks, George.

Ladies and gentlemen, thank you for standing by, and welcome to the Korn Ferry First Quarter Fiscal Year 2027 Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. We have also made available in the Investor Relations section of our website at kornferry.com, a copy of the financial presentation that we'll be reviewing with you today.

Before I turn the call over to your host, Mr. Gary Burnison, let me first read a cautionary statement to investors. Certain statements made in the call today, such as those relating to future performance, plans and goals constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, although the company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, investors are cautioned not to place undue reliance on such statements.

Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties, which are beyond the company's control. Additional information concerning such risks and uncertainties can be found in the release relating to this presentation and in the periodic and other reports filed by the company with the SEC, including the company's annual report for fiscal year 2026 and in the company's soon to be filed quarterly report for the quarter ended July 31, 2026,

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 measures is contained in the financial presentation and earnings release relating to this call. both of which are posted in the Investor Relations section of the company's website at www.kornferry.com.

With that, I'll turn the call over to Mr. Burnison. Please go ahead, Mr. Burnison.

Thanks, Regina, and thank you, everybody, for joining us. I'm going to have the team walk through the numbers. But first, I'd 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. And 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. And last week, we took another significant step in that direction with the completion of our combination with AMS. This brings together 2 iconic brands and creates a global leader in talent and organizational consulting. AMS is a world-class firm that propels our are KornFerry strategy to be the world conductor of talent and organizational orchestration.

We now offer 1 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 deeply deepened our client-centric approach as we expand the breadth of our solutions with every relationship. And here, just a couple of examples that a global energy company. We're supporting their strategic and talent transformation. impacting 60,000 roles across 200 business units.

So we're a global consumer products company with more than 100,000 employees turn to us for worldwide delivery of org design, analytics and workforce planning. And 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 catalysts 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 and good morning, everyone. Our financial performance continues to steadily improve and outpaced the broader industry. In the first quarter of FY '27, 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 and as we announced on our fourth quarter earnings call for fiscal year '26, we are now reporting our financial results of the company in 3 geographic segments, the Americas, EMEA and APAC. This new reporting structure aligns with our Wear 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 3 new solution groupings within each geographic region.

The 3 new solution grouping is our search which is the old executive search and professional search, talent and organizational solutions, which is comprised of consulting and digital and then Workforce Solutions, which is comprised of RPO in interim.

Now 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's up by about 300 basis points year-over-year, and our marquee and diamond accounts remained steady at about 40% of consolidated fee revenue.

Now both of these metrics really demonstrate the fee revenue synergies we're creating with our Warora go-to-market activities. Our consolidated new business grew 12% year-over-year and fee revenue grew in all regions and all industry groups. The earner productivity, which we measure as new business per average fee earners annualized grew year-over-year in all regions.

Now I'll talk a little bit about the company results. late 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 4 quarters, and the remaining 44% or $835 million will be recognized beyond 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 continue 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 fiscal '27. Assuming no further changes in worldwide geopolitical conditions, economic conditions, financial markets and foreign exchange rates and including the addition of AMS, it's only for 2 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% to 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 provided some guidance assumptions. And you'll 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 Wear 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 multiyear contracts and long-tenured client relationships.

Going forward, it is our goal to deepen the value of those client relationships, introducing clients to all their 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.

[Operator Instructions] Our first question will come from the line of Tobey Sommer with Truist.

This is Tyler Barishaw for Tobey. I just wanted to start with the new reporting structure. Can you maybe give us how we should think about growth rates in each of these segments going forward?

Well, when you look at the firm as a whole, that's what I tend to look at. And this was precipitated. We made this decision several quarters ago that we had to change how we were facing off with clients. And what we wanted was not an isolated solution-by-solution approach, but rather a holistic face off with our clients as we are Korn Ferry. And so that's been a very systematic effort that's been driven top-down and bottom-up, top-down through our Marquee diamond accounts or in bottom up every single day through what we're doing in terms of looking at new engagements that are open.

So I look at the firm overall over the last 10 years, 20 years, and you'd find a growth rate that's probably going to be around 10%, 11%, 12%, something like that. Up until this latest investment that we've made, we looked at that growth rate, and we said 60% was organic. 40% was inorganic. Obviously, with the combination of AMS, that changes those calculations, and it's more like 50-50. So I first look at the overall firm's growth rate historically. And when I look at the demographic trends and what's happening in the world, there's no reason to believe. I don't certainly see any reason that, that kind of growth rate that we've experienced in the past, we wouldn't continue to experience now -- clearly, from quarter-to-quarter, there's going to be regional differences.

And APAC going back now several quarters has been impacted by the socioeconomic changes that have been happening, particularly, for example, in China. And so that region has been impacted pretty severely by that falloff since the pandemic. EMEA over the last several quarters is actually been our best-performing region. More recently, over the last couple of quarters, you'll see that the Middle East has had a pretty big impact on the results there. Then Americas has been steady. So I tend to look at it from a geographic perspective, the total first of in each geography. And what it really reflects is how we're trying to drive a client-centric approach.

And then when you look at solutions, this last quarter, the Workforce Solutions group and search. Those were both outstanding, really, really outstanding growth rates in 10%, 11%. And looking at new business over the last several months, it continues to reflect that trend.

And in your executive search business, can you just talk about how AI is driving efficiencies and whether that's changing completion times or changing the margin structure of this business.

It is. It's impacting the total firm. And it certainly has an impact on how we're completing searches. But the thing that we're very, very careful about there is the data that we have. We have significant proprietary data -- comp data on 30 million people around the world, 30,000 companies. We've done 113 million executive assessments. We have upwards of 15,000 success profiles. We have pretty sensitive information on not just what people have done, but who they are.

And so with respect to AI, particularly as it relates to the search group, we've been very, very careful about how we use that. And we're going to continue to be very cautious about that. because of the nature of our data. So certainly, it has had an impact. I think it's going to continue to have an impact, absolutely.

This is Bob. Maybe a little bit more granular. I don't -- I think what's happening is clients are expecting more from us in terms of candidates lakes and we're able to deliver more of it, but it is not materially impacted the time line of a search. It's pretty consistent with what we've been seeing all along. And a lot of it's dependent on the client scheduling making decisions and so on. So while we're meeting their demands on additional information quite the time line has not changed.

And Bob, it's an interesting point because what we're seeing from clients as a candidate is everybody, everybody seems to have a perfect resume. So what the -- our firm has been built on IP and data. And it's not what somebody has done at the levels that we operate, it's who you are. And so the IP and the data that I was talking about are absolutely fundamental to how we are dealing our search work as well as our talent and organizational development activities. So it's actually because of AI, it's actually increasing the demand for what we have given our -- the proprietary nature of the database. And ultimately, it's about who somebody is, you -- that's just the truth.

Our next question will come from the line of Trevor Romeo with William Blair.

This is Melissa McMahon on for Trevor Romeo. I guess I just have a couple on AMS' start. Congratulations on closing that one, too. How do we think about the cadence of synergy realization? Like, I guess, how much of the $40 million do we think we can be achieved immediately after close versus how much is back-end loaded?

Well, what we said when we announced the investment was that we would get to $140 million of run rate EBITDA within a year -- within a year of the date of the announcement. The date of close actually is what we said. And so I look at that $40 million. And first of all, when you look at our track record, which is critically important here, we have an enormous track record of gearing the top line of a company that we make an investment in. That's demonstrated, it's proven and we also have a track record of tapping the economies of scale that come with platforms such as Korn Ferry. And so I'm absolutely 200% confident that we are going to achieve that level of incremental EBITDA and more because I think that the revenue opportunity here and the growth opportunity for us is enormous.

In terms of the exact timing, what we have said, as I indicated, is that incremental $40 million, you would see by a year from closing, which would have been last week. And we're going to achieve that much faster than that.

Great. And then maybe just to follow up on that. I guess, how can we think about the role that seasonality plays for AMS? I know early careers and campus recruiting might have a schoolyear angle. Just wondering if there's anything else.

Yes, it does. And the also -- it's going to follow the typical kind of calendarization of holidays. And so that's -- you're absolutely correct, generally speaking. And Bob, I don't know if you want to provide any more precision around that.

Yes. So what I would do is I would just follow the traditional Korn Ferry seasonality. Their business is pretty similar to ours where we always have our low watermark in Q3 where you got Thanksgiving in the U.S. and then the year-end holidays. We give our people a week off, clients give their folks 1 week or 2 weeks off. So it's just not as many hours in that quarter. So you'll see that the same sort of pattern, if you will, that you experience with Korn Ferry.

Our next question will come from the line of George Tong with Goldman Sachs.

You saw a 12% new business growth in the quarter. Can you unpack that a little bit and talk about how much of that growth came from RPO or more lumpy wins versus recurring revenue wins?

Well, I would say the RPO is actually recurring wins when you look at the new business, clearly over the last several months, given what's happened in the Middle East and the demographic factors that we've talked about on previous calls, search and workforce solutions have been absolutely the stronger performers and what's been really nice to see and supported our thesis when we made this decision. is all the investments that we've made in Workforce Solutions and whether that's interim or RPO. that's really paying dividends. And in this quarter, the RPO new wins were something like $160 million, 50% of those were from new logos.

So you're going to see -- you're definitely going to see lumpiness around the, for example, the outsourcing wins. But that's 1 of the reasons why we entered into this investment with AMS because what you have there is you have recurring loyal client relationships of scale. and their client relationships there just take their top 10, the average tenure of those client relationships is 14 years. So 2/3 of their business is in the RPO area. And I look at that as incredibly sticky and recurring. And when you look at the combined backlog now, this firm has absolutely made an enormous transformation over the last decade and even 2 decades, where now you're looking at a firm that looks completely different. than the Korn Ferry where I started. And today, we've got a backlog of $3.5 billion now with AMS.

And so yes, the Workforce Solutions is an argo part and we've certainly seen a lift in new business, including, like I said, including the interim area, which has had a significant lift. And I think that's all that above-market growth has been driven by the WR Korn Ferry strategy and look at our -- the cross referrals this quarter, we're almost 30%, which is really, really good to see.

And Gary, you maybe just -- because I think the backlog commentary is really important for folks to understand. So if you look at our backlog, George, we were, at the end of the quarter, about $1.9 billion. and 60% of that or roughly 60% comes out into next year. And then after that, you probably have another 1.5 years for the remainder, what AMS brings is not only a very large backlog, but it's also given the strength and tenure of the customer relationships that Gary talked about, they're about 40% within the first year, 60% comes out over the next 4 years. So it gives us much more durability and visibility and resilience going forward.

Got it. That's helpful. And then you're expecting AMS EBITDA to go from $100 million to $140 million within the year. Can you break out how much of the the increase is going to come from revenue versus cost synergies?

Well, our focus is absolutely on revenue, and we've already -- we've hit the ground running. We've had big teams together now over the last week since we've closed, and there is obviously a little bit of pre-integration planning where we've mapped top 100 customers, put teams against them. There's actually meetings happening this week with clients. I mean we are absolutely all over that. It's certainly going to change the nature of our Marquee and Diamond portfolio that undoubtedly will go up. As you know, it's incredibly complementary given AMS' industry and geographic footprint. with Korn Ferry. And so I look at not only the RPO solution, but I look at contingent Workforce Solutions and early careers and technology consulting and integration as well as reskilling.

I look at all 5 solutions, if you will, very, very positively. And the contingent workforce solutions, I think could be something that is definitely, definitely multi-hundred million and could be multibillion dollars given the amount of money the company spend on the temporary side. And the offering is really cool where we will now go in and we can consolidate vendors and save a company 600, 700, 800 basis, 900 basis points on their spend.

I mean this is material, material savings and the contingent workforce solutions, we're going to take that given the relationships we have around the world. And it's the same with early careers with the early careers and the campus hiring that they do and just the marquee logos, their client logos are so impressive. And like I said, I mean, everybody's got a perfect resume and understanding who somebody is, is incredibly important to that hiring decision and then on the technology consulting side, they bring skills that we need, particularly around integrating talent suite with CRM and HR platform.

So I look at all of those and say, "Wow, over the next 3 to 5 years, you're going to see incredible lift, I believe, given this iconic brand and bringing our organizations together. So we are absolutely off and running on the revenue side.

And on the economies of scale side, we have a track record. And we have a global platform that is highly scalable. And so we definitely are going to look at the economies of scale. And whether that's in vendor spend, we're looking at that. very, very closely. And I would just go back to our track record and say, we do everything we say we're going to do and more. will we hit that $40 million? We will absolutely hit that. Will we hit it before 1 year, we absolutely will.

Our next question will come from the line of Mark Marcon with Baird.

One, Gary, just there's been a lot of mix news with regards to the economy, you obviously had really good results during this last quarter. Just wondering like how much of your performance would you attribute to just kind of the general macro versus what you guys are specifically doing? And what is your sense of how the macro has evolved over the last 3, 4 months? And what the near-term outlook is.

Well, I think the question of raising rates. I mean it's -- that's a real issue. And growth is very, very hard to come by for most companies if they're not building data centers or in the AI area. So I think it has been a challenging environment, and the Middle East has not made about any easier, and you see the impact on our EMEA results for sure. So has it -- has it worsened over the last 3 or 4 months, I would say no. But again, we've got the big question of increasing rates and more conflict in the Middle East. It doesn't seem to end.

I guess on the other side, Mark, what I would point out is just the tremendous demographic opportunities because there is a supply-demand imbalance, and you know this better than anybody. I mean the U.S. economy is only projected to produce like 5 million or 6 million jobs over the next decade compared to 25 million over the previous decade. So baby boomers are retiring -- it's -- and the labor force just isn't going to grow.

So the question then is how do you really find that talent that's not going to not just have a good company, but a great company. And I think my earlier comments about AI are absolutely right. I mean everybody does have a perfect resume. And I think our IP and our skill sets and our success profiles actually play an enormous role with that kind of backdrop.

That's terrific. And then with regards to AI and IP, how would you characterize the difference between the development of AI and making it easier to find people relative to what happened with LinkedIn when that first came along. And how that ended up impacting your discussion with your clients and how it ended up impacting the discussion around pricing.

Yes. With LinkedIn, it was around finding people. it's a big question. And I think even back then, I said it's not a question of finding somebody. It's a question of finding out who they are. And I think with the AI, it's even more pronounced because what I am seeing, what I am hearing from clients is just everybody is perfect. and everybody has this stellar background. And so I actually think it's way different from the LinkedIn days.

And if you look at our pricing overall on the entire platform, it's gone up. It's increased over time. And I think you could make the argument that the same thing could happen here because this 1 is -- it's not because it's recent. I just think this is way, way more profound than the linked end days 15, 20 years ago.

Great. And then last 1 for me. Just with regards to AMS, I mean, your RPO group has competed against Alexander Mann and AMS for more than a decade now. How are the groups getting along together? And what was AMS' trajectory on a month-by-month basis kind of going into the close of this.

It's the same as what we had forecasted. So their CAGR over the last several years has looked similar to ours. And if you go back further than that, the trend would be remarkably identical, even before COVID, and you've got the great resignation, everything kind of trended the same way. And going into the close, when we announced it, we said excluding -- at the time, it was about $650 million a year in annualized revenue. And going into the close and what we forecasted for the first 2 months is the pro rata share of that. It really hasn't changed.

And so we're looking at this. What we're going to do now, the go-to-market side, we're all over, as I talked about to George, we're absolutely all over that. So we are integrating right off the bat, I hate the word integrating, but synchronizing the go-to-market activity. So that's absolutely happening. It's going to take us about 8 months or so to get everybody on the same platform, and we're targeting our fiscal year ends April 30. We're targeting a May 1, 2027 date where we would get everybody on to a common platform that would be SAP and the like and the common CRM, all of that. We are going to do some things immediately so that our frontline consultants, we have about 1,800, 1,900 of those so they have visibility into the customer activity for our largest clients.

So we're absolutely doing that right off the bat. AMS has a completely different industry coverage than Korn Ferry. They're very, very heavy into financial services. It's about almost 50% of their overall portfolio. So I look from an industry and geographic, it's very, very complementary. At the end of the day, we -- we're looking at the business through a regional lens and then through these 3 solutions. Our goal here is to have a unified RPO offering, which we will have. But we're not going to be on -- even on the same system for a number of months.

So the first few months here is really around learning about each other and not saying, well, this is the way we've always done things. So this is the way we're going to do it in the future. It's really around finding a third way. And that includes the IP from both organizations. And that IP is obviously very, very meaningful in the RPO area. So our principle here is Dino harm, focus on the customer right off the bat, look at the economies of scale here over the next several months. but it's around culture. I mean people ignore when you do something like this, people ignore culture. But culture is the way an organization gets things done. And by definition, that's going to have to change. And that's 1 of the exciting things about being in business. It's not stagnant. It constantly changes. So we have to continue to evolve our culture collectively together.

Our final question will come from the line of Brianna Camden with UBS.

This is Brent Camden on for Josh. For my first question, are there any key metrics you're paying attention to and reviewing the progress of integration? And any milestones you're looking to reach the next couple of quarters?

Well, look, it's 2 quarters is it's a pretty short amount of time. We want to look at whether we're expanding client relationships. That's every organization, whether it's a family church. Every organization has to grow. And so we look at this and say, well, 2 iconic brands, complementary geographic fit, industry fit, marquee logos, and so for us, what we tend to look at is how do our enterprise accounts to our Marquee and Diamond clients and what's happening with the cross referrals. And you've seen that now over time, it's gone up and to the right pretty consistently. We would look to that. It's all about deepening relationships and innovation, bringing new offerings to market.

So all of those things, we would certainly look at. But the first principle is Dino harm. and make sure you understand and you understand each other before we find a third way.

And Gary, I would just add to that, if you think you're trying to think over the next 2 months, remember what Gary said, we're not going to be integrated from a platform perspective until May 1. So that just in and of itself who should frame it up for you saying over the next couple of quarters, you'll see some drivers, but it will be more heavily weighted towards after the integration, and that's primarily on the cost side. as Gary indicated on the top line side, we're starting that right now.

That's helpful. And then my second question, do you expect AMS have any direct or indirect impact on your other existing businesses outside of RPO?

Well, we do. We think that there is enormous opportunity to continue to deepen relationships. And that's reflected in the cross referrals. So after this investment, we're going to have something like 2,000 consultants that are responsible for originating business. And so for the AMS colleagues that have come in to legacy Korn Ferry. They have the opportunity to be able to deepen those relationships with other solutions that they didn't have, and the same holds true for Korn Ferry -- for legacy Korn Ferry and the 1,850 million frontline consultants that we have where the -- we have new capabilities to be able to offer to our existing customer base. And we've already put in cross referral incentives, and we're doing it as we speak, literally as we be introducing other solutions.

So -- yes, you're going to -- at the end of the day, here after this transaction, you're going to have a couple of thousand frontline consultants. And we're looking at that productivity, and we see that productivity being about $2 million per consultant, and that has -- obviously, that has room for significant expansion given the complementary nature of the solutions that we have here.

Gary, the other thing I would add to that is if you think about our go-to-market activities and go-to-market mindset, it's driven through the marque Diamond accounts, and it's all about deepening our client relationships and demonstrated by our referral rates going from 18% back when we started measuring up to almost 30% today. The only thing I would add for AMS, they operate very similar to us. And if you go back to 2020 and you look at their growth, Gary indicated it was kind of the same as ours. Their CAGR is 10%, 11%. Over 50% of that came from expanding their existing client relationships. So those go-to-market activities that are important to us are also obviously very important to them and very consistent with what we've done over time.

Thank you, both, And it appears there are no further questions, Mr. Burnison.

Okay. Regina, thank you for hosting this, and I thank everybody for joining -- and we're very, very excited about what we can do now with, I think, the dominant firm in talent and organizational consulting. So thank you all, and we'll talk to you soon. Bye-bye.

Ladies and gentlemen, this conference call will be available for replay for 1 week starting today running through the end of the day on September 16, 2026, ending at midnight. You may access the Echo replay service by dialing (800) 770-2030 and entering the access code to 267-2007, followed by the pound key. Additionally, the replay will be available for playback at the company's website, www.kornferry.com in the Investor Relations section. This concludes today's call. Thank you all for joining. You may now disconnect.

Welcome to the conference call to discuss the proposed acquisition of AMS. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes.

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 related to the USD converted purchase price, the number of shares Korn Ferry stock to be issued in the transaction, the timing of consummation of the transaction, the expected benefits of the transaction including the global leadership position of the combined company, the combined company's expanded capabilities, transaction, synergies, future financial and operating results and the combined company's plans, objectives and expectations constitute forward-looking statements within the meeting of the Private Securities Litigation Reform Act of 1995.

Although the company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, investors are cautioned not to place under due reliance on such statements. Such statements are subject to significant risks and uncertainties including the inability to timely complete or complete at all the transaction, the inability to realize the anticipated benefits of the transaction, which may be affected by, among other things, economic conditions and the ability of Korn Ferry and AMS prior to the closing and the combined company following the closing to maintain relationships with the clients and suppliers and retain key employees.

The risk that the transaction disrupts current plans and operation of Korn Ferry and/or AMS as well as other risks described in our SEC filings and in the legends in today's press release announcing the transaction. Actual results may differ materially from those currently expected or desired because of a number of risks and uncertainties which are beyond the company's control. We undertake no obligation to update or revise the forward-looking statements, whether as a result of new information, future events or otherwise. Also, some of the comments today may reference non-GAAP and/or IFRS financial measures such as adjusted EBITDA, adjusted EBITDA margins and adjusted EPS.

Additional information concerning these measures is contained in the press release regarding the transaction, which is posted in the Investor Relations section of the company's website at kornferry.com. Lastly, the statements made on today's call are not intended to and shall not constitute any offer to sell or the solicitation of any offer to sell or the solicitation of any offer to buy any securities.

With that, I'll turn the call over to Mr. Burnison. Please go ahead, Mr. Burnison.

Okay. Thank you, Krista, and thank you, everybody, for joining us. I have Brian Suh from Korn Ferry as well as Bob Rozek. And what we wanted to do is share some incredibly exciting news. We signed a definitive agreement to acquire AMS, which brings together 2 iconic brands that will create a global leader in talent and organizational consulting. The why of both organizations is to change people's lives. Think about it. Following the closing, the collective firm will have more than 16,000 colleagues placing a professional in a job about every 90 seconds, let alone developing thousands of professionals each year. This marks a significant milestone for both Korn Ferry and AMS, underscoring our combined belief, the talent is the most critical driver of organizational success.

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 simply technology that takes us into space. It first starts with the dreamers, the innovators, the scientists, the human beings, not the human doings. I don't think it's a coincidence that AMS' e-mail address is we are AMS. With this combination, which is subject to receipt of regulatory clearances, we will strengthen we are Korn Ferry client centricity as we bring together 2 highly complementary organizations. Together, we will reinforce a shared commitment to drive business performance through the world's most precious asset, which is people. And together, we will be stronger than apart.

With AMS we even have greater opportunity for top line synergies, which is demonstrated through our track record of delivering deeper client impact. For example, I see multiple opportunities for growth, including with AMS' contingent workforce and early careers in campus recruiting solutions as well as its technology solutions. When looking at it from a client perspective, there's also a tremendous fit and an opportunity to broaden existing client relationships. The combined firm will also create expanded colleague career opportunities. So from a geographic industry, client and colleague perspective, it really works. We have a like-minded partner that shares the same beliefs and embraces the same values, which is extremely important to me and to our long-term performance.

With that, I'll turn it over to Bob, who's going to run through some of the details. Bob?

Great. Thanks, Gary, and hello, everyone. We're really excited to be here today to talk about this combination. Over time, we spent a good amount of time talking about our capital allocation consistently telling people that our highest priority is putting capital back into the business. And this combination does just that. And that's great for colleagues, clients and shareholders. The purchase price for the transaction is about GBP 850 million, it's about USD 1.1 billion, consisting of approximately GBP 659 million or about USD 880 million in cash and approximately GBP 191 million or about USD 255 million in Korn Ferry common stock.

In connection with the transaction, we will use approximately $300 million of cash on hand with the remaining $581 million being funded using borrowing capacity under our existing revolving credit agreement. Additionally, we'll issue about 3.6 million shares subject to a 15% collar at closing. Now on a current run rate basis, AMS is generating approximately $650 million of fee revenue and $100 million of adjusted EBITDA. The transaction is expected to be immediately accretive to earnings per share in the first full year after adjusting for restructuring and integration costs.

Now assuming no adverse change in the economic environment post close, we believe we will be on track to increase the run rate adjusted EBITDA to approximately $140 million at about the 1-year mark. On a longer-term basis, we expect consolidated adjusted EBITDA margins to remain in the range of 16% to 18% towards the upper end of that range with the potential to go above. Additionally, AMS' long-term contracts will add more than $1.5 billion in estimated fees remaining under existing contracts, bringing our total estimated fees remaining under existing contracts to approximately $3.4 billion, about 45% or $1.6 billion will be recognized over the next 12 months, with the remaining 55% or $1.8 billion being recognized in the 4 years thereafter. And that's going to provide greater fee revenue visibility, durability and enhance the company's ability to provide scalable, data-driven talent strategies across geographies and industries.

With that, we would be glad to answer any questions you may have.

[Operator Instructions] Your first question comes from Trevor Romeo with William Blair.

Congrats on the deal today. I guess a couple of questions for me. First one is, I think, Bob, you kind of talked about the financial expectations you just laid out. So what is the delta between the $100 million EBITDA run rate now and the $140 million you'd expect within a year? Is that growth of the business for AMS? Is it synergies? Is it kind of both. And then how do you think about the long-term synergy opportunities between the 2 businesses?

Well, I think there's a ton of potential here. I mean clearly, this is about growth. And we have a track record over the years of when we make an investment into an organization, we put a scaling on top of the investee. So we have that track record. And so when I look at this, number one, AMS is an incredibly well-run organization that I've known for almost 20 years, and I've watched them grow and evolved over that period of time, with really, really fantastic people.

So for me, this is about top line synergies. When you go from $100 million to $140 million, there's going to be a combination of top line as well as cost synergy. And there's no question that we have as well as AMS have a big infrastructure, and that's something that we're going to look at along with all the other kind of costs that both organizations absorb, whether that's suppliers, auditors, real estate and the like. So that's how we're looking at it, and our focus is clearly on growth.

That's great. Any way you could maybe try to parse out how much would be revenue versus cost synergy there, just in your expectations initially?

Well, I think right now that's going to be premature at this point. We've obviously -- we have some ideas on that. And I would just say that both have significant opportunities.

Okay. Fair enough. I thought I would try. And then maybe just one follow-up for me, I guess, just in terms of an integration here, AMS does have a strong brand, as you mentioned. So one, kind of how do you think about combining the 2 companies and the brands going forward? And then on a technology perspective, it looks like they've embedded a lot of technology and AI into their solutions obviously at Korn Ferry. So when you compare the 2 technologies, what are the areas where each one is strong? And then how do you think about integrating the technologies of the 2 RPO businesses going forward?

Well, I would say that, number one, AMS is much more than RPO. They have multiple solutions, and they're very much global in nature. This combination doubles our colleague headcount, doubles the countries that we're in and adds a tremendous backlog to our revenue. The average backlog of AMS is about 3 to 4 years. And when you look at their top customers, the top 10, for example, have an average tenure of 14 years. So we assuming regulatory approval, when this transaction closes, combined, we would have about a $3.5 billion backlog. So we're adding about $1.5 billion to our backlog.

When you look at AMS, I mean, there's a whole set of reasons why we've chosen to partner with AMS. It starts with people. And so it's people, process, data, technology, capability, industry coverage and geographic coverage. And all of those ring the bell for Korn Ferry. When it comes to technology and both organizations vast IP, we plan much like we've done in all the other investments that we've done over the years is to look at them fresh. And our view is we are going to take the best from both. AMS is high quality. They do fantastic, fantastic work. They have recurring loyal client relationships at scale. And when it comes to technology, we're going to look at that very, very closely along with the IP that both companies have.

So one of the worst things that you can do here is jump right to structure and process. It begins with people, and it begins with people and culture. And as I've met a lot of colleagues from AMS, I'm absolutely convinced that our values and culture are completely aligned. And on the technology side, again, when it comes to all of this, the worst thing you can do is say this is the way we've always done it. And we've never taken that approach. So our plan is to combine the best of both here and deliver unbelievable customer experience.

Your next question comes from the line of Mark Marcon with Baird.

Gary, can you -- there's some information about AMS that's out there, but there are blanks out there. Can you talk a little bit about what their what their growth rate was in '24 and '25 and how it looks during the first half of '26, just in terms of getting a sense for what sort of growth rate they've been able to put up? And then secondly, can we get a little bit more information with regards to -- we know that the RPO is large. They also have the college recruiting, but just a little bit more depth with regards to the segment just in terms of sizing that?

Certainly, Mark. Number one, their growth rate, I'll go back to 2019, growth rate is about a 10% CAGR. And when you look at the most recent period of time, the one that you cited, it's very, very similar to us, Mark. And so they follow the same trends that we have, generally speaking, up into the right after COVID. Clearly, after the great resignation as many companies experienced that pent-up demand, there was a lull. But it pretty much tracks in general terms what we've done.

In terms of their solutions, I'm really pumped about a number of them. Number one, they have a skills business that will be extremely complementary to us. They have a technology consulting offering that will bolster what we can do in terms of integration with the players in the HR space. Obviously, RPO is 60% of the company's revenue. But as you said, they also have early careers, campus recruiting and contingent workforce solutions. And I'm really, really excited about those because I see a tremendous opportunity to bring, for example, early careers and contingent workforce solutions to the United States.

We have fantastic relationships. Those 2 topics you can get a CEO's attention. So you've got the early careers, which is one. But secondly, the contingent workforce solutions is incredibly interesting to me. And it dovetails with our expansion with the interim offering that we came out with 5.5 years ago. And so basically, you've got a multi, multibillion-dollar market where AMS will go into a client and consolidate their spending with staffing providers and they will take a percentage of the savings. So I -- and that really hasn't been taken to the United States, and we plan after closing to aggressively take the technology consulting, take the early careers and take the contingent workforce solutions to the United States for sure.

The industry overlay of AMS is extremely complementary to Korn Ferry. You would find that almost 50% of their revenue is in financial services that will clearly, clearly strengthen our financial services reach for sure. And as I said earlier, this is going to double the employee head count of Korn Ferry. When you look at the geographic reach of AMS, about 57% is in EMEA, 30% is in the Americas and 13% is in Asia.

And one of the other things back to an earlier question on synergies that I failed to mention is the other thing that AMS has done extremely well is they have global capability centers around the world. And quite candidly, when I look at the legacy Korn Ferry business, I see an incredible opportunity to leverage their expertise and their capabilities in those centers. And that could be a substantial part of Korn Ferry's client service delivery or it could be in the corporate areas. So we look at that as something that we can really leverage. And that's an area where we have not leveraged it as much as AMS has.

Interesting. That's great, Gary. And then a couple of questions for Bob. Bob, can you just remind us at this level what the cost is on your revolver? And then you mentioned a collar around the stock. Can you amplify on that as well, please?

Yes. The cost on the revolver, Mark, is a little bit less than 5%, and that's what we're going to draw down on it. It's available to us. And then the color it's off of a 20-day VWAP looking at the stock price over the -- I think it was 20 days or 20 days prior to closing and it just puts a cap or color on how far up or down that share price can go when determining the number of shares to deliver to them.

Okay. Great. And then any earn-outs?

No.

None.

Your next question comes from the line of Brianna Kamdoum with UBS.

On for Josh Chan. I guess a couple of things for me. I guess with 60% of AMS largely being RPO, why grow a portion of Korn Ferry that isn't necessarily the strongest growing or the highest margin business?

Well, that's a very interesting question. I think that, number one, everything begins with talent. And so it is very much part of our strategic platform to synchronize an organization strategy with its org structure and its talent. The outsourcing offering has been an area that has had single-digit mid- to high single-digit growth over the years. I can remember for the legacy Korn Ferry when we cracked $50 million in terms of the RPO solution and now it's almost $400 million.

And so I think as the imbalance of the demand and supply of labor becomes increasingly relevant I believe the companies as they look at their infrastructure are going to continue to seek ways to find the best talent delivered in the highest quality. So that's part of the answer. I think the other thing that's very intriguing here is the duration of their contracts. And it's 90% of AMS' contracts have 3- to 5-year terms. And so they've got, as I said earlier, a 96% client retention rate, the top 10 clients have an average tenure of 14 years. And so I think this gives our colleagues and shareholders, a predictable -- a more predictable foundation in terms of a revenue base.

And so we're going to add another $1.5 billion of backlog. And so that overall, our backlog is going to be $3.5 billion in total after the closing. So it's all of those reasons. And I would not minimize the totality of what AMS can bring. So it is, for sure, they are recognized leader in RPO around the world. No question about it. But they also deliver broader talent consulting strategies. And one of those, as I talked to Mark about was around contingent workforce solutions. And that is a multi, multibillion-dollar market. And that's something that we just got into 5 years ago, and I see incredible synergies there and I see synergies with the early career in campus recruiting. Their resource augmentation and skills creation as well as their consulting offering. So I look at the total package and say, wow, this is an iconic brand that I've known for almost 20 years, high-quality work, outstanding people and a culture and values that are very similar, identical to Korn Ferry.

This is Bob here. I would just add a couple of points. Our clients are coming to us now talking to us about Workforce Solutions. If you heard our earnings call last week, you heard us talk about some of the change in how we're looking at our solution sets and this lines up very nicely with what we have at Korn Ferry. The only thing I would say, Gary talked about the backlog. And it not only makes our backlog bigger, but it actually really changes the nature of our backlog. We just talked again last week on our earnings call, we have $1.9 billion, 60% of that would be recognized in the year. They're $1.5 billion, 65% of that goes out over time. So the nature and the tenor of our backlog is very different today or will be very different with the combination with AMS.

That makes sense. And then for a follow-up, how are you thinking about ROIC of the transaction? And can you also speak towards the customer concentration at AMS? Is it fairly diversified? Or how you -- how would you describe that?

I'll let the others speak to the -- I think your question was around ROIC. I would say the client base is blue chip, it is Fortune 500, FTSE 100, global iconic brands. And the thing that I haven't mentioned so far that's interesting is that 17 of their top 25 clients are also our marquee and Diamond clients. So there's tremendous synergy there.

Back to your earlier question, I think when you assuming that the combination moves forward, which we have every reason to believe it will, after the regulatory approvals. What you're going to have is a Korn Ferry at an AMS that looks substantially different. And when we did our earnings call just last week, we talked about a new reporting segment and how we were going to report, and that was going to be principally around geographic lenses. EMEA, Americas and Asia Pacific. Clearly, this has tremendous fit with our geographic coverage today, and we double the number of countries basically that we're in to almost 120.

But when you look at below the geographic level, you're going to have what we talked about was kind of 3 major solutions. One was around search. The second was around talent and organizational consulting. And the third was around Workforce Solutions. So on a pro forma basis, run rate basis, assuming no adverse economic changes, when you look at the firm, it's going to be incredibly balanced. And so you're going to have a search solution that is, Bob, I'm going to round these numbers, but it's probably $1.2 billion or $1.3 billion you're going to have a talent and organizational solution that's going to be about the same size.

And then finally, you're going to have workforce solution that's going to be about $1.1 billion. So you're going to have a very, very balanced portfolio all around, including financially for our shareholders, given the long-term nature of contracts that we would enjoy in the workforce solutions area. Not to mention the SaaS offering that we have underway under the talent and organizational solutions offering.

Your next question comes from the line of Tobey Sommer with Truist Securities.

Big news today. I want to start out by asking a question about how the company goes to market in its various services, whether it's a seller-doer model or they have marquee sales force or some equivalent inside of AMS?

Well, that's an interesting -- that's a very, very interesting question because they are pursuing -- they pursue very, very large scale assignments, number one. So it takes an entire village to do that. But that's another interesting observation as we look at AMS that we think we can learn from and add to what we do. So they have a client service delivery organization that I believe is just second to none. And they use those global capability centers to deliver their solutions across the world. So that is one that we anticipate that we can learn from and that we can leverage, so that's one. Number two is they have a client partnering organization that is tasked with after landing something, expanding. And we find that incredibly interesting with our go-to-market approach, our marquee and diamonds and our global account leaders. And in fact, 50% of AMS's growth, about 50% since 2020 has come from the expansion of client relationships.

Third, in addition to the client partnering organization, they do have a very prolific sales organization, which we would plan on again, expanding on that. And then from an infrastructure perspective and the corporate team that they have and the resources they have, we found them to be top-notch, incredible, incredible people, and we think that's going to add a tremendous amount to what we've had previously at Korn Ferry.

From a revenue perspective, how is the -- are the various services priced? We're, I guess, generally familiar with RPO as long as it's set up the same way as your existing business. But are the other ones, you've time of materials, value based? How does that look?

Brian, do you want to go?

Yes. Tobey, the RPO model, we would say, is very similar to our approach to RPO pricing. We do observe that the management fees at AMS' RPO engagements are a little higher than what we charge. The consulting and resource augmentation businesses are generally like having materials. So resources are put out on deployment at a bill rate and there's a margin -- a gross margin that accrues to the business. CWS is a really interesting part of the business here. As Gary said, AMS will go to an entire organization and say, we will take the entirety of your contract workforce spend. We will manage all of that for you and save you somewhere in the magnitude of 5%, 6% of that spend. And for that, AMS will collect about 3% to 5% of the overall spend.

Perfect. And then my -- go ahead.

No, as you said, that's a little bit different than our interim business. They're actually outsourcing that entire function where we're -- our interim business is more around putting a body in the chair at a time. So that's part of the excitement that Gary talked about earlier.

Understood. Is that purely a service? Or is that analogous to a VMS type solution?

The VMS will be the software that underpins it, Tobey, I'd say it's like an MSP with more direct sourcing capability to provide additional value to clients.

Yes. Some of their arrangements, Tobey, they have SLAs where they have to hit 80% of the placements themselves and it can only push off a little more limited number of those placement opportunities. And generally, we do that to the extent, it's a unique skill set or something that they don't have.

The last question for me is just thinking about timing. Why -- why make the combination now, Gary, you cited that you've known them for 20 years, and that's a long time. So why now, why not last year, 3 years ago or 2 years out in the future?

Well, I wish it would have been -- I wish it would have been earlier quite candidly. And over the years, we've stayed in touch occasionally. And this timing worked. They had been under private equity ownership for the last 8 years or so with a great private equity owner. And the time was right. But I do wish -- just like I wished we had gotten into the interim solution way earlier. I do wish this one was earlier too, but I'm excited about where we're collectively both organizations are going to go.

And Mr. Burnison, it appears we have no further questions.

Okay. Thank you all, particularly given the short notice. We had to do it this way. And I would just say that this -- the real catalyst for business is people. Despite all the technological innovation yesterday, today, tomorrow, it starts with people. And what we have here is incredible people, deep data, unique technology and capability that we currently don't have in lockstep and overwhelming industry and geographic coverage. So with that, thank you for your time, and we look forward to speaking to you soon. Thank you.

Ladies and gentlemen, this conference call will be available for replay for 1 week starting today running through the day, July 6, 2026, ending at midnight. You may access the Echo replay service by dialing (800) 770-2030 and entering the access code 6809721, followed by the pound key. Additionally, a replay of the webcast will be archived on the company's website at www.kornferry.com, in the Investor Relations section and is expected to be available after 10:30 a.m. today through 10:30 a.m. EST Wednesday, July 29. This does conclude today's call. Thank you for your participation, and you may now disconnect.

Ladies and gentlemen, thank you for standing by, and welcome to the Korn Ferry Fourth Quarter Fiscal Year 2026 Conference Call. [Operator Instructions]. As a reminder, this conference call is being recorded for replay purposes. We have also made available in the Investor Relations section of our website at kornferry.com a copy of the financial presentation that we 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 not to place undue reliance on such statements. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties, which are beyond the company's control.

Additional information concerning such risks and uncertainties can be found in the release relating to this presentation and in the periodic and other reports filed by the company with the SEC, including the company's soon-to-be filed annual report for fiscal year 2026.

Also, some of the comments today may reference non-GAAP financial measures such as constant currency amounts, EBITDA and adjusted EBITDA and 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 kornferry.com.

With that, I'll turn the call over to Mr. Burnison. Please go ahead, Mr. Burnison.

Okay. Thank you, Sarah, and thank you, everybody, for joining us. I'm going to let our team walk through the numbers, but our quarterly performance was outstanding. It marks our fifth consecutive quarter of top line growth, underscoring the strength of our strategy.

But let me first reflect on a moment. On these calls, 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, far beyond where we are today. In leadership, we spent a lot of time talking about the what, the how and the when, too often though the why and the who get overlooked. Despite all of Korn Ferry's success and evolution, our why has never changed, enabling people and organizations to be more of that. And I was reminded about a few months ago, while it's traveling in the Midwest. And now to nowhere, I heard the sound of a train horn, which I hadn't heard in years.

It wasn't the sound that struck me. It was a feeling. In an instant, I was taking back to where I was raised, where trains ran next to our house. In that moment, peel back the years and made me reflect about the essence of who we are and what we do. And as I think about the Korn Ferry of today, this image feels particularly relevant.

We're at the intersection of a present that feels far different than our past and the future that will even be brighter than today. That's why our foundational head mark is evolving from one Korn Ferry to We Are Korn Ferry. And We Are Korn Ferry, begins with deep client centricity.

And expanding the breadth of our solutions we deliver within every client relationship. And there are just a few examples during the quarter, a Fortune 50 tech company. that turn to us to accelerate their sales organization or a global professional services firm to look to us as their sole source of interim technology talent. I mean I could go on and on and on. Including in the quarter, we won a number substantial RPO engagements, spanning multiple industries across all 3 regions.

And when we take a client-centric approach and we leverage our relationships across geographies and deliver impact with the totality of the firm, we build sustainable relationships of scale. Over the last several months, I've looked in the mirror and realized that what got us here by itself is not what will get us there.

To reach our destination, we need to shift our mindset, that's when our whole becomes bigger than the sum of our parts. As such, I want our industries to be accelerators. Our solutions to be innovators and enablers in our geographies to be the integrators. And so starting in this quarter, Q1, our external reporting segments are going to be reflected through a regional lens of the Americas, EMEA and APAC.

And our solution level detail will be provided in 3 categories: Search comprised of executive and professional search, talent and organizational solutions comprised of digital and consulting and finally, Workforce Solutions comprised of RPO and interim. These categories serve our clients across the entire talent continuum.

Search is about identifying talent. Workforce Solutions is about scaling talent, and talent and organizational solutions is about unlocking potential. Grouping our solutions like this more accurately reflects how work gets done today and orient our services to the competitive landscape and the way the clients buy these solutions.

I'm confident that amid all the changes in the world today, it can also be the best environment, where good companies become even greater, aligning to opportunities ahead. I'm also incredibly proud enormously proud of our colleagues around the world. Their expertise and passion are the catalysts as we change people's lives, unlock the potential in people and unleash transformation across organizations.

With that, I'll turn the call over to Bob. Bob, go ahead.

Great. Thanks, Gary, and good afternoon, and good morning, everybody. I would be remiss if I didn't start by saying thank you to all the colleagues Gary was just referring to is fiscal '26 was another outstanding year for Korn Ferry.

Despite uneven market conditions on certain macro environment, we achieved the new fee revenue high and delivered very strong earnings. We continue to skillfully execute our We Are Korn Ferry go-to-market strategy, integrating our intellectual property data along with our consulting capabilities to drive enterprise-wide results for our clients, we continue to demonstrate how we're different, and we are different. Growing for the fifth consecutive quarter, while others in the industry continue to contract or just perform less worse.

Our results demonstrate the resilience and effectiveness of our strategy and the benefits of our diversified business model. We continue to evolve into a comprehensive organizational and talent solution partner for all of our clients. We perform differently because we're not simply a monoline transactional business for a diversified data and IP-driven talent advisory with multiple synergistic revenue streams and growing earnings power.

Now let me turn to our Q4 performance. This will be in addition to the detailed results in the earnings presentation that we posted, I'm going to provide you a couple of company-wide and solution specific highlights for the quarter. So for Q4, our ending estimated remaining fees under existing contracts grew 10% year-over-year to almost $1.9 billion with growth in every solution.

Our business referral rate increased to 29.1% of consolidated fee revenue in the fourth quarter, that's up by about 320 basis points, and our marketing and diamond account penetration remains strong at 40% of our consolidated fee revenue. Now both these metrics really demonstrate the effectiveness of our We Are Korn Ferry go-to-market strategy.

Executive Search grew 7% in the fourth quarter and has now grown for 8 consecutive quarters. Professional Search and interim fee revenue was up 14% with 17% growth in professional search and 12% growth in interim. Our interim solution continues to perform better than other industry players driven by both strong business referrals and expanding bill rates.

Digital subscription and license fee revenue was up 10% year-over-year. And last, our consulting fee revenue grew 7%, driven by an increase in larger engagements and stronger bill rates.

Now let me turn to overall company results. For the full year, fee revenue was about $2.9 billion, up 7%. We delivered close to $500 million in adjusted EBITDA, also up 7%. Adjusted EPS of $5.28, which was also up 8%. Focusing on the fourth quarter, we grew for the fifth consecutive quarter, as Gary mentioned, with consolidated fee revenue up 7% and reaching $760 million.

Earnings and profitability also remained strong. Adjusted EBITDA grew $8 million or 7% to $130 million. Adjusted EBITDA margin remained very strong at 17% and adjusted diluted earnings per share grew $0.08 or 6% to $1.40. Total company new business grew 2% when you exclude RPO, 4% when you include it. The RPO business itself won $137 million of new business in the fourth quarter and 74% of that came from new logos.

As I previously mentioned, estimated remaining fees under existing contracts at the end of the fourth quarter were almost $1.9 billion or 57% or about $1 billion of that is projected to be recognized within the next year and the remaining 43% or $800 million or so is going to be recognized beyond the next 4 quarters.

Looking at our regional results. Fee revenue in the Americas, up 8%, with strength in Exec Search ProSearch and interim and RPO. EMEA fee revenue also grew 8% with strong growth in consulting and professional search and interim. And our Asia Pac fee revenue was kind of flat year-over-year.

Finally, we continue to maintain a disciplined approach to capital allocation. In the fourth quarter, we purchased 1.24 million shares using approximately $78 million. Now if you remember, when we talked in our last earnings call, we said we're going to lean more heavily into buybacks, and that's exactly what we did.

For all of fiscal '26, we returned $221 million to shareholders through the combination of share repurchases and dividends, invested $85 million into CapEx for the development of Talend Suite in the delivery of other productivity tools for other solutions.

Now turning to our outlook for the first quarter of fiscal Assuming no further changes in worldwide geopolitical conditions, economic conditions, financial markets, foreign exchange rates, we expect fee revenue to range from $725 million to $745 million. Our adjusted EBITDA margin to be right around 17% and our consolidated adjusted diluted earnings per share to range from $1.32 to $1.38.

Now before I conclude, as Gary mentioned earlier, the company will continue to build on our We Are Korn Ferry go-to-market strategy. We expect this initiative to continue to drive deeper client penetration and industry-leading growth. Through this initiative, we are orienting more towards regions for our integrators, as Gary said. This will also result in a change to the company's financial reporting segments.

As Gary mentioned, beginning in the first quarter of fiscal '27, our external reporting segments will transition from global solution-based presentation to 3 regional reporting segments, the Americas, EMEA and APAC. The region segment results will include fee revenue and profitability through adjusted EBITDA, and then we'll continue to provide solution level results for new business, fee revenue and estimated remaining fees under existing contracts through the 3 solution groupings, again, search, executive search and professional search, talent and organizational solutions comprised of consulting and digital and workforce solutions comprised of RPO in interim.

We really believe this reporting structure better reflects how work is delivered across the firm. Aligns much more closely with how our clients are actually buying our services and better enables our We Are Korn Ferry operating model.

Now to consist assist folks in understanding the impact of these changes, the company will be providing recast supplemental unaudited information containing historical financial information for the 3 reporting segments following the filing of our Q1 FY '27 10-Q in September.

In addition, our Q1 FY '27 press release will reflect the new reporting segments. In the investor presentation that we will post to our website will reflect both the new reporting segments and the selected financial data previously mentioned for our 3 solution groupings.

Now in conclusion, we continue to be extremely encouraged by the strength of our business, the progress we've made executing our strategy and the continued trust our clients place in Korn Ferry. Our diversified portfolio, global scale and integrated solutions position us well to navigate through any business environment.

We are going to continue to invest in our people, our platforms and drive our long-term growth opportunities. We remain focused on driving performance, delivering value to our clients and shareholders, and we look forward to continuing with industry-leading differentiated success in the year ahead.

With that, we would be glad to answer any questions you may have.

[Operator Instructions] Our first question comes from Trevor Romeo with William Blair.

I had a couple on the executive search business. I think, first of all, I think in the press release, you mentioned kind of winning more work at the higher levels of the organization. I wanted to dig in there. So when you talk about the higher levels of the organization, is that primarily Korn Ferry gaining market share in those areas? Or is it some kind of shift among the client base? And is that a sustainable trend that you would see continuing?

Well, we certainly -- I'll tell you that over the long run here, the brand around the executive search solution has certainly gone upmarket. And you can just look at the climb in our average fees. And the average fees are up almost 10% just over the last couple of years. And if I go further back than that, it would be very dramatic.

So I think that we've proven that we can take the access that's afforded us and surround it with a lot of adjacent solutions that not only diversifies the firm that positions us. And I can think of 6 or 7 big marquee consumer changes this year in the United States that we were part of. So yes, we've definitely we've definitely moved up brand.

Now whether we're taking market share or not, I don't look at -- I look at the market opportunity is $300 billion. I think the search market is probably $14 billion or $15 billion. So we tend to look at the $300 billion and what we can do to drive share there.

Having said that, it is incredibly important to us. That gives us unparalleled access. And I think we've proven that if we're careful about it with high quality, we can monetize that access.

That's helpful. And maybe a follow-up on the search business again. Just in terms of the volume side, I think that's been a pretty good story the last few years with executive turnover being kind of elevated and the demographics and such. But I think this quarter, the new engagements were more like flattish -- so from what you can see kind of in the pipeline, I guess, what would you say about kind of the volume trends that you see now and you'd expect going forward? Is that kind of moderating? Or what would you see there?

Well, it's certainly been -- it's accelerated for sure, over the last couple of years. I'll just tell you that trailing 4 months here and even so far this month, it's looking very, very good. And so again, I'm going to -- like on the last quarterly earnings call, I mean our business essentially deals with the outliers of achievement and whether that is in workforce solutions or talent and organizational solutions it's dealing at the very, very high end. And out of the 170 million working Americans, it's certainly with the outliers of achievement, the $10 million or $15 million that would be in the "C suite" or upper management. So I can only tell you that the demographic trends are real. And the last 4 months have continued on PEG.

Okay. And maybe one more if I don't mind, kind of a similar theme, but on the -- on the Pro Search and interim side, I think a lot of the growth there seems to be driven by maybe mix shift to higher skills, higher salaries, like the interim bill rate being up $20 versus last year.

I think the Pro search kind of fee per placement is also growing nicely. So maybe you could just speak to kind of what you're seeing across the different verticals in that business? And maybe in the context of the skill sets, where are you kind of seeing the candidates move up in the skill set curve and how that's kind of helping you outperform the peer set there?

Well, I think the outperformance is I would point to the ability to have a client-centric approach and drive deeper relationships with our clients. So what we found is that solution is very, very synergistic with the rest of the firm. That is number one. And we have seen -- we just got into that solution 5.5 years ago.

And today, for example, an interim, that's almost a $400 million annual solution, where there's a market opportunity of billions and billions of dollars and it's the same for -- both of those are massive markets. And clearly, over time here, I mean, I think we started, Bob, with the rate per hour in the interim as like 100 was close to $100 a year. And so it's gone from 100 to 150.

And right now, the principal areas that we are in are technology, finance and accounting, HR and supply chain. But you can imagine that we're just getting started here on this. And so we've definitely seen a pickup over the last 3 months or so, 4 months around the interim solution. And so some of that -- clearly, some of that's market, right? The the penetration level was going down forever, 36, 37 months. And so you've seen that. that stabilized, that's definitely helped. But I think it's these other factors as well. And like I said, we're just getting started with this.

Yes. Trevor, this is Bob. The thing I would add to it is has being part of our ecosystem. So you heard Gary talk about the size of the inner business. North of 10% of that comes from referrals across the organization. right? So those are engagements that never would have existed had they not been part of the Korn Ferry family.

The other stat I mentioned in my remarks our business referrals and so the preferred work across the system is now up to a little bit north of 29%, right? If you go back prior to the beginning of this year, we were kind of stuck at 25% for a number of quarters. We put the We Are Korn Ferry go-to-market strategy and place at the beginning of this year. and you've seen that ramp throughout the course of the year up to 29% now.

So I think some of what you're seeing in these businesses is just being part of our ecosystem and engagements and deeper client penetration result in more business referrals across.

Your next question comes from George Tong with Goldman Sachs.

A little bit deeper into the new business trends. So X RPO new business was up 2% year-over-year or relatively flat on a constant currency basis and that moderated a bit from the prior quarter. Can you talk about what contributed to the deceleration in new business ex RPO and what the implications are for revenue over the next year?

Yes. It's a little thing called the war. So the Middle East, it definitely has had an impact in a big way on the levels of new business. And it's a little bit of a flywheel impact. So we've -- trailing 4 months, we've seen strong, strong new business in Americas, but it's definitely impacted APAC. No question about it, and it's obviously impacted EMEA and the Middle East. So that's what I would point to.

Got it. And then with respect to margins, EBITDA margins in the quarter were flat year-over-year. Can you talk about some of the puts and takes on margin performance?

Yes. Yes, I'm glad you asked it, George. I saw your note, you mentioned it. There's really one reason why if you look at the revenue overperformance in the quarter, you have to pay people for that. And so we ended up having to book more bonus expense in the quarter, which is something I'd happily do to drive that type of revenue growth every quarter, to be honest with you.

9

Your next question comes from Mark Marcon with Baird.

Really nice results. Gary, can you talk a little bit about like just from a leadership perspective internally to Korn Ferry, what you're going to do in terms of reporting structures? Are you going to have like a head of search, a head of talent and organizational ahead of Workforce Solutions? Or are you going to have the Head of Americas in EMEA and APAC. How is that going to work? How is the reporting structure go? How is it going to end up optimizing the performance on a go-forward basis for you?

Well, I -- so first of all, we started this a little bit over a year ago, Mark. And the starting point is mindset. And so we've been very, very deliberate starting with leadership 15 -- actually 15 months ago around mindset and client centricity. Up to this point, we haven't -- we don't have 5 businesses. We have one business with up to this point, 5 solutions. So you are going to be left with a matrix organization for sure. And the truth is that we have to pivot more for its geographies.

We were, I think, a little bit over-indexed on solutions. And so we do have a head of APAC in the Americas and EMEA and we have to -- if you want to get a client centricity, you've got to get out in both top down through the enterprise accounts, but you also have to do a bottom-up, and the bottom up is on a regional basis. And so we have carefully over time here, over the last year, shifted mindset.

Now ultimately, say, in another year where that ends up to directly answer your question, I think that's premature. But for sure, we've shifted the focus of the organization, including the 1,800 partners and principles that we have at the firm that are responsible for originating business. And the -- we -- every single day now, the leadership team looks at every piece of new business that's open over a certain level.

And keep in mind, you're talking about 40 or 50 engagements a day where the team and it's very programmatic with the regional leaders, with the solution leaders with the industry leaders about who does what. And we are looking at each of those engagements to making sure that we have a good team on it, what the opportunity is and whether we can not only land something but expand it. So every single day that's been happening now for about 13 or 14 months.

And so my starting point rather than org structure has been on mindset, mindset of our leaders and mindset of the organization because the fact is when you look at the data, we do business with almost 14,000 clients around the world. of those clients represent 90% of our revenue.

When you look at those 5,000, you're going to find that 60%, 65% of those are only utilizing about 1.5 of our solutions. And if you look at the logos there, the opportunity just come screaming off the page. So I think we have to continue to evolve this organization. And I just looked in the mirror a year ago, Mark, and I said, "Wow, what you're doing, including how you're going to clients, how you're representing yourself to Wall Street, you're dividing before you are uniting. We have one firm. " And what I want in 3 years is that when colleagues go to clients, they say we are from Korn Ferry, not I'm from this or I'm from that. And that's really what we're striving for. And a deeper penetration of that very, very rich client base

Fully makes sense. And so I hate to ask a segment question after that. But how should we think about the the margins on digital and consulting, was that also reflective of the strong performance and then the bonuses that were associated there?

I think the reality is we had pretty broad-based growth across the firm mark. -- with the exception is George.

The exception is the Middle East, and I didn't finish my answer to George Hopefully, what we've seen in every crisis is opportunity, but we've also seen in every crisis, there's pent-up demand. And so I do believe as the -- hopefully, as the sky is clear here, and oil starts to flow through the strength. I think you're probably going to see some pent-up demand. It may be 6 months out -- but there's no doubt that that's had an impact on the levels of new business for sure. But I would say, Mark, that it was pretty broad-based.

That's great. And are you -- I know it's really early, Gary, but are you seeing any signs of, at least in APAC and EMEA in terms of some increased optimism in saying, okay, looks like things are finally getting back to normal, and we should see a decent burst.

We just had a bunch of colleagues together from all over -- actually all over the world, about 700 of our partners and principles. And there is definite hope -- can I say so far this month have we seen it? Not materially, but I do think that calmer mines will prevail here, and there's probably going to be some pent-up demand for sure.

Your next question comes from Tobey Sommer with Truist.

I wanted to ask about what initiatives or changes you have in place maybe dovetails into the new segment reporting to drive that 29% of reference sales to a higher level. Is there an accompany any sort of change in incentive comp in addition to reporting structure? What levers are you kind of pull.

Tobey, it's Bob. Yes, One of the things I've noticed -- again, if you go back and look at the program that we've had in place to drive that, we're back into, I think, 2018 or 2019 was 14%. And we put the program in place. And every year, we continue to open it up from our people, make it a little bit richer, and we saw success up to a point, right? And we kind of got stuck at 25% and we're there for whatever it was, 4 or 5 quarters in a row. And then you use Gary's phrase 1 of the earlier responses, it really is about changing mindset now. And what we're doing literally, we get together, we get those e-mails every day.

We get together every other Monday, we go through the opportunities that arose over the prior 2 weeks we go through all of our what we call must-wins other engagements over a certain threshold. We go through all of our marquee and diamond accounts and that's every 2 weeks and the collaboration that we're getting and the mindset change that we're getting from our folks, I think, is actually what's influenced us to go from the 25% to 27% because I've made the program richer.

Again, we broadened it out and we were kind of stuck I think this next level of achievement is really driven by the behaviors and practices that we're putting in place at the organization.

In consulting, can you talk about the degree to which some of your services, because I know it's a broad array of things that we're doing are priced on a value basis as opposed to time and materials and just average bill rates and hours billed to the client it's reforming at all.

Yes, I do. I actually do. I think even there's a number of solutions that could actually transform including search. It's pretty -- it's kind of archaic how we -- how the industry does that. I think there's now an opportunity once you get to a scale that you can actually change the paradigm. So it could search be sold as a service. Could you sign up as a retainer, I do believe that there is the opportunity, and we are pushing the team particularly on the consulting side to look at value because up to this point, it's been pretty much the old method. I mean not totally, but that's probably truer than not.

And I'm pretty convinced of the value that we bring. You have to align strategy with an organization with people, with compensation how you develop people. I just know out of all my years as CEO, it's about people, it's about talent, players players win games, coaches lose games. So we're challenging the team. I can't say that we have an answer today, but I would expect that to change quite a bit actually over the next 3 years. I wouldn't be a bit surprised by that.

The bill rates in consulting that you report currently, are they an imputed bill rate? Or is that literally the average rate that clients are seeing on invoices?

Well, I'm not going to say what they see on invoices but that's a real rate. I mean that's a real economic rate per hour for sure.

Yes. Tobey, you basically take our fee revenues and divide the hours worked into it to come up with what the average billing rate would be.

But again, just to be clear, so I answered the question correctly, we may not engage with a client in that way. We will say for a project, Phase 1 is this Phase 2 is that -- so we don't sit there and charge like a law firm wood by the hour. That's not -- so I don't want to give you the wrong impression. But I do believe in terms of the spirit of your question around value, I think there's something there.

And if I sneak one last one in. With respect to the Executive Search business and AI, private companies say that they can do some of the intermediate steps in delivery along a search process more efficiently, but customers just ask for more want to see more candidates, et cetera.

So they're kind of neither experiencing margin expansion from efficiencies or faster time to completion or price erosion. What's your experience in that round?

We have 17 work streams, 5 are anchored around search. And what we're concerned about there, clearly, what the efforts are showing us is we can be way more efficient. No doubt about it. That's now been proven over the last year on these 5 work streams out of the 17, no doubt about it. But what we're very, very mindful of where we operate is that we have tremendous IP and we use that IP when assessing candidates when we do it in our consulting solution.

We use the same IP throughout the entire firm. We use it in our RPO solution as well. What we are very, very protective of is we don't want that proprietary data to get outside. And so as we go down this path, for me, anybody can generate a name. And it's not what they've done, it's who they are. And when you're talking about the outliers of achievement here, I'm still going to put a very, very strong argument forward that it's around culture fit.

And we're not human doings, we were human beings AI is not going to disintermediate humanity. Will technology make us more efficient? Yes. Will it solve the supply and demand and balance of labor absent immigration, yes. Will it make our firm more efficient for sure. That's what those 17 work streams are showing. But at the same time, we want to make sure that we protect our IP, particularly that we're operating in 70 countries, 100 countries around the world with different privacy laws, like we are very, very careful about letting that out, that's -- we're in the trust business.

And so we -- I'm not that focus on the efficiency gain for the search process that we're going to get from AI. Are we doing it? Yes. We're absolutely doing it. But I'm focused on the customer experience and so we have a lot of things in motion there. But I'm telling you, I'm going to be like very conservative around who people are, what they tell us, what their assessments show.

We've done $113 million assessments of executives. We have to guard that data and that is a big, big differentiator for us. So yes, we are definitely using it. We're using it in the learning and development solution in terms of coaching, using agents. And we can all have different views on that. But clearly, we're headed in a direction where technology is going to have to fill the gap between supply and demand and balance of labor.

Your final question will come from the line of Josh Chan with UBS.

This is Karan Singhania on for Josh. I wanted to ask on the North America Executive Serge business. It looks like margins in the business have been pretty strong -- it was like 31% this quarter. So -- just wondering how should we think about margins for the segment for this year?

I would say that the margin profile, again, I wouldn't focus necessarily on search in North America as we get to a pretty big company, and we got a lot of levers to pull. I would just keep you focused on the range that we've talked about from an overall Korn Ferry perspective in the 16% to 18%. We guided to Q1, right, snack in the middle of that 17%. And that's how we're managing the business. So we don't to Gary's point earlier, when you think about the mindset change, right, we can't look at clients and go to market one way and then manage internally a different way. So Gary 1 firm, we got 5 offerings, but we're managing the firm as 1 firm. So I'd suggest that you just focus on the 16% to 18%.

Okay. Got it. And as my follow-up, how should we think about the capital allocation priorities for this year? Would you continue to lean more heavily towards bio bags and on CapEx, do you expect it to come back to more normalized levels this year?

We typically, over time, we've deployed a pretty balanced approach, systematic approach to to capital deployment clearly in this last quarter. As we said we were going to do on the last call, and as Bob mentioned earlier, we did what we said. Clearly, when you look at the firm over the last 10, 15 years, 20 years, 60% of our growth has been organic and 40% has been inorganic.

And the last investment that we made was in the interim solution, which was an organization in the U.K. and Ireland, and it's been an absolute home run for us. And that was almost 2 years ago. So we've -- there's been periods of time where we've leaned more into stock buybacks. We've been consistently raising our dividend for I don't know, 6 or 7 years, and there's times when we lean more into inorganic growth.

There are no further questions, Mr. Burnison.

Okay. Sarah, thank you for hosting. Thank you for everybody for joining us, and we'll talk to you soon. Thanks, everybody.

Ladies and gentlemen, this conference call will be available for replay for 1 week starting today running through the day, June 30, 2026 ending at midnight. You may access the Echo replay service by dialing 800-770-2030 and entering the access code 4218957 followed by the pound key. Additionally, the replay will be available for playback at the company's website, www.kornferry.com in the Investor Relations section. Thank you for joining. You may now disconnect.

Ladies and gentlemen, thank you for standing by, and welcome to the Korn Ferry Third Quarter Fiscal Year 2026 Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. We have also made available in the Investor Relations section of our website at kornferry.com, a copy of the financial presentation that we 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 and that the expectations reflected in such forward-looking statements are based on reasonable assumptions, investors are cautioned not to place undue reliance on such statements.

Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties, which are beyond the company's control. Additional information concerning such risks and uncertainties can be found in the release relating to this presentation and in the periodic and other reports filed by the company with the SEC, including the company's annual report for fiscal year 2025 and in the company's soon-to-be-filed quarterly report for the quarter ended January 31, 2026.

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 measures is contained in the financial presentation and earnings release relating to this call, both of which are posted in the Investor Relations section of the company's website at www.kornferry.com.

With that, I'll turn the call over to Mr. Burnison. Please go ahead, Mr. Burnison.

Okay. Thank you, Regina, and thank you, everybody, for joining us. Our outstanding performance during the quarter reflects the ongoing evolution of our firm from One Korn Ferry to We Are Korn Ferry. Fundamentally, our purpose is to enable people and organizations to be more than. As I reflect on all the recent conversations surrounding AI and disintermediation, it strikes me that the question isn't simply will AI take away jobs. The fact is there won't be enough workers. The prism we need to look through is the stark imbalance in labor supply. So while there are -- there may be fewer jobs compared to the last couple of decades, there will also be a lot less people in the labor force. And let's be clear on what this means. It's not simply that AI will take away your job. It's that those not embracing technology in AI will be left out.

Today, the world is enveloped by unprecedented levels of change, ripple effects from the pandemic, aging demographics and technological advancement from something out of Star Wars, all of which is converging to exert greater impact on the way people live, work and consume. For example, birth rates in the U.S. have been falling since the late 1960s. They've essentially been cut by more than half in each year. 10,000 baby boomers are retiring every day. That's 4 million a year for the next several years. Over the next 10 years, labor force participation is forecasted to decline further. And today, it's already lower than pre-COVID levels. As the labor force gets smaller, technology or immigration will need to fill the gap between supply and demand to maintain economic growth. And AI will absolutely play a critical role.

And at Korn Ferry, we're at the forefront of working directly with global decision-makers who are grappling with these issues as they seek answers to creating and sustaining a high-performing workforce. The outliers of achievement and performance are going to be more in demand, not less in demand. The need for highly skilled, agile talent will only increase. It will be more critical than ever to identify the 20% doing the 80%. Companies must identify, hire, develop and retain the scarce experienced professionals needed to lead this transformation, which invariably means doing more with less.

And when we look at our own business and our clients, it supports this macroeconomic thesis. Internally, we have become far more efficient and productive. Over the last 3 years, revenue is up and costs are down. Our revenue per headcount has increased by almost 1/3, as a result, we are more profitable and we've grown our margins by more than 300 basis points. And we're continuing to drive a major transformation from One Korn Ferry to We Are Korn Ferry.

What does it mean? Well, it means that we're not 5 businesses. We're one business with 5 solutions and 9,000 colleagues, all with a unified mindset. And it begins with client centricity, deepening our solutions with our existing clients to unlock growth. We've got more than 10,000 clients around the world, but 4,500 of those represent 90% of our revenue. And when I look at that set of clients, our penetration is only 1.5 or 2 solutions per client for 2/3 of the 4,500 clients. That means there's a lot of runway to deepen the relationship. So with We Are Korn Ferry, we are taking a top-down and bottom-up systematic process to tap this growth opportunity.

Our market accounts again outperformed the portfolio, up 9%, contributing 40% of our overall total revenue. Our cross-business referrals are now at a near high of 27% of our business. And at the top of the house, our work has never been more impactful. Recently, a well-known TV broadcast highlighted 7 major CEO transitions over the last few months, and we were involved in 6 of them. Further reflecting our client centricity, we've won several significant transformation engagements across the globe. A major aerospace and defense company is one of our first end-to-end Talent Suite customers, utilizing our proprietary data to make better talent decisions across 40,000-plus employees. This is a multiyear Talent Suite engagement.

For me, Talent Suite isn't a product. It's moneyball for business based on data beyond compare. It gives clients decades of insight of what separates great from good and it powers the entire firm. At one of the top financial institutions in the world with nearly 100,000 employees, we're supporting a new enterprise-wide talent excellence program, incorporating our world-class assessment capability and leadership accelerator programs.

And finally, we're proud to be a founding partner of the LA28 Olympic and Paralympic Games, powering the people who power the game. We're not only building their C-suite but also helping them design the organization and hiring the nearly 5,000 people who will perform on the world's most inspiring stage.

With that, I will turn it over to Bob Rozek. Bob, go ahead.

Great. Thanks, Gary, and good afternoon or good morning. We're very pleased with our third quarter results. This is our fifth consecutive quarter of accelerating year-over-year fee revenue growth, and we continue to deliver earnings growth, driving strong profitability and free cash flow. Our go-to-market approach continues to be intentional and focused on opportunities where we can build broader relationships with clients by selling larger integrated solutions that support their evolving talent issues.

Now what's really impressive is we are doing this in an environment where business conditions and labor markets remain challenged. It is very clear that our strategy is working, and our results demonstrate that we have built a company that is different from others in the industry. We perform differently because we are different.

Now turning to overall company results comparing Q3 of FY '26 to Q3 of FY '25. Our consolidated fee revenue grew 7% to $717 million, again, our fifth consecutive quarter of accelerating year-over-year growth. Earnings continued to grow in line with fee revenue and profitability remained strong. Adjusted EBITDA grew $9 million or 7.5% to $123 million. Our adjusted EBITDA margin was 17.2%, up 10 basis points, and adjusted diluted earnings per share grew $0.09 or 8% to $1.28. Total company new business, excluding RPO, grew 11% with both consulting and digital reaching all-time quarterly highs. RPO delivered $54 million of new business in the quarter with 78% coming from new logos and 22% from renewals.

Estimated remaining fees under existing contracts at the end of the quarter were $1.85 billion. That's up 11% year-over-year, and we estimate that approximately 60% or about $1.1 billion will be recognized within the next year with the remaining 40% or about $734 million estimated to be recognized beyond the next 4 quarters.

And finally, our capital allocation during the quarter remained balanced. Through the end of the third quarter, we have returned about $113 million to shareholders through combined share repurchases and dividends, and we've invested $64 million back into capital expenditures focused on Talent Suite productivity tools and other solution and product enhancements.

In a separate announcement last week, our Board has approved a 15% increase in our quarterly cash dividend to $0.55 per share, and that's our seventh dividend increase in the last 6 years. Our cash flow remains strong, and we are confident in the outlook for our business.

In addition to the detailed results found in our posted earnings presentation, here are a few company-wide and solution-specific highlights for the third quarter. You saw fee revenue growth was very broad-based across all solutions. The interim portion of our PS&I solution grew 4%, continuing to benefit from new business referrals, which were a key factor driving our outperformance in an industry that has been challenged for more than 36 months.

Our new business referrals and Marquee & Diamond Accounts program continue to be contributors of growth enabled by our We Are Korn Ferry go-to-market initiative. As Gary mentioned, new business referrals accounted for 27.2% of our consolidated fee revenue, and that's up 200 basis points year-over-year and the Marquee & Diamond Accounts continued to be strong at 40% of our total fee revenue.

Also in the third quarter, subscription and license new business grew 30% year-over-year and accounted for 43% of Digital's total new business. Additionally, in the third quarter, subscription and license fee revenue grew 8%. And finally, our average hourly bill rates for consulting and interim grew by 2% and 15%, respectively, again, demonstrating the high value our clients place on these solutions.

Now turning to our regions. Fee revenue in the Americas was up 6%, led by growth in Executive Search and RPO. EMEA fee revenue continued to be strong, growing 13% with double-digit growth in Executive Search, Consulting, Digital and PS&I and APAC fee revenue declined slightly at 2% with growth in Executive Search being offset by modest weakness in other solutions.

Now turning to our outlook for the fourth quarter of fiscal '26, assuming no material negative impact from the recent Middle East conflict and no further changes in worldwide geopolitical conditions, economic conditions, financial markets and foreign exchange rates, we expect fee revenue in the fourth quarter to range from $730 million to $750 million, our adjusted EBITDA margin to range from 17.1% to 17.3% and our consolidated adjusted diluted earnings per share as well as our GAAP diluted earnings per share to range from $1.34 to $1.40.

Now in closing, our financial results over the last 5 quarters demonstrate that our unique combination of foundational assets, expertise and capabilities truly matter to our clients. Looking to the future, I'm very excited about our opportunities to drive continued top line growth. You heard Gary talk about our top 4,500 clients. With the rollout of Talent Suite and our We are Korn Ferry initiative, we continue to see significant opportunity to expand those relationships in what we call the green space that is horizontal expansion where we bring additional solutions to our clients, vertical expansion where we leverage our strong C-suite relationships and provide solutions at scale to what we call the vital many, and that's down into an organization's professional ranks.

We have a great playbook to run from our Marquee & Diamond Accounts where we have a strong track record of successfully expanding those relationships. I also see further opportunities in our joint go-to-market activities, particularly between consulting and digital. And as I've said many times before on these calls, I am more convinced than ever that our best is yet to come.

With that, we would be glad to answer any questions you may have.

[Operator Instructions] Our first question will come from the line of Tobey Sommer with Truist Securities.

So markets are certainly reacting to a number of potential outcomes as a result of AI. How do you see AI impacting Korn Ferry?

Well, I think it's going to -- at the end of the day, it's going to allow us to drive more efficiency as we've done over the last 3 years, number one. And number two, where we play, we're playing at the high end and the high end of the labor force. I mean take the United States, there's only 25,000 companies that have 1,000 employees or more. And so when I look at the U.S. labor force today of 171 million, and really look through the categories of talent, Korn Ferry and its clients are very much at the high end. And so I don't really see that high-end labor talent being disintermediated.

And so I believe long term, that it's actually going to create more opportunity for us, not just an efficiency and how we deliver services, but also in terms of our client solutions and delivery. I mean we've got a number of engagements where we're using what we have is proprietary AI-ready leadership assessment tool. And we're using that through the Talent Suite to help companies transform their workforce. So look, I just look at the numbers in the labor force. And over the last 20 years, the U.S. labor force has created something like 20 million to 25 million jobs. Over the next 10 years, it's estimated to be 5 million. And last year, we produced as a country very, very few jobs.

And so I think you've got this huge imbalance between the demand and supply of labor that either has to get filled through immigration or technology. And I would say it's going to be heavily on technology. So for me, it's not -- it's not a simple question that AI will take away jobs. It's the people that don't embrace AI, they're going to be left out. So I -- look, this is early days. And most -- when we talk to most clients, truthfully, they haven't fully figured out how to use AI to drive efficiency.

But when I look at the demographic trends, it's quite clear that companies are going to have to do more with less. It's mathematics around demographics.

In that context, I want to just double click. If we have a higher -- or an increase in unemployment, do you think the company can grow in that kind of environment that typically used to be characterized or would reflect an economic recession and maybe it would or maybe it won't in this -- if AI goes to the [ nth ] degree as some are thinking?

Well, we're trying -- I mean, this is my 95th earnings call, quarterly earnings call. And many years ago, the company was dependent on one solution, which was Executive Search. And that was directly tied not only to the stock market with a high correlation, but to unemployment and what was happening in the labor force. Today, you've got a much more diversified business with 5 different solutions. And I think we've demonstrated over the last 36 months, which I consider a labor recession that there's quarters that one solution is up and another is down.

And the thing that's very interesting is when you look at the Executive Search solution, and you think about the labor market over the last 36 months, you would have expected based on historical data going back many years that the Executive Search solution would actually be down. When, in fact, it's the opposite. And so I think that tells you part of the story there is around demographics. I mean, clearly, it's around the strategy. There's no doubt about that.

But it's also reflective of demographics. It's reflected of post-COVID life and it's reflective of boards looking at leadership teams and saying, hey, what got you here isn't going to get you there? I think people are making choices about opting out of the labor force because most of those people in the C-suite were leading businesses during COVID. And so maybe it's work-life balance, but there is something going on here that's interesting.

And I look at it and say, our clients, the people that are making decisions around us are truly the outliers of achievement. And I just don't -- I don't look at it and think, oh my god, out of 171 million people in the labor force, 20 million are in management roles. I just don't see that they're going to be wiped out here. We have not disintermediated humanity.

If I could ask one more, and I'll get back in the queue. With respect to Talent Suite, do you think that is more likely to have the biggest impact deepening existing relationships, making them stickier somehow? Or is it more about expanding into new customer relationships. And I'm sure there's an element of both. But if you had to choose, which way would you go?

I think it's the former. The thing where there's incredible, and we've been working now for it's 12 months on We are Korn Ferry. And the crux of it, when you look at it, there's 4,500 clients that represent 90% of our revenue. And when you look at that client base, what you're going to find is that you look at 2/3 of them, and we're only doing 1.5 or 2 solutions. So I look at Talent Suite as not a digital solution play. I look at it as empowering the entire firm. And ultimately, the goal is to try to infuse Korn Ferry's language of talent in the companies, how they hire, how they design an organization, how they retain, how they pay, how they develop. So I look at it much broader, but the goal absolutely is a little bit like a Trojan horse to embed the language of client.

And then when it comes to the digital solution in Talent Suite, the reality is you've got -- we've probably got about 6,000 clients on Talent Suite, something like that. And when you look at that, what you're going to find is that 70% of them are only using one product within Talent Suite. And so there's enormous opportunity there. So for me, it comes down to having a systematic approach on the go-to-market side and having client service teams that are targeting and servicing the world's biggest companies.

Our next question will come from the line of Trevor Romeo with William Blair.

Maybe I'll just follow up on the Talent Suite discussion. It looked like your fees under contract were up double digits for both consulting and digital. I think your subscription and license fee revenue and the new business also accelerated. So would you attribute any of that to, I guess, very early returns from Talent Suite? Is it already having an impact? Or if not, maybe you could speak to what drove that because it seems like a pretty meaningful acceleration for both of those solutions.

Yes. We had a killer. We had a killer couple of months in the quarter of new business. We -- again, the strategy is trying to deepen the relationships, driving client centricity. And I would say that Talent Suite had a little impact, but not much because we did a soft launch in November. And the harder launch was in January. We converted all of the clients seamlessly. We didn't have any problems. And now we're embarking on a journey to get all of our 2,000 front-of-the-house colleagues to be able to talk to our clients about our -- what I think our data is beyond compare. I really do.

And so I look at it and say it's kind of moneyball for business. And we've got 50-plus years knowing how you separate great from good. And I think in an environment going forward where companies are going to have to do more with less, I think this could play a big role in our future. But I don't simply look at it as a digital solution play. It's really connected to everything we do, our RPO solution, Executive Search solution, Professional Search solution. It's a foundation for the firm.

We've never in the past taken all of our IP and put it in a seamless warehouse where you can go in and do benchmarking on your workforce and all that. So look, it's early days, and we've rolled out the technology. And now it's getting our front-of-the-house colleagues on a very targeted basis to take this to our client base.

That's encouraging. And then maybe one other Talent Suite question. Now that you have it in place up and running, in addition to your other sort of tech and AI investments, how do you view Korn Ferry's technology spending, I guess, in total in the next few years, whether that's CapEx or OpEx? Is the ongoing run rate here, do you think going to be higher or lower than you may have seen in the past or the same, I guess?

Well, I think Bob can probably address that more. I would just say that when you look back, we've had a fairly balanced approach to capital deployment. In, call it, the last trailing 15 months or so, I think the bent has been more towards Talent Suite and CapEx. And obviously, dividend, look, we just raised the dividend again. I think it's our seventh raise in 6 years. I think you may see us lean a little bit more heavily into stock buybacks over the next few months. So there could be a slight change versus, call it, the first 9 months of this fiscal year because it was heavily tilted towards technology spend.

Yes, I think that's right, Gary. I think if you -- Trevor, if you look at our CapEx spend, we're probably around $80 million to $85 million run rate currently, and we had anticipated that coming back down to what you would have seen more historically as, say, $60 million, $65 million run rate, and we'll probably see that drop going into our fiscal '27. So we're in the process of doing our planning for next year right now. And as Gary indicated, it's one of the things that we look at and think about quite a bit is how we allocate capital. And I would say you'll see the CapEx probably drop a bit, but maybe lean more heavily, as Gary indicated, into buybacks, certainly where -- when you see the market dislocated like it is today.

Yes. Okay. If I could maybe just ask one more on your interim business. I think you talked about the cross referrals driving outperformance there. Obviously, the [ temp staffing ] space has been very tough the last several years as you pointed out. So maybe just what kind of demand trends are you seeing there independent of your cross referrals? Are you seeing maybe a little pickup in conversations in the last few months? And then on the bill rate jumping up to almost 150, anything you'd call out from a mix perspective there?

Yes. It's the Korn Ferry [ Lift ]. I mean we're trying to -- we want to compete there at the very high end of talent because of the questions that have been raised around AI and the like. So we want to be focused on the outliers of achievement. And yes, you look at what I've seen in the industry, people have reported they saw a slight uptick sequentially late November, saw that in December, seeing it flow through to January, somewhat flat in February because of the shorter number of days. But yes, that we've seen absolutely that go up. It's up -- it was up 4% in the quarter. That's just the interim part of the business and the bill rates have gone up.

And so the temp penetration rate is still at historic lows. You know that better than I. I look back over the last 25 years and generally in the workforce, there's been about, in the United States, 2.5 million temp workers. Obviously, the penetration rate has been significantly higher than it has today. I don't think that's going to go away. In fact, you could make the argument that companies are going to need more flex arrangements to deal with one-off projects and the like. So we're very, very happy with how that solution has done. And the opportunity there, quite candidly, is not only the United States for us, but Europe.

And we made an investment in an interim solution and an executive interim solution in Europe going back probably 15, 16 months ago. And that has absolutely outperformed. And one of the reasons why it's outperformed is because how we have integrated not only because there's talented people, but we've also been very, very purposeful on We Are Korn Ferry go-to-market strategy.

Our next question will come from the line of George Tong with Goldman Sachs.

This is Alex on for George. I wanted to see if you could provide an update on what you're seeing with sales cycles and how client spending behavior may be differing across segments and whether there's been any impact from macro sensitivity?

I haven't seen any. The reality is more of the same. I mean the BLS numbers in the United States were obviously not great. They weren't great because of health care. But if you just look back over many months, the jobs have been created were in health care government. So I mean, to me, it's more of the same. Now what I can't comment on is the last 10 days or so. And I don't think anybody can. We have not factored that into our guidance. 10 days in, we just -- you just don't know.

But I can just tell you the direction of travel for this firm is unbelievable. And I've been here with dot-com crisis, long-term credit crisis, Great Recession, COVID, all of that, Russia, Ukraine, I can go on and on and on, the changes in China and the extended lockdowns there. I can go on and on and on. But the reality is when you look at the direction of travel, this firm is outstanding.

The other thing I would add to that, too, is if you look at the new business in the third quarter, Gary mentioned we had a couple of really good months. The thing that I found very interesting, usually, October and March are high watermarks for new business. And then December is usually one of the slowest months because of the year-end holidays and so on. And we hit an all-time high in new business in October, and we eclipsed that in December this past year. And we saw some very large engagements being signed. In fact, 44% of the consulting new business in the quarter were engagements over $0.5 million.

So as Gary mentioned before, we're playing top of the house. People really value what we bring, and they're struggling to work their way through the somewhat chaotic world that we live in today. And they're only going to do that through their talent, and that's exactly where we come in.

Yes. Got it. That's very helpful. And then I want to ask on the digital side, which saw some improvement sequentially, but was flat year-over-year on a constant currency basis. So can you touch on what drove this and how the pivot toward enterprise-oriented sales is progressing?

Yes. I mean that's something we have to do. We have to continue to look at our own talent, and we have to ensure that all 2,000 of our consultants can have a more enterprise-wide conversation for sure. And when you look at the digital solution only, you're going to find that it's just an increasing percentage is longer-term kind of Software as a Service deals. So I don't sit there and look at simply revenue. I look at the entire firm and what is it doing in terms of our win-loss rate, which we also carefully monitor and study.

And is the backlog -- what is the backlog doing? So I sit there and say in this environment, am I totally satisfied? No, not satisfied. But we've only been at this with this IP in a common warehouse for a couple of months. I mean this has not been very long at all.

Our next question will come from the line of Josh Chan with UBS.

I guess on your consulting side of the business, this is usually a business that is stronger when the economy is more poor, I guess. And so could you just talk to the recent strength in this consulting new business? And what are some of the common threads that you're getting from sort of the 0.5 million-plus engagements that Bob kind of alluded to earlier?

It's around transformation. It's around org strategy and transformation. That would be the big ticket theme for those larger engagements. And I read something last night, there was a report that consulting firms in calendar 2025 grew something like 5% or 5.5%. You have to kind of question that a little bit. But I look at our overall firm over the past, call it, 12 months. And I'm saying, hey, we're in line or better, recognizing that part of our business deals with the labor markets, which haven't been exactly fantastic.

Josh, the other thing I would say, too, is if you look at in the consulting business right now, Gary talked about transformation. A lot of companies are looking at their talent and are they ready to be productive in an AI world, and we have solutions that look at AI-ready leaders, AI-ready talent. And that's where you see the assessment and succession having strong year-over-year growth in that quarter as well.

Okay. Okay. That's great color. And then maybe a quick question on margin. So if Korn Ferry continues to grow at the similar revenue growth rates that you're kind of guiding to, what's the right way to think about kind of margin expansion for the company as a whole kind of going forward?

I mean in this investment -- the investment horizon we have right now, we've -- I think what we've said is 16% to 18%. Part of it depends on the M&A execution. And for example, how much -- if there's more opportunities, which I think there are around the interim market and the interim solution, that obviously -- that mix change has a big impact on that question. But we also have to make sure that we are making the right investments as a firm, particularly around talent. So I think for now, that over this investment horizon, that's reasonable. But if you look back over the last kind of 3 years or 4 years, something like that, this is after the Great Resignation (sic) [ Great Recession ], which probably ended somewhere late '22, early mid-'23. The reality is our headcount per colleague is up almost like 35%. So we've got a track record of being able to drive client impact, impact the top line, but also be more profitable.

Congrats on the good results.

Our next question will come from the line of Mark Marcon with Baird.

I just wanted to follow up on the last series of questions. Gary, when you're talking about the investment horizon, how long are you thinking in terms of that 16% to 18%? Because I can't help but notice you're increasing your revenue. And then if we go through all the charts, it's like the number of consultants on staff has actually been flat to down, most frequently down. And so I'm trying to think through like when you think long term and you think about like, hey, we've got 2,000 front-facing consultants, 9,000 colleagues in total, and we're probably in the early stages in terms of implementing AI. I'm just wondering like how -- when you really think about longer term, how efficient can you be? And I know you've got to make some investments in terms of people, but how are you thinking about that longer term?

Clients have asked me that question, Mark, as they're looking at their organization. And I'm not -- this comment is not specifically to Korn Ferry. And this is clearly an estimate. But I think if you were to say, look out over 5 to 7 years and given the demographic trends that were -- that we've talked about on this call and the "shrinking labor force", not as many people coming into the labor force, not only in the United States, but other countries as well.

And then the promise -- then the question is, well, how do you fill all that gap? Well, you either do it through immigration or technology. So given the mathematics around labor force participation and the promise of AI, what I've told clients is if you look out that kind of 5 years, median of the bell curve, I would expect your labor force to be smaller by, say, 15% for sure. Now I'm not talking about every company, every industry, every sector. But just generally speaking, the theme would have to be as it is for the country of the United States, it would have to be more with less. So that wouldn't -- that's the advice that I've been giving to clients.

Great. And I mean, where would you say you are in terms of harnessing AI in terms of increasing the efficiency? Are you -- is it the first inning? Are we seeing the national anthem? Or are we in the third inning?

We've taken the field. Look, the reality is with all the stock, I think that many, many, many companies are in the first inning here. But there's enough there, there where you say, okay, I get it. Technology can definitely make you more efficient. And then the question is behavioral change. So the real question is people don't change unless there's a reason to change. And the question for leadership of companies is how do you create that change? How do you get people to truly embrace the ever-evolving technology that's out there. That's really the question. And I think, look, the reality is I think most people are in the first inning, Mark.

Okay. Great. And then with regards to Talent Suite, can you talk a little bit about like when you're doing these big deals, and you mentioned the aerospace company with 40,000 employees, when you're pricing this and you're pricing it for complete access to Talent Suite, how do you price it? How should we think about that sort of lift both in terms of margin and revenue?

Yes, yes, size of company and number -- size of company and number of seats. I mean, that's generally how we do it. And is it an existing client of Korn Ferry. So what we've seen is that, for example, people will ask the question, CEOs will ask the question, is my labor force "AI ready", which a lot of that will come down to agility and dealing with ambiguity. So then what you would do is go in and assess 5,000, 10,000 people and we produce an MRI that would say, okay, this is what the thinking style, leadership style of the organization looks like. Based on our research, this is what a future-ready workforce would look like. And here are the -- here's how you stack up. Here's the gaps and here's a plan towards remediation. And it also depends, too, is what level of consulting is wrapped around that.

Got it. And then a question for Bob maybe. With regards to consulting in the third quarter, you had a 5% lift in terms of revenue, but the margins went down by 70 basis points year-over-year and the headcount is down. What's the underlying reason for those margins to be down? And this was in the context of a great quarter. So just trying to understand [indiscernible].

Yes, it is, Mark. And one of the things is our fee revenues were well above our guidance range, they attract more bonus dollars. So we had an opportunity to get caught up there on the bonus that we provide for folks and that put a little bit of downward pressure on the margin in the quarter.

Got it. Okay. That's great. And then, Gary, one last one for you, if you'll take it. And I know you -- we're only 10 days in. But generally speaking, like after all of the various things that you've gone through, what's your expectation in terms of like how long this would have to continue before plans would change or that you'd actually see a meaningful difference just in terms of client behavior?

Well, this is just one person -- I mean, one person's view. It's -- I don't think anybody really knows the answer to that. I mean, in the United States, transportation and transportation costs, including gas, are 17% to 20% of consumer spending. And so elevated oil prices are not good for consumer spending, which you're already dealing with a K-shaped economy. There's a cost of living crisis. So that's clearly a negative. And to what extent have we opened Pandora's box, I'm the least qualified person to answer that question, but that's certainly one.

Our colleagues in the Middle East, which we have an incredible, incredible business, our colleagues are continuing under very difficult circumstances, much like our colleagues in Ukraine have done throughout this time. They're working from home, taking safety precautions. As of last week, it hasn't materially impacted our delivery of services. But I think you go out, I think it will be another 90 days or so before you really get line of sight on what all this means beyond oil .I mean beyond oil, what does this really mean?

And it appears there are no further questions at this time, Mr. Burnison.

Okay. Thank you all for the questions. I'm incredibly proud of this organization and to be a founding partner, which may seem a ways away of LA28, but it's not. And I think that will highlight just the power of our organization for sure. We're excited about that. So with that, thank you for your questions, and we'll talk to you next time. Bye-bye.

Ladies and gentlemen, this conference call will be available for replay for one week starting today running through the end of the day, March 16, 2026, ending at midnight. You may access the Echo replay service by dialing (800) 770-2030 and entering the access code 3268315 followed by the pound key. Additionally, the replay will be available for playback at the company's website, www.kornferry.com, in the Investor Relations section. This concludes today's call. Thank you all for joining. You may now disconnect.

Ladies and gentlemen, thank you for standing by, and welcome to the Korn Ferry Second Quarter Fiscal Year 2026 Conference Call. [Operator Instructions] As a reminder, this conference call is being recorded for replay purposes. We have also made available in the Investor Relations section of our website at kornferry.com a copy of the financial presentation that we 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 not to place undue reliance on such statements. Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties, which are beyond the company's control. Additional information concerning such risks and uncertainties can be found in the release relating to this presentation and in the periodic and other reports filed by the company with the SEC, including the company's annual report for fiscal year 2025 and in the company's soon to be filed quarterly report for the quarter ended October 31, 2025.

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 measures is contained in the financial presentation and earnings release relating to this call, both of which are posted in the Investor Relations section of the company's website at www.kornferry.com.

With that, I'll turn the call over to Mr. Burnison. Please go ahead.

Okay. Thanks, Regina, and thank you, everybody, for joining us. In the quarter, our performance was outstanding. I'm really proud, proud of our firm, our colleagues and our purpose. We enable people and organizations to be more than. Talent is everything. It's a universal need, and that's our business. We're a household brand. We're seeing by millions of people around the world, and we have incredible permission to make an impact in the world, which is currently defined by digitization and economic fluctuation. Today, organizations require more than static strategies. They need the ability to adapt, align and act.

Our firm sits at the intersection of these opportunities, unlocking the potential in people and organizations, synchronizing strategy, operations and talent to accelerate performance, fuel growth and inspire a legacy of change. At the heart of our strategy is client centricity. Here's just a few examples in the quarter where we've integrated multiple solutions to create enduring client partnerships. One of the largest commercial real estate services companies is partnering with us to secure a contract to build and manage multiple AI data centers for a major tech company. we're providing RPO and total rewards to make hundreds of hires per year, a major university in the United States is opening a new hospital, and we're developing a comprehensive talent strategy to bring in hundreds of physicians and other professionals.

A global consumer company with over 150,000 employees were assessing and developing leaders to ensure they're equipped to drive enterprise-wide digital and AI transformation. I mean those are just a few examples, and it's clearly now today, the larger, the more recurring relationships we have, really pays off for, not only our clients, but our shareholders.

And now as we begin another calendar year, we're going to lean even more heavily into our collective We are Korn Ferry strategy. Our go-to-market efforts, our marketing initiatives and our solution orientation in all of our organization is indexing more heavily into 1 business, not 5 segments. Clearly, the strategy is working, driving resilience and durability in our business. And I'm really confident that we are incredibly well-positioned employees for a tremendous 2026. With that, I'll turn it over to Bob. Bob, go ahead.

Great. Thanks, Gary. Good afternoon and good morning, depending on where you're at. In the second quarter, our financial and operating results continue to improve. We posted our fourth consecutive quarter of accelerating growth, which serves as a continuing proof that the intentional execution of our strategy to transform Korn Ferry is succeeding. In today's uncertain business environment. There has never been a greater need for talent, and that's exactly where we come in. We've built an organization to fulfill the comprehensive talent needs of our clients. We deliberately expanded our areas of expertise in the human capital solutions where our people, enabled by technology, and our foundational assets are uniquely positioned to help our clients drive their business performance. We continue to evolve the integration of our colleagues and solutions to enhance how we address our clients' challenges in changing needs.

Now looking more broadly at the company's financial performance over the quarter, we continue to demonstrate our ability to successfully execute our strategy in a low visibility and uncertain business environment. We have been on a deliberate journey to build a more durable and stable base of fee revenue and profitability, and at the same time, provide additional value and impact for our clients. And now with the go live of our new talent suite technology platform this past November, we are in even better position to leverage our foundational assets to lean into our collective go-to-market efforts as a holistic talent partner, as Gary mentioned, as 1 business.

In addition to the detailed results found in our posted earnings presentation, I'm going to go through a few company-wide and solution-specific highlights in the -- for the second quarter. Our business referrals grew to 27.6% of consolidated fee revenue, up approximately 250 basis points, both year-over-year and quarter sequential, demonstrating early signs of progress driven by our We Are Korn Ferry go-to-market evolution. Estimated remaining fees under existing contracts increased to $1.84 billion, and it's up 20% year-over-year, led by strong new business in RPO.

Executive Search fee revenue remained strong, growing 10%, it's the sixth consecutive quarter of year-over-year growth. Professional Search and interim fee revenue was up 17% year-over-year with growth in both professional search, plus 7%, and interim, including the Trilogy acquisition at 24%.

Our subscription and licensed new business continued on a positive trajectory, growing to 43% of Digital's new business for the quarter. And last, hourly bill rates in consulting and interim remained strong at $460 and $142 an hour, respectively.

Now I'm going to turn to overall company results. Consolidated fee revenue grew 7% year-over-year to $722 million. Earnings and profitability also remained strong. Adjusted EBITDA grew $8 million or 7% year-over-year to $125 million. Adjusted EBITDA margin was strong at 17.3% and adjusted diluted earnings per share grew $0.12 or 10% year-over-year to $1.33.

Total company new business, excluding RPO, grew 4% year-over-year, led by strength in EMEA, and RPO delivered $253 million of new business in the quarter, was 16% coming from new logos and 84% from renewals. As I mentioned previously, estimated remaining fees under existing contracts at the end of the second quarter were $1.84 billion, of which we estimate approximately 57% or $1 billion will be recognized within the next year, with remaining 43% or close to $800 million estimated to be recognized beyond the next 4 quarters.

Turning to our regional results. Fee revenue in the Americas was up 3% year-over-year, led by executive search and RPO. EMEA fee revenue continued to be strong, growing 20% year-over-year, with growth in Executive Search, Professional Search and interim consulting and digital. APAC fee revenue was flat with moderate growth in Exec Search and Pro Search and interim offset by slight declines in RPO consulting and digital. And finally, our capital allocation during the quarter remained balanced. Through the end of the second quarter, we returned almost $70 million to shareholders through combined repurchases and dividends, and we invested $43 million in capital expenditures focused on talent suite, productivity tools and other solution and product enhancements.

Now turning to our outlook for the third quarter of fiscal '26. Assuming no further changes in worldwide geopolitical conditions, economic conditions, financial markets and foreign exchange rates, and recognizing the year-end holidays, we expect fee revenue in the third quarter of fiscal '26 will range from $680 million to $694 million, our adjusted EBITDA margin to range from approximately 17.2% to 17.4% and our consolidated adjusted diluted earnings per share to range from $1.19 to $1.25.

And finally, we expect our GAAP diluted earnings per share in the third quarter to range from $1.15 to $1.21.

I'm excited about the next step in our go-to-market evolution. We Are Korn Ferry with a real focus on becoming the holistic talent partner for our clients. At the same time, we remain committed to controlling what we can, leaning into identified growth opportunities and driving operational excellence. We remain well positioned to drive long-term, profitable and sustainable growth by using our foundational assets to deliver expanding and differentiated solutions to our clients.

I'm more confident and excited than I have ever been about what this company can become.

With that, we would be glad to answer any questions you may have.

[Operator Instructions] Our first question will come from the line of Josh Chan with UBS.

It seems like the Executive Search business continues to perform well. Could you talk about where you're seeing the sources of strength within North America and how you think about the business in light of slower job market velocity, but you're still posting pretty good results?

Well, we think of the company as one business, number one, not 5 segments, and that's what the new We Are Korn Ferry strategy is really about. And when you look at the different solutions, for example, Executive Search, you're seeing really significant growth worldwide in just about every market. And I think that is a combination of factors. Number one, a realization on the part of companies that would get you here won't get you there, and that requires different leadership skills today than 5 years ago. You've also got the issue of the retirement of baby boomers, what I've called Peak 65, where, in America, for example, you've got 4 million or so Americans that are retiring over the next several years.

You also have a situation where people are looking at their life. And most of the people that are leading C-suites, who're leading C-suites in COVID 5 years ago, and I think there's a lot of people that are striking a different work-life balance. So I think it's all of those factors combined that are leading to the strength in that solution as well as our strategy. And as Bob talked about, this quarter, in terms of business referrals, with inside the firm, I mean it was almost I think it was an all-time high at almost 28%. And I think that shows the strength of combining IP with tremendous people and a worldwide reach.

Okay. And on that point about the referrals, could you give us a sense on where it has been historically over a long period of time? And then where you think that could go as you focus more on this strategy?

Well, we would like to see it go to a good 35%. It's been 25%, 26%. I mean, generally, it's been up into the right over time. And we think there's opportunity. I mean, I -- we just finished -- we have 1,800 partners and principles that are responsible for originating business. And we just completed getting together in person 50% of them, 900, and we're going to do the next 900 over the next several months. And I'll tell you that it was energizing. And it's clear to me that we're only -- we're using 10% of our potential. There's no doubt about it. But we have to pivot the organization from segments. We don't have 5 businesses. We have 1 business and 5 solutions. And I think we're going to lean even more heavily into that in 2026.

Our next question will come from the line of Trevor Romeo with William Blair.

I kind of, I guess, just wanted to follow up on that last line of questioning but maybe a slightly different way. It did look like I think some of your placement type solutions seem like they improved either sequentially or the growth year-over-year accelerated a bit, thinking Pro Search interim, especially on a sequential basis for Interim, RPO, new business wins, sounds like the cross referrals and the We Are Korn Ferry strategy driving some of that. But I also wanted to ask if -- is some of that you're starting to see any turn in the kind of willingness among the client base to hire more or spend more? Or is it mostly just those cross-sell efforts that are driving some improvement there?

Well, we think the strategy is clearly working. I mean there's no doubt about it. Just look at the last 8 quarters in what I consider a labor recession. And the guide in the next quarter is implies 3% growth. And if you look at some of the other competitors, and it would be negative 3% or 4%. So I think it's clearly the strategy is absolutely working.

And you're right. we have seen both in the Pro Search and the Interim Solutions an uptick sequentially, call it, 7% or 8%. I mean, take the interim solution where we didn't have that solution just 5 years ago. And the last investment that we made there was in the U.K., and that solution and that integration within EMEA has been a home run.

I mean it's -- and our market opportunity in EMEA around that solution is just -- it's incredible. So yes, we've definitely seen some green shoots here. The RPO solution, a killer quarter of new business. A good part of that was renewals, but that shows the quality of our IP and the use of AI in that solution.

So I'd step back and say, since we last spoke, has the market really changed? It really hasn't changed. And we'll see what the Fed does here over the next couple of days.

Okay. So I guess not that much change in the macro. Maybe just for my follow-up on the consulting solution. Just wanted to ask, I guess, when you look at the bill rates up 10% year-over-year, what would you say about the mix of, I guess, services within that and the mix of senior versus junior consultants, whether either of those dynamics is sort of boosting the bill rate growth and just the content for that question. I think 1 of the narratives out there is that AI is going to put a bunch of pressure on consulting businesses from a pricing perspective, and you don't appear to be seeing that. So we just want to get your take on those drivers of the bill rate.

Well, I think it speaks to the integration of the overall firm and delivering bigger more impactful engagements at scale. And when you look in this last quarter, a big driver there was org strategy. and it's really a recognition. It's not a question of companies just how we're going to use AI and that's going to eliminate 15% of the workforce. That's the wrong approach. I mean it's really around how do you look at your overall skill set and how do you look at your workforce. And so part of the growth there in consulting is our strategy and really taking a more holistic approach, what technology means to your company over the next 3 to 5 years. And I'm not even so sure that bill rate is actually the yardstick that we should be measuring going forward. It's really around the impact that you have. And so Yes, the bill rate has climbed. I mean, over the last several years, that bill rate has climbed from probably the high $200 an hour to where it is today at almost $500 an hour.

And you look at the new business of the firm as a whole and you see that in the consulting solution, it's like 40% of the new business are big engagements, over $500,000. I mean it's absolutely been a transformation. And I think looking at that solution quite candidly, we have substantial opportunity in North America. And that's something that we're getting after, and we've been going at it over the last 2 quarters with respect to talent and bringing different talent into that solution in North America.

Trevor, this is Bob. Just maybe a little bit more color on that. Gary mentioned engage with over 500 or about 40% -- over $500,000 or about 40% of the new business in consulting. And just last quarter, it was 37%. So again, we're just providing further proof points that the strategy is working, and we're definitely selling larger, more transformational engagements.

Our next question will come from the line of George Tong with Goldman Sachs.

This is Sami on for George. And it Search, we typically see a step down in 3Q and then a ramp in 4Q. With the current strength in new business, should we expect this year's seasonality to look different? Is the new is new business strong enough to offset the usual softness in the third quarter?

Our guide doesn't imply that. I really think that clients, the way the holiday season falls, I mean we're I think you're going to lose 2 weeks. And I think that's going to be across the board. It's going to certainly impact the entire business. And so that is factored into our guidance. So I wouldn't -- we haven't forecasted that. Could it happen? Yes, it could happen, but that's not in the forecast.

Got it. And just on consulting. So build rates were strong, but margins were flat. Could you just talk about how much runway is left in that mix shift towards higher value engagement? In other words, how much more of a lift can you get on build rates? And is there a higher cost of delivering these larger value engagements that cap your margin upside in consulting?

No, no. There's substantial opportunity with that solution. If I dial -- this is my 95th quarterly earnings call. And when I dial back the clock, what you would know is that years ago, we were essentially selling vitamins. And today, we're in the health and wellness business. I mean it's really gone from very, very small transactions that were largely around assessment. And it's moved from that to now what Bob just talked about. We're almost 40% of the new business was around larger engagements. So I think there's plenty of opportunity there and upside. And we had just had to balance utilizing all of our IP and bringing in talent to continue to drive that business towards health and wellness.

Yes. And this is Bob. And the one thing I would add to that is the -- if you think about the current environment, the uncertainties and somewhat chaotic, it's actually a good thing for us because clients are trying to figure out how to operate in a new and different world. And they're turning to us. And that's where you see like our org strategy business, for example, being very strong today. And those are the larger more -- a more transformational engagements.

Our next question will come from the line of Tobey Sommer with Truist.

In the Search business, could you maybe describe from a high-level perspective any kind of time savings and efficiencies that you're able to squeeze out using various AI tools throughout the product? And is it in fact shortening the amount of time to fulfill a search? Or are customers kind of filling that savings by requesting more of you, and therefore, the time is equivalent to where it used to be?

No, it's definitely more efficient today. A small part of that is clearly technology. But I think the bigger driver of it is the way work is getting done today with COVID. I mean just last night, I was on a very, very high profile confidential search, and we were on Zoom. And so I think that COVID has changed everything, how we can send and how we produce and even how we work. Now with the technology, clearly with AI, that's had a bigger, much bigger impact on, say, our RPO business that Bob could talk about. But that's definitely -- that's for sure, had an impact there. We think there is the further opportunity in the Executive Search business. But I think it's going to be somewhat limited.

We use our IP in the search solution taking a look at not only the outward leadership style, the traits and drivers and all that. There's definitely some opportunity there. But it's going to be more of a high-touch solution for sure, no doubt about it.

And Toby, just to maybe elaborate a bit on our appeal. We've actually been using AI within that solution for a number of years now. And I think that's part of what differentiates us in the marketplace in what we've -- the area where it's really become much more predominant is in the, what I would call, the research base, candidate identification, sourcing and so on. But we've been doing it for probably 3 or 4 years now using AI in that process. We actually have a tool. They call it KF Nimble Recruit, which is "recruitless recruiting," but it's really focused on candidate identification and sourcing.

Okay. And then if you could elaborate a little bit more the sunsetting of a system [indiscernible] and sort of those accounting elements with now that tax we just launched. So I wasn't exactly sure maybe you could unpack that from a business perspective and an accounting perspective?

Toby, could you repeat that again? Could you repeat that question?

Could you talk about the sunsetting of the system and the accounting impact, and maybe why we're doing it and if it relates to the [indiscernible]?

Bob, you want to...

Yes, I can take that. Yes. So Toby, we -- like I said in my remarks, we launched Talent Suite. It was on November 17. And we've talked about this over time, where our foundational assets historically set an older system that wasn't quite as well connected, different repositories for different parts of our data sets and so on. What the talent suite did was a couple of things. It brought everything together in 1 single repository. So it's a single sign on, which makes it easier for somebody using, whether it's our consultants or a client directly using our foundational assets. So you have a single sign on. It gives you the ability to move across the data sets unencumbered, where, in the past, you would log into a repository out, log out, long into a different repository, log out. And then the third thing it does is the structure of our data has all been harmonized, which really gives us the ability to work across our data sets to provide analytics unique and differentiated insights when you think about all of the data sets we have whether it's assessments, pay data, success profiles, behavioral science that sits at the center of everything we do.

The talent suite houses all that in a much more effective and efficient way for people to consume it, again, whether it's our consultants or a client directly. And so with the old system that we had, we sunset that with Talent [indiscernible] going live. And last quarter was the largest quarter. And the way that we we did it is we had to make a decision to sunset it, and we did that back in July. And so the way the accounting worked, it required us to just accelerate the remaining undepreciated cost of, we used to call it the Talent Hub, but we accelerated that depreciation, and that's what you saw in the quarter.

Okay. Okay. I hope that makes sense. So what are your expectations for the financial impact from lease [indiscernible] suite?

Well, we think it's going to be incredibly important for the organization, and as I say as 1 business. You've now -- clients have the ability to actually go between rooms and license all of our IP, which is a mess from comp data on 30 million people to org strategy, almost 15,000 success profiles. So I think it's going to be incredibly positive. Now it's going to take us some time for sure. We just launched this. But the reality is we have thousands of clients that are choosing 1 thing off the menu. And there's people that are just ordering dessert and people that are just getting appetizers. And this gives us the ability to go to them and provide the entire menu.

And as Bob said, it's the ability to provide really deep analytics across from how somebody is rated to how they're compensated. I mean we have a phenomenal opportunity here around, for example, pay transparency. And in the EU and in the United States even, but in the EU, if you have more than 250 employees in a country, you're going to have to make a lot of disclosures around paid transparency. And we've calculated that total market opportunity to be a couple of billion dollars.

And look, if we could get 10%, 20% of that, that's enormous. So we've got a major -- and what talent we does is it enables -- because to be able to do that, you have to have a job architecture. And we do have that as part of our IP. And so there is an opportunity to use the talent suite to combine the job architecture with pay and then going in and doing an analysis of of paying equity and pay transparency.

And Toby, maybe just a little bit more context to give you an example that I use quite often. So in the old world, if you went in and took an assessment, you'd have to log into that database, if you will, take the assessment, get the results, you log out, then you have to go over to where our development content sits, and you'd have to log into that, find the content and then develop yourself. Under talents you go in, you just sign in once, you take the assessment, you get your results and Talent Suite delivers the development content that you need, not just delivering it to you, but through the work of our Korn Ferry Institute, actually prioritize in a way where the first thing you do has the greatest impact on company and on your performance, and then second, third, fourth and fifth and so on.

And so for us, it's -- again, it's a much more effective and efficient way for people to consume our foundational assets. But the key is all the assets that Gary talked about, being able to bring them all together in a way that's easy, effective and efficient is really what we're excited about.

Last question for me. Have you seen any change in [indiscernible] behavior since your only public [indiscernible] and maybe have or haven't do you expect [indiscernible]?

You kind of cut out there. I heard part of it was around a competitor, but I didn't get the essence of the question.

Yes. Have you seen a change in diverse hired [indiscernible].

No, no, no. Not at all. I mean that's a -- it's a great brand. And what these -- there's 5 or so principally executive search firms and they all have an opportunity here. They have incredible permission. But no, I haven't seen anything.

Our final question will come from the line of Alex Sinatra with Robert W. Baird.

This is Alex Sinatra on for Mark Marcon. I was just wondering, obviously, from a growth perspective, things have been going well. I'm seeing broad-based progress. But I wanted to ask on the digital side, there was a decline a bit. So I was wondering what drove that. And then looking forward, if you could speak on the pace of new sales in that business and what to expect there as well as in your client conversations, like what are your existing customers indicating going forward as well as the new people that you're bringing on?

Well, I think a couple of things. Number one, we made a purposeful decision several quarters ago. that we had to get the entire firm behind the monetization of our IP, including our Consulting Solution. And so what we've done over several quarters is we've actually reduced the number of sellers in that solution by about 35%, a kind of massive, massive change. And where we're pivoting to is a couple fold. One is around the entire firm being able to talk about how an organization separates great and good using our IP. And the other is now a pivot for that solution to get more enterprise sellers and consultants. And so some quarters ago, we had a workforce and that solution that were deep subject matter experts. And where we're pivoting that is to get a sales force that is more enterprise oriented.

And so that's impacted for sure, the top line performance of that solution very, very purposefully. And so over the next several quarters, what you're going to see is us continuing now to add more enterprise solution capability in "digital." And then the other thing is that in this quarter, we had a couple of very big transformational deals that we thought were going to hit in the second quarter. And actually, they got postponed to the quarter that we're in right now, one of which has been secured. And those are multimillion dollar engagements. And on top of that, you've seen us pivot towards more licensing kind of arrangement. So those are the factors in that part of Korn Ferry's business.

Great. And then I was just wondering on the new RPO contracts, if you could talk about where those are coming from? And how many were from clients switching maybe from other firms as opposed to companies that are new to the IPO side? And then as well, how many of those were from like cross-sell motions given the new We Are Korn Ferry movement?

Well, the majority were around renewals, which we think is an unbelievable testimony to the quality of what we're doing. And they were from -- they're very, very much part our house accounts, we call them marquee and diamond clients, and those represent 40% of the overall revenue of the firm. And in fact, those marquee and diamond accounts have outperformed the portfolio. And I think if you look at the the growth in those clients has been something like 10% compared to 3% or 4% growth. So it's been in industrial and health care. Those have been the 2 areas that have probably seen the most uptick in contributing to those RPO wins.

So I would say 3/4 of it was renewals of big, big health care and industrial companies and 25% new logos.

Yes, it's Bob. Just to give you maybe a bit more color on the business referrals. If you go back over time, roughly 50% of the fee revenues in RPO came from a referral from outside of that particular solution.

And it appears there are no further questions, Mr. Burnison.

Okay. Regina, Listen, thank you, everybody, for listening. It's a holiday season and certainly have a wonderful holiday, and we look forward to speaking to you in the new year. Thanks, everybody. Bye-bye.

Ladies and gentlemen, this conference call will be available for replay for 1 week starting today running through the day December 16, 2025, ending at midnight. You may access the Echo-replay service by dialing (800) 770-2030 and entering the access code 2574781 followed by the pound key. Additionally, the replay will be available for playback at the company's website, www.kornferry.com in the Investor Relations section. This concludes our call today. Thank you all for joining. You may now disconnect.