Korn Ferry(US:KFY)2023-03-08 20:56Financial Data and Key Metrics Changes - Adjusted fully diluted earnings per share in the third quarter were $1.01, down $0.58 or 36% year-over-year, excluding an after-tax charge of $42 million related to workforce realignment and real estate impairment [5] - Consolidated new business, excluding RPO, was up 5% year-over-year at constant currency and up approximately 1% at actual rates [12] - Adjusted EBITDA was $96 million with an adjusted EBITDA margin of 14%, in line with guidance [12] Business Line Data and Key Metrics Changes - Fee revenue for Consulting grew to $162 million, flat year-over-year and up approximately 4% at constant currency [14] - Professional Search & Interim business saw new business increase by 30% year-over-year, with total fee revenue of $118 million, up $28 million or 31% [15] - Global fee revenue for Executive Search was $212 million, experiencing a year-over-year decline of 9% at constant currency [16] Market Data and Key Metrics Changes - Recruitment Process Outsourcing (RPO) new business for the third quarter was $44 million, with total revenue under contract at approximately $837 million [7] - Digital business global fee revenue was $85 million, down 6% year-over-year and approximately flat at constant currency [33] - Industrial sector showed a bright spot with a year-over-year increase of about 10%, representing nearly 30% of the company's portfolio [60] Company Strategy and Development Direction - The company is prioritizing investment in larger, faster-growing, less cyclical markets, with recent acquisitions in the Interim space contributing significantly to revenue [2] - The strategy focuses on building synergistic businesses around Executive Search to generate more durable fee revenues [2] - The company aims to transform its digital business into a more sustainable model, moving towards a SaaS approach [24] Management's Comments on Operating Environment and Future Outlook - Management noted that the current economic environment presents both challenges and opportunities, emphasizing the resilience of the company's strategy and brand [2][9] - The company expects fee revenue in the fourth quarter of fiscal '23 to range from $690 million to $710 million, with adjusted EBITDA margin around 14% [17] - Management highlighted the importance of maintaining capacity in consulting and digital businesses despite potential demand fluctuations [42] Other Important Information - The company repurchased approximately $80 million of its stock and paid cash dividends of approximately $25 million through the end of the third quarter [32] - The company is experiencing a shift in its business model, with a significant increase in subscription backlog from $300 million to about $350 million over the past 1.5 years [24] Q&A Session Summary Question: How did new business trends perform in February? - New business trends in February were up about 7% year-over-year, excluding RPO, with RPO achieving close to $45 million in new business [19][20] Question: Can you elaborate on the digital business revenue growth moderation? - The moderation in digital business growth is attributed to short-term and medium- to long-term drivers, including the ramp-up time for a relatively new sales force [39] Question: What is the expected incremental revenue from Salo in the fourth quarter? - The expected incremental revenue from Salo in the fourth quarter is about $30 million [41] Question: How should the company manage productivity thresholds versus maintaining capacity? - The company aims to maintain capacity in consulting and digital businesses, with a focus on managing productivity based on demand fluctuations [42] Question: What are the long-term EBITDA margin targets? - The company anticipates a margin shift of 200 to 300 basis points if the interim business reaches a $1 billion run rate, with a goal of achieving 12% to 15% EBITDA margins over time [44][58]