Korn Ferry(KFY) - 2025 Q3 - Earnings Call Transcript

Financial Data and Key Metrics Changes - Fee revenue in Q3 was $669 million, a 2% year-over-year increase at constant currency [17] - Adjusted EBITDA increased 13% year-over-year to$ 114 million, with an adjusted EBITDA margin of 17.1%, up 190 basis points year-over-year [18] - Adjusted EPS increased 11% year-over-year to $1.19 [18] - Total company new business grew 13% year-over-year at constant currency, including$ 210 million of RPO new business, with 65% generated from new clients [18] Business Line Data and Key Metrics Changes - Consulting new business was $159 million, up 3% at constant currency, with larger engagements (over$ 500,000) representing 41% of new business [23] - Digital fee revenue was $91 million, up 3% at constant currency, with an adjusted EBITDA margin of 31.3%, up 100 basis points year-over-year [24] - Executive Search fee revenue grew 4% at constant currency to$ 205 million, with consultant productivity increasing 7% year-over-year [25] - RPO fee revenue grew 6% to $85 million, with an adjusted EBITDA margin of 15%, up 360 basis points year-over-year [26] Market Data and Key Metrics Changes - New business in EMEA showed particular strength, contributing to overall growth [19] - Fee revenue under contract accelerated to$ 752 million, with about 42% expected to be recognized in the next four quarters [27] Company Strategy and Development Direction - The company is focusing on larger addressable markets and aligning capabilities to drive sustainable, large-scale client engagements [11][12] - The diversification of services is evident, with marquee and diamond accounts representing 39% of total consolidated fee revenue [19] - The company is committed to becoming a leader in powering organizational performance for talent [14] Management's Comments on Operating Environment and Future Outlook - The macroeconomic environment for consulting services has been challenging, but the company's strategy is proving effective [9] - Management expects fee revenue in Q4 to range from $680 million to$ 700 million, with adjusted EBITDA margins around 16.8% to 17% [28] - There is a significant supply-demand imbalance in the labor market, presenting opportunities for the company [41] Other Important Information - The company is increasing its quarterly dividend by 30%, marking the sixth increase in the last five years [10][22] - The company has invested approximately $45 million in the Trilogy acquisition and repurchased over 1 million shares year-to-date [22] Q&A Session Summary Question: What areas have seen the most success in driving productivity? - Management noted that there is still room for productivity improvement, with rates per hour increasing significantly in both Consulting and Interim solutions [34][35] Question: What drove the growth in RPO new business? - The growth was attributed to a combination of new logos, marquee accounts, and sectors like healthcare and life sciences [40] Question: What caused the decline in digital new business? - The decline was due to tough comparisons from significant deals in the previous year, particularly in licensing the compensation database [46] Question: What are the expectations for hiring activity amid economic uncertainty? - Management does not expect hiring activity to pull back significantly, citing demographic trends and the need for companies to reskill their workforce [50][52] Question: Can you elaborate on recent large engagements? - The company is focusing on high-impact engagements that involve organizational design and leadership development, with a consulting backlog at an all-time high [62] Question: What would indicate a need for contingency planning? - Management indicated that a significant worsening of the cost of living crisis would be a key factor to monitor [87] Question: How should we think about margin expansion in '26? - The company targets margins of 16% to 18%, balancing earnings growth with investments in the business [107]