Korn Ferry (KFY) 2025 Q1 Earnings Call Summary

Optimistic Highlights

• Strong Start to Fiscal Year

Fee revenue and profitability met or exceeded the high end of guidance, with adjusted EBITDA margin expanding for the fifth consecutive quarter.

• Growth in Key Areas

Consulting and interim bill rates grew year-over-year by 8% and 9%, respectively. Executive search showed improved growth, and professional search and RPO trends were stable.

• Increased Capital Allocation

The company returned $43 million to shareholders through dividends and share repurchases, reflecting confidence in future growth.

• Digital and Consulting Strength

KF Digital fee revenue was up 2% year-over-year, with strong new business. Consulting fee revenue grew 1% year-over-year, with a 10% increase in organizational strategy.

• Positive Long-term Strategy

The company is optimistic about tapping into a $300 billion market opportunity, focusing on five strategic pillars: go-to-market approach, innovation and IP, brand, M&A, and talent development.

Pessimistic Highlights

• Revenue Decline in Some Areas

Consolidated fee revenue was down 2% year-over-year at constant currency. Professional interim services fee revenue was down approximately 17% year-over-year.

• Challenging Market Conditions

The economic environment remains uncertain, with contradictions and new challenges impacting business performance.

• Impact of China

The situation in China has significantly affected growth rates, contributing to the overall revenue decline.

• Sequential Revenue Decline Expected

Revenue guidance for the second quarter suggests a 1% sequential decline, which is atypical compared to historical trends.

• Reduced Consultant Numbers

The company reduced the number of consultants in professional search and interim businesses by 25% year-over-year to focus on more profitable engagements.

Company Outlook

• Cautious Optimism

The company expects fee revenue in the second quarter to range from $655 million to $685 million, with an adjusted EBITDA margin of 16.3% to 16.7%.

• Focus on Long-term Growth

Despite current challenges, the company is making measured investments to position for long-term growth, including hiring new consultants and investing in digital product upgrades.

• Continued Cost Management

The company remains focused on disciplined cost management and driving productivity to maintain profitability.

• Strategic Investments

Plans to continue exploring synergistic and brand-adjacent M&A opportunities and investing in talent development.

• Stable Pipeline

The pipeline for digital and RPO remains strong, with healthy new business trends expected to continue.

Q & A Highlights

• Q: Margins and Long-term Targets (Trevor Romeo, William Blair)

A: There could be upside to the 16% to 18% EBITDA margin target, but the company is comfortable with this range for now. Recent decisions around operating structure have been beneficial. (Gary Burnison)

• Q: Revenue Guidance and Sequential Decline (Trevor Romeo, William Blair)

A: The business environment has been challenging with various global events impacting performance. Consulting engagements are becoming larger and more impactful, which takes longer to work through. (Gary Burnison)

• Q: Impact of U.S. Election (Trevor Romeo, William Blair)

A: No impact from the upcoming U.S. election has been observed. (Gary Burnison)

• Q: North American Executive Search Growth (George Tong, Goldman Sachs)

A: The business is performing well, with productivity at high levels. Demographic trends and succession planning are driving growth. (Gary Burnison)

• Q: Professional Search and RPO Trends (George Tong, Goldman Sachs)

A: The company has pivoted towards more profitable engagements and reduced the number of consultants. Investments are being made in EMEA to grow these businesses. (Gary Burnison)

• Q: Hiring of Fee Earners (Tobey Sommer, Truist)

A: The company plans to continue growing the number of consultants, with a focus on professional search, interim, consulting, and digital. (Gary Burnison, Bob Rozek)

• Q: Pivot to More Profitable Engagements (Tobey Sommer, Truist)

A: The focus is on industry pivots, geographic expansion, and targeting marquee and regional clients. Investments are being made to grow outside the U.S., particularly in EMEA. (Gary Burnison, Bob Rozek)

• Q: Large Engagements (Tobey Sommer, Truist)

A: Large engagements over $2.5 million have tripled in a short period, with a significant increase in backlog. (Gary Burnison, Bob Rozek)

• Q: Internal Reception of Margin Progress (Alex Sinatra, Baird)

A: The decisions made a year ago were difficult but necessary. The company is now past that phase and focused on current challenges. (Gary Burnison)

• Q: Confirmed Orders by Month (Alex Sinatra, Baird)

A: The last four months have been consistent, but it's too early to call September. (Gary Burnison)