Korn Ferry (KFY) Q3 2025 Earnings Call Highlights: Strong Growth in New Business and Adjusted EBITDA

• Fee Revenue: $669 million, a 2% year-over-year increase at constant currency.
• Adjusted EBITDA: $114 million, a 13% year-over-year increase.
• Adjusted EBITDA Margin: 17.1%, up 190 basis points year-over-year.
• Adjusted EPS: $1.19, an 11% year-over-year increase.
• Total Company New Business: 13% year-over-year growth at constant currency.
• RPO New Business: $210 million, with 65% from new clients.
• Consulting New Business: $187 million, up 2% at constant currency.
• Consulting Adjusted EBITDA Margin: 17.7%, up 100 basis points year-over-year.
• Digital Fee Revenue: $91 million, up 3% at constant currency.
• Digital Adjusted EBITDA Margin: 31.3%, up 100 basis points year-over-year.
• Executive Search Fee Revenue: $205 million, up 4% at constant currency.
• Executive Search Adjusted EBITDA Margin: 25%, up 320 basis points year-over-year.
• Professional Search and Interim Adjusted EBITDA Margin: 21%, up 280 basis points year-over-year.
• RPO Fee Revenue: $85 million, up 6% in the third quarter.
• RPO Adjusted EBITDA Margin: 15%, up 360 basis points year-over-year.
• Fourth Quarter Fee Revenue Outlook: $680 million to $700 million.
• Fourth Quarter Adjusted EBITDA Margin Outlook: 16.8% to 17%.
• Fourth Quarter Adjusted EPS Outlook: $1.22 to $1.30.

• Warning! GuruFocus has detected 2 Warning Sign with KFY.

Release Date: March 11, 2025

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• Korn Ferry (NYSE:KFY) reported a 13% year-over-year increase in adjusted EBITDA, reaching $114 million.
• The company saw a 13% growth in new business, driven by strong performance in the Americas and EMEA regions.
• Korn Ferry (NYSE:KFY) increased its quarterly dividend by 30%, marking the sixth increase in the last five years.
• The company's executive search fee revenue grew by 4% at constant currency, with notable growth in North America.
• Korn Ferry (NYSE:KFY) successfully integrated recent acquisitions, achieving close to 1,100 cross referrals since 2021.

Negative Points

• The macroeconomic environment for consulting services has been challenging over the last eight quarters.
• Digital new business trends showed an 8% decline in constant currency, compared to 10% growth in the previous quarter.
• Professional search and interim new business and fee revenue remained flat year over year at constant currency.
• The company faces potential headwinds from geopolitical and economic uncertainties, impacting client hiring activities.
• Korn Ferry (NYSE:KFY) noted that smaller, discretionary consulting engagements have been put on hold due to cost-cutting measures by clients.

Q & A Highlights

Q: What are some areas where Korn Ferry has seen success in driving productivity, and how much room is there for further improvement without an uptick in market demand? A: Gary Burnison, CEO, highlighted that Korn Ferry has pivoted to more profitable work, increasing productivity significantly. The company has improved hourly rates in consulting and interim solutions, and productivity has increased by 35-40% compared to pre-pandemic levels. There is still room for improvement, even if the market remains stable. Additionally, CFO Robert Rozek mentioned that advancements in AI and GenAI could further enhance productivity.

Q: Can you explain the growth in RPO new business? Is it due to competitive takeaways, new clients, or increased hiring at existing clients? A: Gary Burnison explained that two-thirds of the new RPO business came from new logos, particularly in healthcare and life sciences. The growth is driven by a significant supply and demand imbalance in the labor market, which presents opportunities for Korn Ferry as companies need to reskill and retain their workforce.

Q: What caused the decline in digital new business trends from 10% growth last quarter to an 8% decline this quarter? A: Gary Burnison attributed the decline to a tough comparison with the previous year, where significant deals involved licensing the company's compensation database. Despite this, the digital business has remained stable in a challenging environment over the past eight quarters.

Q: How is Korn Ferry winning large engagements, and who are the competitors in these RFPs? A: Gary Burnison stated that Korn Ferry often competes against large strategy firms and the Big 4. The company focuses on high-impact engagements involving organizational design and leadership development, often driven by strategic transformations at client companies. These engagements are typically large-scale, touching thousands of employees.

Q: How does Korn Ferry view the impact of the Peak 65 demographic trend on its business? A: Gary Burnison emphasized that the retirement of baby boomers (Peak 65) will create a significant supply and demand imbalance in the labor market. This trend, along with lower birth rates, will necessitate companies to reskill and retain their workforce, presenting opportunities for Korn Ferry to provide solutions in workforce transformation and talent management.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.