Release Date: June 13, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Korn Ferry (KFY, Financial) reported strong earnings and profitability in the fourth quarter, with an adjusted EBITDA margin of over 16%, marking the fourth consecutive quarter of profitability improvement.
- Fee revenue for the fourth quarter was $691 million, at the upper end of guidance, demonstrating strong performance in consulting and digital segments.
- The company achieved a 16.3% adjusted EBITDA margin, up nearly 300 basis points year over year, highlighting effective cost management and improved productivity.
- Korn Ferry (KFY) returned $107 million to shareholders through dividends and share repurchases in fiscal 2024, reflecting confidence in future earnings power.
- The company saw significant growth in marquee and regional accounts, which represent 37% of total fee revenue and grew 3% year over year, despite overall business being down 3%.
Negative Points
- Talent acquisition solutions, including executive search and professional search, saw a year-over-year decline in fee revenue, with executive search down 6% and professional search down 10%.
- Interim solutions experienced a significant decline, with fee revenue down 18% year over year, indicating challenges in this segment.
- Despite strong overall performance, the digital segment's fee revenue was flat year over year, suggesting limited growth in this area.
- The company faces a challenging economic environment, with cyclical moderation in the talent acquisition market impacting overall business performance.
- Korn Ferry (KFY) anticipates a sequential decline in consulting and digital growth for Q1 fiscal 2025, reflecting ongoing market uncertainties.
Q & A Highlights
Q: You talked about cyclical moderation in the talent acquisition market. Can you elaborate on trends that you're seeing in your cyclically sensitive businesses?
A: We have seen stabilization and some improvement in RPO and professional recruiting. Professional Search business is up sequentially, Executive Search is flat, and RPO has improved with new business being flat sequentially. We also saw a shift towards new logos in RPO, which materialized in the quarter. (Gary Burnison, CEO)
Q: You delivered over 16% EBITDA margins in the quarter, which outperformed your guidance. What drove this outperformance and how sustainable are these margins?
A: The sustainability of these margins depends on the economic environment. We are guiding to a 16% EBITDA margin for the next quarter. Our revenue is up 35%-40% since the pandemic, and our profitability, adjusted for mix change, is up 300 basis points. We continue to invest and return cash to shareholders, having doubled the dividend over the last year. (Gary Burnison, CEO)
Q: How should we think about margins when the revenue environment becomes more stable?
A: If there are economic tailwinds, we could see a couple of hundred basis points of margin improvement. We believe we can comfortably operate at 15.5%-16% EBITDA margins in the current environment. (Gary Burnison, CEO)
Q: How much better can Korn Ferry become in terms of cross-selling motion?
A: We are in the second inning of our cross-selling efforts. We have moved from small engagements to transformational consulting engagements, which provide more stability and leverage. We aim to increase cross-referral percentages and innovate our solution sets. (Gary Burnison, CEO)
Q: Do you think the interim business is stabilizing, and how are you maintaining margins despite revenue declines?
A: We have seen stabilization in technology interim and more recent declines in finance and accounting. We continue to invest in the interim business and maintain high average rates. Our integration playbook allows us to bring EBITDA margins up quickly by plugging acquired businesses into our systems and processes. (Gary Burnison, CEO; Robert Rozek, CFO)
Q: What is driving the continued momentum in new business for digital?
A: Digital business can be lumpy, but we are monetizing our intellectual property and pushing digital solutions to solve client problems. We are also working on a platform and creating an ecosystem of partners to enhance our offerings. (Gary Burnison, CEO; Robert Rozek, CFO)
Q: How are you using AI as a growth driver?
A: We are cautious about the ethical ramifications of AI. We are using AI in coaching and assessments and are focused on building a moat around our data. Our primary concerns are ethical issues and potential disintermediation. (Gary Burnison, CEO)
Q: What specific productivity initiatives have you implemented recently?
A: Productivity improvements come from technology and our go-to-market strategy. We have made significant strides in interim productivity and continue to leverage technology and consulting engagements for better scale and productivity. (Gary Burnison, CEO)
Q: Can you speak about the demand environment specific to Executive Search?
A: The demand environment for Executive Search is stable, with no significant changes expected in the near term. However, long-term demographic trends, such as the retirement of baby boomers, could create significant opportunities for Korn Ferry. (Gary Burnison, CEO)
Q: Are you seeing positive new business growth in Executive Search?
A: The environment remains challenging, but we are making strategic investments to accelerate growth. We are doing more high-impact assignments and believe that economic tailwinds could significantly improve Executive Search performance. (Gary Burnison, CEO)
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
