8-K: Korn Ferry Reports Mixed Q3 Results: Consulting and Digital Growth Offset by Search Declines

Korn Ferry's third quarter results show a 2% year-over-year decrease in fee revenue, with growth in Consulting and Digital segments partially offsetting declines in Executive Search and RPO.

Summary

• Korn Ferry announced its third quarter fiscal year 2024 results, with fee revenue of $668.7 million, a 2% decrease year-over-year.
• Net income attributable to Korn Ferry was $59.1 million, with diluted earnings per share at $1.13.
• Adjusted EBITDA was $101.7 million, with a margin of 15.2%, a 110bps increase compared to the year-ago quarter.
• Consulting fee revenue grew by 3% year-over-year, with a 12% increase in average bill rate to $438 per hour.
• Digital fee revenue increased by 6% year-over-year, with an 11% increase in Subscription & License fee revenue, reaching approximately $33.0 million.
• The company repurchased 382,500 shares of stock for $21.0 million during the quarter.
• A quarterly dividend of $0.33 per share was declared on March 5, 2024, payable on April 15, 2024.

Sentiment

Score: 6

Explanation: The sentiment is moderately positive due to the growth in Consulting and Digital, but tempered by the overall revenue decline and challenges in Executive Search and RPO. The company is showing resilience but faces headwinds.

Positives

• Consulting and Digital segments showed strong growth, with fee revenue increases of 3% and 6% respectively.
• The average bill rate for Consulting increased by 12% to $438 per hour.
• Digital subscription and license fee revenue increased by 11%.
• Operating margin increased significantly by 570bps year-over-year.
• Adjusted EBITDA margin increased by 110bps year-over-year.
• The company's cost reduction actions from the previous quarter positively impacted profitability.
• The company declared a dividend of $0.33 per share.

Negatives

• Overall fee revenue decreased by 2% year-over-year.
• Executive Search fee revenue decreased by 6% year-over-year.
• RPO fee revenue decreased by 22% year-over-year.
• Permanent placement fee revenue within Professional Search & Interim decreased.
• The decrease in fee revenue was primarily due to a decline in demand driven by an uncertain global economic environment.
• The company experienced higher cost of services expense associated with acquired Interim businesses.

Risks

• The company faces challenges due to the uncertain and challenging global economic environment.
• There is a risk of continued decline in demand for permanent placement and RPO services.
• The company's performance is subject to global and local political and economic developments.
• The company is exposed to risks related to competition, geopolitical tensions, and shifts in global trade patterns.
• There are risks associated with attracting and retaining qualified consultants.
• The company faces potential legal liability and regulatory developments.
• The company is exposed to cyber security vulnerabilities and data privacy risks.

Future Outlook

Korn Ferry expects Q4 FY24 fee revenue to be between $675 million and $695 million, and diluted earnings per share to range from $1.06 to $1.14. Adjusted diluted earnings per share is expected to be between $1.09 and $1.17.

Management Comments

• Gary D. Burnison, CEO, stated he was pleased with the third quarter results, noting that non-search offerings provided a buffer against the cyclically sensitive recruiting offerings.
• Burnison highlighted that Consulting and Digital fee revenue, combined with Interim fee revenue, now generate 50% of the company's top line.
• Burnison expressed pride in the organization and stated that the results demonstrate the resiliency and potential for Korn Ferry.

Industry Context

The results reflect a broader trend in the consulting and talent acquisition industry, where demand for permanent placement services is declining due to economic uncertainty, while demand for consulting and digital solutions remains resilient. The company's diversification into non-search offerings is proving beneficial in this environment.

Comparison to Industry Standards

• Korn Ferry's performance is mixed compared to industry peers. While the consulting and digital segments show growth similar to other firms focusing on these areas, the decline in executive search and RPO is more pronounced than some competitors.
• Companies like Accenture and Deloitte have also seen growth in their consulting and digital practices, but their overall revenue may be less impacted by fluctuations in the search market due to their broader service offerings.
• The 12% increase in consulting bill rate is a positive sign, indicating strong demand for their expertise, and is comparable to other high-end consulting firms.
• The decline in RPO revenue is a concern, as other firms in the talent acquisition space are also experiencing similar challenges due to economic uncertainty and 'labor hoarding' by clients.
• The company's adjusted EBITDA margin of 15.2% is a positive result, indicating effective cost management, and is in line with industry benchmarks for consulting firms.

Stakeholder Impact

• Shareholders will receive a dividend of $0.33 per share.
• Employees may be impacted by cost reduction actions and restructuring.
• Customers may experience changes in service offerings due to the company's strategic shifts.
• Suppliers may be affected by changes in the company's spending patterns.
• Creditors will be interested in the company's financial stability and ability to meet its obligations.

Next Steps

• The company will hold an earnings conference call on March 6, 2024, at 12:00 PM (EST).
• The company will continue to monitor global economic conditions and adjust its strategies accordingly.
• The company will focus on growing its Consulting and Digital segments to offset declines in other areas.

Key Dates

Keywords

Korn Ferry, Consulting, Digital, Executive Search, RPO, Financial Results, Fee Revenue, EBITDA, Earnings Per Share, Dividend, Talent Acquisition, Organizational Consulting