Korn Ferry (KFY) reports a 19% increase in adjusted diluted EPS despite a 2% drop in consolidated fee revenue.
GuruFocus Research
6 days ago
Summary
- Consolidated Fee Revenue: $675 million, down 2% year over year at constant currency.
- Adjusted EBITDA: $111 million, with a margin of 16.5%.
- Adjusted Diluted Earnings Per Share: $1.18, up 19% year over year.
- Consulting Fee Revenue: $168 million, up 1% year over year at constant currency.
- Digital Fee Revenue: $88 million, up 2% year over year at constant currency.
- Executive Search Fee Revenue: $209 million, up 3% year over year at constant currency.
- Professional Search and Interim Fee Revenue: $122 million, down 14% year over year.
- RPO Fee Revenue: $89 million, down 7% year over year at constant currency.
- Capital Deployment: $43 million returned to shareholders through dividends and share repurchases.
- Investable Cash Position: $553 million at the end of the first quarter.
Release Date: September 05, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Korn Ferry (KFY, Financial) achieved a 16.5% adjusted EBITDA margin, marking the fifth consecutive quarter of margin expansion.
- Consulting and interim bill rates grew year over year by 8% and 9%, respectively.
- Employee productivity, measured by fee revenue per headcount, is now 36% higher than pre-pandemic levels.
- Korn Ferry (KFY) returned $43 million to shareholders through dividends and share repurchases in the first quarter.
- Digital subscription and license fee revenue increased by 7% year over year, accounting for approximately 39% of digital fee revenue for the quarter.
Negative Points
- Consolidated fee revenue for the first quarter was down 2% year over year at constant currency.
- Professional interim services faced challenging market demand, with fee revenue down approximately 17% year over year.
- Permanent placement professional search revenue contracted 10% year over year.
- RPO fee revenue was down 7% year over year at constant currency.
- The economic environment remains uncertain, with new business growth trends described as choppy.
Q & A Highlights
Q: Given the current macro environment, do you still see the 16% to 18% EBITDA margin target as achievable, or is there potential for upside?
A: Gary Burnison, CEO: There could be upside, but we feel comfortable with the 16% to 18% range. Our decisions a year ago around our operating structure have proven beneficial, and we continue to reinvest in the business.
Q: The revenue guidance suggests a 1% sequential decline from Q1 to Q2. Can you provide more color on this?
A: Gary Burnison, CEO: Typically, we see a 4% uptick in Q2, but various global events have led us to expect a flat performance. Additionally, our consulting business is moving towards larger, more impactful engagements, which take longer to complete.
Q: Are you seeing any impact from the upcoming US elections on client behavior?
A: Gary Burnison, CEO: We haven't seen any impact in the US. In EMEA, new business has been up three of the last four months, which is a strong sign.
Q: What drove the notable improvement in North American executive search, and how sustainable is this growth?
A: Gary Burnison, CEO: The business is doing slightly more new business and revenue than before the pandemic. Productivity is high, and demographic trends like peak 65 provide sustained momentum.
Q: What would it take for stable trends in professional search and RPO to turn positive?
A: Gary Burnison, CEO: The macro environment is challenging, but we've pivoted towards more profitable engagements and reduced the number of consultants. We're also focusing on marquee and regional accounts to drive deeper impact.
Q: Can you elaborate on the hiring of additional fee earners and your posture for the balance of the year?
A: Gary Burnison, CEO: We plan to grow the net number of consultants across the platform, focusing on professional search, interim, consulting, and digital. Bob Rozek, CFO: The 50 hires this quarter were concentrated in executive search and consulting.
Q: What does the pivot to more profitable engagements in interim and pro search mean?
A: Gary Burnison, CEO: We've focused more on the industrial sector and are making investments outside the US, particularly in EMEA. We're also targeting marquee and regional accounts to drive deeper impact.
Q: Could you provide more context on the large engagements over $2.5 million?
A: Gary Burnison, CEO: These engagements have tripled, even sequentially. Bob Rozek, CFO: The backlog in consulting was about $150 million at the end of Q1, similar to Q4.
Q: How has the progress in margin strength been received internally, especially in newer areas like interim and professional services?
A: Gary Burnison, CEO: The decisions made over a year ago were hard but necessary. Colleagues recognize the challenging environment and understand the need for these decisions.
Q: Can you provide more color on confirmed orders by month, especially given the signs of labor market softening?
A: Gary Burnison, CEO: The last four months have been consistent with what you've seen. It's too early to call September.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
