Korn Ferry Announces Third Quarter Fiscal 2024 Results of Operations
Korn Ferry (KFY) reports Q3 FY'24 fee revenue of $668.7 million, a 2% year-over-year decrease. Net income was $59.1 million, with diluted earnings per share at $1.13. Operating income and Adjusted EBITDA margins increased, while Consulting and Digital segments showed growth. The Company repurchased shares and declared a dividend.
Positive
Fee revenue decreased by 2% year-over-year to $668.7 million in Q3 FY'24
Net income attributable to Korn Ferry was $59.1 million in Q3 FY'24
Operating income was $49.9 million with an operating margin of 7.5%
Adjusted EBITDA was $101.7 million with an Adjusted EBITDA margin of 15.2%
Consulting fee revenue grew 3% year-over-year with a 12% increase in average bill rate
Digital fee revenue grew 6% year-over-year with an 11% increase in Subscription & License fee revenue
The Company repurchased 382,500 shares of stock during the quarter for $21.0 million
Declared a quarterly dividend of $0.33 per share on March 5, 2024
Negative
Fee revenue decrease due to declines in permanent placement talent acquisition offerings
Decrease in demand driven by uncertain global economic environment impacted fee revenue
Negative impact on fee revenue from reduced executive search activity
Adjusted EBITDA margin declined slightly due to a change in mix of fee revenue
The reported decline in Korn Ferry's year-over-year fee revenue suggests a slight contraction in the company's core business activities, particularly in permanent placement talent acquisition offerings. This contraction appears to be influenced by the broader economic environment, which is a crucial consideration for stakeholders. However, the increase in operating margin and Adjusted EBITDA margin indicates improved operational efficiency, likely a result of cost reduction measures implemented in previous quarters. The share repurchase and dividend declaration reflect a commitment to returning value to shareholders, which could be seen as a positive signal regarding the company's cash flow and financial stability.
From the perspective of portfolio management, the mixed results—revenue decrease alongside margin improvements—may lead to varied interpretations. Investors might focus on the company's resilience in its Consulting and Digital segments, which could suggest a strategic pivot towards more stable revenue streams. The company's outlook for Q4 FY'24 also provides a window into management's expectations for the near future, which is essential for forecasting and valuation exercises.
Analysis of Korn Ferry's business segments reveals a strategic shift towards Consulting and Digital services, which now account for 50% of the top line. The reported growth in these areas, especially the 12% and 11% increases in Consulting bill rate and Digital Subscription & License fee revenue respectively, suggests a successful differentiation strategy. This shift could be a response to market demand for digital transformation and organizational strategy services, which are increasingly relevant in a volatile economic climate.
Moreover, the acquisition of Salo and its impact on Professional Search & Interim fee revenue highlights Korn Ferry's expansion efforts and diversification of its service offerings. The slight decrease in Adjusted EBITDA margin in this segment, however, may indicate integration challenges or lower profitability of the acquired business, which are factors that stakeholders should monitor closely.
The reported decrease in demand for Korn Ferry's permanent placement talent acquisition offerings can be viewed in the context of the current global economic environment, characterized by uncertainty and challenges. This trend may reflect broader labor market dynamics, such as reduced hiring or a shift towards more flexible employment arrangements. The resilience of Korn Ferry's Consulting and Digital segments, however, suggests that companies continue to invest in organizational strategy and digital solutions, potentially as a means to navigate economic headwinds.
Additionally, the increase in the Adjusted EBITDA margin, despite a revenue decrease, suggests that Korn Ferry has effectively managed its cost structure in a challenging market. The ability to maintain profitability in such conditions may indicate strong operational discipline and the potential to benefit from economic recovery when it occurs.
03/06/2024 - 06:45 AM
Highlights
Korn Ferry reports Q3 FY'24 fee revenue of $668.7 million , a year-over-year decrease of 2% at both actual and constant currency.
Net income attributable to Korn Ferry was $59.1 million , while diluted and adjusted diluted earnings per share were $1.13 and $1.07 in Q3 FY'24, respectively.
Operating income was $49.9 million with an operating margin of 7.5% , a 570bps increase compared to year-ago quarter, and Adjusted EBITDA was $101.7 million with an Adjusted EBITDA margin of 15.2% , a 110bps increase compared to year-ago quarter.
Consulting and Digital continued to show resilient business operations:
Consulting fee revenue grew 3% year-over-year with a 12% increase in average bill rate to $438 per hour.
Digital fee revenue grew 6% year-over-year with an 11% increase in Subscription & License fee revenue which approximated $33.0 million in the quarter.
The Company repurchased 382,500 shares of stock during the quarter for $21.0 million .
Declared a quarterly dividend of $0.33 per share on March 5, 2024, which is payable on April 15, 2024 to stockholders of record on March 27, 2024.
LOS ANGELES --(BUSINESS WIRE)--
Korn Ferry (NYSE: KFY), a global organizational consulting firm, today announced third quarter fee revenue of $668.7 million . In addition, third quarter diluted earnings per share was $1.13 and adjusted diluted earnings per share was $1.07 .
“I am pleased with our third quarter results, as we generated $669 million in fee revenue, down 2% year-over-year, with our non-search offerings providing a substantial buffer against the more cyclically sensitive recruiting offerings. Earnings and profitability increased year-over-year and sequentially as we delivered $102 million of Adjusted EBITDA, at a 15.2% margin,” said Gary D. Burnison, CEO, Korn Ferry.
“Fee revenue from Consulting and Digital (up 3% and 6% over the prior year, respectively), when combined with our Interim fee revenue, now generate 50% of our top line. Our Consulting bill rate increased 12% and our Digital subscription and license fee revenue increased 11% ,” Burnison added. “The strategy is clearly working – I am enormously proud of our organization and the results demonstrate the resiliency and potential for Korn Ferry.”
Selected Financial Results
(dollars in millions, except per share amounts) (a)
Third Quarter
Year to Date
FY’24
FY’23
FY’24
FY’23
Fee revenue
$
668.7
$
680.8
$
2,071.9
$
2,104.5
Total revenue
$
676.9
$
686.8
$
2,095.6
$
2,125.7
Operating income
$
49.9
$
12.5
$
129.5
$
243.8
Operating margin
7.5
%
1.8
%
6.2
%
11.6
%
Net income attributable to Korn Ferry
$
59.1
$
11.2
$
104.0
$
162.0
Basic earnings per share
$
1.14
$
0.21
$
2.00
$
3.07
Diluted earnings per share
$
1.13
$
0.21
$
1.99
$
3.05
Adjusted Results (b):
Third Quarter
Year to Date
FY’24
FY’23
FY’24
FY’23
Adjusted EBITDA
$
101.7
$
96.1
$
295.9
$
359.4
Adjusted EBITDA margin
15.2
%
14.1
%
14.3
%
17.1
%
Adjusted net income attributable to Korn Ferry (c)
$
55.8
$
53.0
$
158.3
$
209.1
Adjusted basic earnings per share (c)
$
1.07
$
1.01
$
3.04
$
3.96
Adjusted diluted earnings per share (c)
$
1.07
$
1.01
$
3.03
$
3.93
______________________
(a)
Numbers may not total due to rounding.
(b)
Adjusted EBITDA refers to earnings before interest, taxes, depreciation and amortization, further adjusted to exclude integration/acquisition costs, impairment of fixed assets, impairment of right of use assets and restructuring charges, net when applicable. Adjusted results on a consolidated basis are non-GAAP financial measures that adjust for the following, as applicable (see attached reconciliations):
Third Quarter
Year to Date
FY’24
FY’23
FY’24
FY’23
Impairment of fixed assets
$
—
$
4.4
$
1.6
$
4.4
Impairment of right of use assets
$
—
$
5.5
$
1.6
$
5.5
Integration/acquisition costs
$
3.9
$
2.5
$
13.1
$
9.5
Restructuring charges, net
$
4.6
$
41.2
$
68.6
$
41.2
(c)
Due to actions taken in connection with the worldwide minimum tax, the Company recorded a $9.7 million non-recurring tax benefit in the quarter ended January 31, 2024 that resulted in the release of a valuation allowance, which is included in the Company's US GAAP results but excluded from the Adjusted results.
The Company reported fee revenue in Q3 FY'24 of $668.7 million , a year-over-year decrease of 2% at both actual and constant currency. Fee revenue decreased primarily due to decreases in our permanent placement talent acquisition offerings. This decrease was due to a decline in demand driven by uncertain and challenging global economic environment. This was partially offset by the increases in Consulting and Digital fee revenue, as well as in the Interim portion of Professional Search & Interim, resulting from the acquisition of Salo ('the Acquisition") which was effective February 1, 2023.
Operating margin was 7.5% in Q3 FY'24, compared to 1.8% in the year-ago quarter, an increase of 570bps. Adjusted EBITDA margin was 15.2% in Q3 FY'24, compared to 14.1% in the year-ago quarter, an increase of 110bps. Net income attributable to Korn Ferry was $59.1 million in Q3 FY'24, compared to $11.2 million in Q3 FY'23 and Adjusted EBITDA was $101.7 million in Q3 FY'24 compared to $96.1 million in Q3 FY'23.
Operating income and margin increased compared to the year-ago quarter primarily due to 1) lower restructuring charges, net recorded in Q3 FY'24 compared to the year-ago quarter, 2) a decrease in compensation and benefits expense driven by the previous quarter's cost reduction actions, and 3) a decrease in charges for impairment of fixed and right of use assets in the year-ago quarter. This increase was partially offset by the decrease in fee revenue discussed above, and higher cost of services expense associated with the acquired Interim businesses. Net income attributable to Korn Ferry increased due to the same factors discussed above.
Adjusted EBITDA and margin increased due to the previous quarter's cost reduction actions, partially offset by the decrease in fee revenue discussed above and an increase in cost of services expense associated with the acquired businesses.
Results by Line of Business
Selected Consulting Data
(dollars in millions) (a)
Third Quarter
Year to Date
FY’24
FY’23
FY’24
FY’23
Fee revenue
$
166.9
$
162.2
$
512.8
$
501.7
Total revenue
$
169.9
$
164.4
$
521.7
$
509.0
Ending number of consultants and execution staff (b)
1,687
1,877
1,687
1,877
Hours worked in thousands (c)
381
414
1,239
1,340
Average bill rate (d)
$
438
$
392
$
414
$
374
Adjusted Results (e):
Third Quarter
Year to Date
FY’24
FY’23
FY’24
FY’23
Adjusted EBITDA
$
27.8
$
23.3
$
81.9
$
83.9
Adjusted EBITDA margin
16.7
%
14.4
%
16.0
%
16.7
%
______________________
(a)
Numbers may not total due to rounding.
(b)
Represents number of employees originating, delivering and executing consulting services.
(c)
The number of hours worked by consultant and execution staff during the period.
(d)
The amount of fee revenue divided by the number of hours worked by consultants and execution staff.
(e)
Adjusted results exclude the following:
Third Quarter
Year to Date
FY’24
FY’23
FY’24
FY’23
Impairment of fixed assets
$
—
$
2.8
$
—
$
2.8
Impairment of right of use assets
$
—
$
3.1
$
0.6
$
3.1
Restructuring charges, net
$
1.1
$
10.8
$
18.9
$
10.8
Fee revenue was $166.9 million in Q3 FY'24 compared to $162.2 million in Q3 FY'23, an increase of $4.7 million or 3% at both actual and constant currency. The increase in Consulting fee revenue was primarily driven by growth in our organizational strategy offering.
Adjusted EBITDA was $27.8 million in Q3 FY'24 compared to Adjusted EBITDA of $23.3 million , in the year-ago quarter. Adjusted EBITDA margin in the quarter increased year-over-year by 230bps from 14.4% last year to 16.7% this year. This increase in Adjusted EBITDA and Adjusted EBITDA margin resulted primarily from the increase in fee revenue discussed above, combined with the previous quarter's cost reduction actions, partially offset by an increase in cost of services expense.
Selected Digital Data
(dollars in millions) (a)
Third Quarter
Year to Date
FY’24
FY’23
FY’24
FY’23
Fee revenue
$
90.3
$
85.1
$
275.4
$
263.2
Total revenue
$
90.4
$
85.1
$
275.6
$
263.5
Ending number of consultants
275
365
275
365
Subscription & License fee revenue
$
32.8
$
29.6
$
97.7
$
88.1
Adjusted Results (b):
Third Quarter
Year to Date
FY’24
FY’23
FY’24
FY’23
Adjusted EBITDA
$
27.4
$
22.2
$
80.7
$
73.9
Adjusted EBITDA margin
30.3
%
26.0
%
29.3
%
28.1
%
______________________
(a)
Numbers may not total due to rounding.
(b)
Adjusted results exclude the following:
Third Quarter
Year to Date
FY’24
FY’23
FY’24
FY’23
Impairment of fixed assets
$
—
$
1.5
$
1.5
$
1.5
Impairment of right of use assets
$
—
$
1.7
$
—
$
1.7
Restructuring charges, net
$
0.6
$
2.9
$
9.5
$
2.9
Fee revenue was $90.3 million in Q3 FY'24 compared to $85.1 million in Q3 FY'23, an increase of $5.2 million or 6% at both actual and constant currency. The increase was primarily driven by increases in leadership and professional development and assessment & succession solutions.
Adjusted EBITDA was $27.4 million in Q3 FY'24 compared to $22.2 million in the year-ago quarter. Adjusted EBITDA margin in the quarter increased year-over-year by 430bps from 26.0% last year to 30.3% this year. The increase in Adjusted EBITDA and margin was mainly driven by the increase in fee revenue discussed above.
Selected Executive Search Data(a)
(dollars in millions) (b)
Third Quarter
Year to Date
FY’24
FY’23
FY’24
FY’23
Fee revenue
$
199.3
$
212.0
$
607.5
$
663.2
Total revenue
$
201.2
$
213.8
$
613.5
$
668.7
Ending number of consultants
562
616
562
616
Average number of consultants
574
619
582
601
Engagements billed
3,469
4,080
7,269
8,272
New engagements (c)
1,367
1,516
4,349
4,835
Adjusted Results (d):
Third Quarter
Year to Date
FY’24
FY’23
FY’24
FY’23
Adjusted EBITDA
$
43.4
$
46.4
$
125.6
$
163.2
Adjusted EBITDA margin
21.8
%
21.9
%
20.7
%
24.6
%
______________________
(a)
Executive Search is the sum of the individual Executive Search Reporting Segments described in our annual and quarterly reporting on Forms 10-K and 10-Q and is presented on a consolidated basis as it is consistent with the Company’s discussion of its Lines of Business, and financial metrics used by the Company’s investor base.
(b)
Numbers may not total due to rounding.
(c)
Represents new engagements opened in the respective period.
(d)
Executive Search Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures that adjust for the following:
Third Quarter
Year to Date
FY’24
FY’23
FY’24
FY’23
Impairment of fixed assets
$
—
$
—
$
0.1
$
—
Impairment of right of use assets
$
—
$
—
$
0.9
$
—
Restructuring charges, net
$
2.3
$
19.4
$
28.2
$
19.4
Fee revenue was $199.3 million and $212.0 million in Q3 FY'24 and Q3 FY'23, respectively, a year-over-year decrease of $12.7 million or 6% (down 7% on a constant currency basis). The decrease in fee revenue was primarily driven by a decline in executive search activity, resulting from the uncertain and challenging global economic environment.
Adjusted EBITDA was $43.4 million in Q3 FY'24 compared to Adjusted EBITDA of $46.4 million in the year-ago quarter. The decrease in Adjusted EBITDA was primarily due to the decrease in fee revenue discussed above, partially offset by the previous quarter's cost reduction actions. Despite the year-over-year decrease in fee revenue and Adjusted EBITDA, Adjusted EBITDA margin remained essentially flat year-over-year due to the previous quarter's cost reduction actions.
Selected Professional Search & Interim Data
(dollars in millions) (a)
Third Quarter
Year to Date
FY’24
FY’23
FY’24
FY’23
Fee revenue
$
130.9
$
118.0
$
411.5
$
351.7
Total revenue
$
131.8
$
118.6
$
414.3
$
354.4
Permanent Placement:
Fee revenue
$
52.4
$
65.0
$
167.2
$
218.5
Engagements billed
1,901
2,428
4,511
6,104
New engagements (b)
995
1,460
3,414
5,122
Ending number of consultants
344
448
344
448
Interim:
Fee revenue
$
78.5
$
53.0
$
244.3
$
133.1
Average bill rate (c)
$
129
$
107
$
126
$
110
Average weekly billable consultants (d)
1,283
1,061
1,352
878
Adjusted Results (e):
Third Quarter
Year to Date
FY’24
FY’23
FY’24
FY’23
Adjusted EBITDA
$
23.8
$
22.0
$
73.7
$
83.6
Adjusted EBITDA margin
18.2
%
18.6
%
17.9
%
23.8
%
_____________________
(a)
Numbers may not total due to rounding.
(b)
Represents new engagements opened in the respective period.
(c)
Fee revenue from interim divided by the number of hours worked by consultants.
(d)
The number of billable consultants based on a weekly average in the respective period.
(e)
Adjusted results exclude the following:
Third Quarter
Year to Date
FY’24
FY’23
FY’24
FY’23
Impairment of fixed assets
$
—
$
0.1
$
—
$
0.1
Impairment of right of use assets
$
—
$
0.6
$
—
$
0.6
Integration/acquisition costs
$
3.8
$
1.7
$
12.7
$
6.6
Restructuring charges, net
$
—
$
4.8
$
3.8
$
4.8
Fee revenue was $130.9 million in Q3 FY'24, an increase of $12.9 million or 11% at both actual and constant currency. The increase in fee revenue was mainly driven by additional fee revenue from the Acquisition, partially offset by a decrease in permanent placement fee revenue.
Adjusted EBITDA was $23.8 million in Q3 FY'24 compared to $22.0 million in the year-ago quarter. The increase in Adjusted EBITDA was primarily due to the increase in fee revenue discussed above and the previous quarter's cost reduction actions, partially offset by higher cost of services expense due to the Acquisition. Adjusted EBITDA margin declined slightly (40bps) year-over-year due to the factors noted above as well as a change in the mix of fee revenue which included more Interim fee revenue, which has lower profitability but is less cyclical as compared to professional search permanent placement which comprised a greater portion of fee revenue in the year-ago quarter.
Selected Recruitment Process Outsourcing ("RPO") Data
(dollars in millions) (a)
Third Quarter
Year to Date
FY’24
FY’23
FY’24
FY’23
Fee revenue
$
81.2
$
103.5
$
264.7
$
324.8
Total revenue
$
83.6
$
104.9
$
270.5
$
330.1
Remaining revenue under contract (b)
$
695.8
$
836.9
$
695.8
$
836.9
RPO new business (c)
$
122.1
$
44.0
$
311.2
$
482.7
Adjusted Results (d):
Third Quarter
Year to Date
FY’24
FY’23
FY’24
FY’23
Adjusted EBITDA
$
9.3
$
9.8
$
28.6
$
43.6
Adjusted EBITDA margin
11.4
%
9.5
%
10.8
%
13.4
%
______________________
(a)
Numbers may not total due to rounding.
(b)
Estimated fee revenue associated with signed contracts for which revenue has not yet been recognized.
(c)
Estimated total value of a contract at the point of execution of the contract.
(d)
Adjusted results exclude the following:
Third Quarter
Year to Date
FY’24
FY’23
FY’24
FY’23
Impairment of right of use assets
$
—
$
0.1
$
0.1
$
0.1
Restructuring charges, net
$
0.7
$
3.1
$
7.9
$
3.1
Fee revenue was $81.2 million in Q3 FY'24, a decrease of $22.3 million or 22% at both actual and constant currency basis. RPO fee revenue decreased due to reduced demand for the number of placements being requested by existing clients as a result of the challenging global economic environment as well as a continuation of clients "labor hoarding".
Adjusted EBITDA was $9.3 million in Q3 FY'24 compared to $9.8 million in the year-ago quarter. The decrease resulted from the decline in fee revenue which was partially offset by cost reductions taken in the previous quarter. Despite the year-over-year decrease in fee revenue and Adjusted EBITDA, Adjusted EBITDA margin increased 190bps year-over-year from 9.5% to 11.4% due to the previous quarter's cost reduction actions.
Outlook
Assuming worldwide geopolitical conditions, economic conditions, financial markets and foreign exchange rates remain steady, on a consolidated basis:
Q4 FY’24 fee revenue is expected to be in the range of $675 million and $695 million ; and
Q4 FY’24 diluted earnings per share is expected to range between $1.06 to $1.14 .
On a consolidated adjusted basis:
Q4 FY’24 adjusted diluted earnings per share is expected to be in the range from $1.09 to $1.17 .
Q4 FY’24
Earnings Per Share Outlook
Low
High
Consolidated diluted earnings per share
$
1.06
$
1.14
Integration/acquisition and restructuring charges
0.05
0.05
Tax Rate Impact
(0.02
)
(0.02
)
Consolidated adjusted diluted earnings per share(1)
$
1.09
$
1.17
______________________
(1)
Consolidated adjusted diluted earnings per share is a non-GAAP financial measure that excludes the items listed in the table.
Earnings Conference Call Webcast
The earnings conference call will be held today at 12:00 PM (EST) and hosted by CEO Gary Burnison, CFO Robert Rozek, SVP Business Development & Analytics Gregg Kvochak and VP Investor Relations Tiffany Louder. The conference call will be webcast and available online at ir.kornferry.com. We will also post to the investor relations section of our website earnings slides, which will accompany our webcast, and other important information, and encourage you to review the information that we make available on our website.
About Korn Ferry
Korn Ferry is a global organizational consulting firm. We help clients synchronize strategy and talent to drive superior performance. We work with organizations to design their structures, roles, and responsibilities. We help them hire the right people to bring their strategy to life. And we advise them on how to reward, develop, and motivate their people. Visit kornferry.com for more information.
Forward-Looking Statements
Statements in this press release and our conference call that relate to our outlook, projections, goals, strategies, future plans and expectations, including statements relating to expected demand for and relevance of our products and services, our workforce reduction plan, and other statements of future events or conditions are forward-looking statements that involve a number of risks and uncertainties. Words such as “believes”, “expects”, “anticipates”, “goals”, “estimates”, “guidance”, “may”, “should”, “could”, “will” or “likely”, and variations of such words and similar expressions are intended to identify such forward-looking statements. Readers are cautioned not to place undue reliance on such statements. Such statements are based on current expectations; actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties that are beyond the control of Korn Ferry. The potential risks and uncertainties include those relating to global and local political and or economic developments in or affecting countries where we have operations, such as inflation, interest rates, global slowdowns, or recessions, competition, geopolitical tensions, shifts in global trade patterns, changes in demand for our services as a result of automation, dependence on and costs of attracting and retaining qualified and experienced consultants, impact of inflationary pressures on our profitability, our ability to maintain relationships with customers and suppliers and retaining key employees, maintaining our brand name and professional reputation, potential legal liability and regulatory developments, portability of client relationships, consolidation of or within the industries we serve, changes and developments in government laws and regulations, evolving investor and customer expectations with regard to environmental, social and governance matters, currency fluctuations in our international operations, risks related to growth, alignment of our cost structure, including as a result of recent workforce, real estate, and other restructuring initiatives, restrictions imposed by off-limits agreements, reliance on information processing systems, cyber security vulnerabilities or events, changes to data security, data privacy, and data protection laws, dependence on third parties for the execution of critical functions, limited protection of our intellectual property ("IP"), our ability to enhance, develop and respond to new technology, including artificial intelligence, our ability to successfully recover from a disaster or other business continuity problems, employment liability risk, an impairment in the carrying value of goodwill and other intangible assets, treaties, or regulations on our business and our Company, deferred tax assets that we may not be able to use, our ability to develop new products and services, changes in our accounting estimates and assumptions, the utilization and billing rates of our consultants, seasonality, the expansion of social media platforms, the ability to effect acquisitions and integrate acquired businesses, including Salo, resulting organizational changes, our indebtedness, those relating to the ultimate magnitude and duration of any pandemic or outbreaks. For a detailed description of risks and uncertainties that could cause differences from our expectations, please refer to Korn Ferry’s periodic filings with the Securities and Exchange Commission. Korn Ferry disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
Use of Non-GAAP Financial Measures
This press release contains financial information calculated other than in accordance with U.S. Generally Accepted Accounting Principles (“GAAP”). In particular, it includes:
Adjusted net income attributable to Korn Ferry, adjusted to exclude integration/acquisition costs, impairment of fixed assets, impairment of right of use assets, and restructuring charges, net of income tax effect and to exclude a $9.7 million non-recurring tax benefit from actions taken in connection with the worldwide minimum tax that resulted in the release of a valuation allowance;
Adjusted basic and diluted earnings per share, adjusted to exclude integration/acquisition costs, impairment of fixed assets, impairment of right of use assets, and restructuring charges, net of income tax effect, and to exclude a $9.7 million non-recurring tax benefit from actions taken in connection with the worldwide minimum tax that resulted in the release of a valuation allowance;
Constant currency (calculated using a quarterly average) percentages that represent the percentage change that would have resulted had exchange rates in the prior period been the same as those in effect in the current period;
Consolidated and Executive Search Adjusted EBITDA, which is earnings before interest, taxes, depreciation and amortization, further adjusted to exclude integration/acquisition costs, impairment of fixed assets, impairment of right of use assets and restructuring charges, net when applicable, and Consolidated and Executive Search Adjusted EBITDA margin.
This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for financial information determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of the Company’s results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.
Management believes the presentation of non-GAAP financial measures in this press release provides meaningful supplemental information regarding Korn Ferry’s performance by excluding certain charges that may not be indicative of Korn Ferry’s ongoing operating results. These non-GAAP financial measures are performance measures and are not indicative of the liquidity of Korn Ferry. These charges, which are described in the footnotes in the attached reconciliations, represent 1) costs we incurred to acquire and integrate a portion of our Professional Search & Interim business, 2) impairment of fixed assets primarily due to software impairment charge in our Digital segment in FY'24 and impairment on leasehold improvements due to terminating and deciding to sublease some of our office leases in FY'23, 3) impairment of right of use assets due to the decision to terminate and sublease some of our offices, 4) Restructuring charges, net to align workforce to the challenging macroeconomic business environment arising from persistent inflationary pressures, rising interest rates and global economic and geopolitical uncertainty and 5) to exclude a $9.7 million non-recurring tax benefit from actions taken in connection with the worldwide minimum tax that resulted in the release of a valuation allowance. The use of non-GAAP financial measures facilitates comparisons to Korn Ferry’s historical performance. Korn Ferry includes non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn Ferry’s ongoing operations and financial and operational decision-making. Adjusted net income attributable to Korn Ferry, adjusted basic and diluted earnings per share and Consolidated and Executive Search Adjusted EBITDA, exclude certain charges that management does not consider on-going in nature and allows management and investors to make more meaningful period-to-period comparisons of the Company’s operating results. Management further believes that Consolidated and Executive Search Adjusted EBITDA is useful to investors because it is frequently used by investors and other interested parties to measure operating performance among companies with different capital structures, effective tax rates and tax attributes and capitalized asset values, all of which can vary substantially from company to company. In the case of constant currency percentages, management believes the presentation of such information provides useful supplemental information regarding Korn Ferry's performance as excluding the impact of exchange rate changes on Korn Ferry's financial performance allows investors to make more meaningful period-to-period comparisons of the Company’s operating results, to better identify operating trends that may otherwise be masked or distorted by exchange rate changes and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making.
KORN FERRY AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)
Three Months Ended
January 31,
Nine Months Ended
January 31,
2024
2023
2024
2023
(unaudited)
Fee revenue
$
668,679
$
680,782
$
2,071,871
$
2,104,534
Reimbursed out-of-pocket engagement expenses
8,194
6,063
23,711
21,178
Total revenue
676,873
686,845
2,095,582
2,125,712
Compensation and benefits
456,216
479,382
1,389,956
1,409,774
General and administrative expenses
62,661
72,785
194,315
202,328
Reimbursed expenses
8,194
6,063
23,711
21,178
Cost of services
75,814
57,903
231,516
157,152
Depreciation and amortization
19,509
17,037
58,075
50,359
Restructuring charges, net
4,612
41,162
68,558
41,162
Total operating expenses
627,006
674,332
1,966,131
1,881,953
Operating income
49,867
12,513
129,451
243,759
Other income, net
23,817
13,097
23,559
4,824
Interest expense, net
(4,946
)
(5,378
)
(16,282
)
(20,088
)
Income before provision for income taxes
68,738
20,232
136,728
228,495
Income tax provision
9,018
8,463
29,779
63,575
Net income
59,720
11,769
106,949
164,920
Net income attributable to noncontrolling interest
(649
)
(522
)
(2,984
)
(2,885
)
Net income attributable to Korn Ferry
$
59,071
$
11,247
$
103,965
$
162,035
Earnings per common share attributable to Korn Ferry:
Basic
$
1.14
$
0.21
$
2.00
$
3.07
Diluted
$
1.13
$
0.21
$
1.99
$
3.05
Weighted-average common shares outstanding:
Basic
51,126
51,278
51,129
51,639
Diluted
51,343
51,431
51,329
51,999
Cash dividends declared per share:
$
0.33
$
0.15
$
0.69
$
0.45
KORN FERRY AND SUBSIDIARIES
FINANCIAL SUMMARY BY REPORTING SEGMENT
(dollars in thousands)
(unaudited)
Three Months Ended January 31,
Nine Months Ended January 31,
2024
2023
% Change
2024
2023
% Change
Fee revenue:
Consulting
$
166,947
$
162,155
3.0
%
$
512,830
$
501,731
2.2
%
Digital
90,317
85,071
6.2
%
275,395
263,161
4.6
%
Executive Search:
North America
121,449
132,810
(8.6
%)
381,459
426,839
(10.6
%)
EMEA
48,999
48,960
0.1
%
138,873
140,661
(1.3
%)
Asia Pacific
21,324
22,621
(5.7
%)
65,167
72,410
(10.0
%)
Latin America
7,541
7,654
(1.5
%)
22,041
23,283
(5.3
%)
Total Executive Search (a)
199,313
212,045
(6.0
%)
607,540
663,193
(8.4
%)
Professional Search & Interim
130,890
117,980
10.9
%
411,453
351,670
17.0
%
RPO
81,212
103,531
(21.6
%)
264,653
324,779
(18.5
%)
Total fee revenue
668,679
680,782
(1.8
%)
2,071,871
2,104,534
(1.6
%)
Reimbursed out-of-pocket engagement expenses
8,194
6,063
35.1
%
23,711
21,178
12.0
%
Total revenue
$
676,873
$
686,845
(1.5
%)
$
2,095,582
$
2,125,712
(1.4
%)
(a)
Total Executive Search is the sum of the individual Executive Search Reporting Segments and is presented on a consolidated basis as it is consistent with the Company’s discussion of its Lines of Business, and financial metrics used by the Company’s investor base.
KORN FERRY AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)
January 31,
2024
April 30,
2023
(unaudited)
ASSETS
Cash and cash equivalents
$
736,797
$
844,024
Marketable securities
45,727
44,837
Receivables due from clients, net of allowance for doubtful accounts of $50,302 and $44,377 at January 31, 2024 and April 30, 2023, respectively
589,717
569,601
Income taxes and other receivables
63,020
67,512
Unearned compensation
60,071
63,476
Prepaid expenses and other assets
49,377
49,219
Total current assets
1,544,709
1,638,669
Marketable securities, non-current
204,326
179,040
Property and equipment, net
163,600
161,876
Operating lease right-of-use assets, net
167,441
142,690
Cash surrender value of company-owned life insurance policies, net of loans
216,450
197,998
Deferred income taxes
121,267
102,057
Goodwill
909,330
909,491
Intangible assets, net
95,151
114,426
Unearned compensation, non-current
111,286
103,607
Investments and other assets
22,765
24,590
Total assets
$
3,556,325
$
3,574,444
LIABILITIES AND STOCKHOLDERS' EQUITY
Accounts payable
$
46,368
$
53,386
Income taxes payable
23,599
19,969
Compensation and benefits payable
423,268
532,934
Operating lease liability, current
36,895
45,821
Other accrued liabilities
312,511
324,150
Total current liabilities
842,641
976,260
Deferred compensation and other retirement plans
427,464
396,534
Operating lease liability, non-current
151,159
119,220
Long-term debt
396,755
396,194
Deferred tax liabilities
5,709
5,352
Other liabilities
25,186
27,879
Total liabilities
1,848,914
1,921,439
Stockholders' equity
Common stock: $0.01 par value, 150,000 shares authorized, 77,511 and 76,693 shares issued and 52,345 and 52,269 shares outstanding at January 31, 2024 and April 30, 2023, respectively
428,413
429,754
Retained earnings
1,378,140
1,311,081
Accumulated other comprehensive loss, net
(102,930
)
(92,764
)
Total Korn Ferry stockholders' equity
1,703,623
1,648,071
Noncontrolling interest
3,788
4,934
Total stockholders' equity
1,707,411
1,653,005
Total liabilities and stockholders' equity
$
3,556,325
$
3,574,444
KORN FERRY AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(dollars in thousands)
(unaudited)
Three Months Ended
January 31,
Nine Months Ended
January 31,
2024
2023
2024
2023
Net income attributable to Korn Ferry
$
59,071
$
11,247
$
103,965
$
162,035
Net income attributable to non-controlling interest
649
522
2,984
2,885
Net income
59,720
11,769
106,949
164,920
Income tax provision
9,018
8,463
29,779
63,575
Income before provision for income taxes
68,738
20,232
136,728
228,495
Other income, net
(23,817
)
(13,097
)
(23,559
)
(4,824
)
Interest expense, net
4,946
5,378
16,282
20,088
Operating income
49,867
12,513
129,451
243,759
Depreciation and amortization
19,509
17,037
58,075
50,359
Other income, net
23,817
13,097
23,559
4,824
Integration/acquisition costs (1)
3,899
2,456
13,057
9,472
Impairment of fixed assets (2)
—
4,375
1,575
4,375
Impairment of right of use assets (3)
—
5,471
1,629
5,471
Restructuring charges, net (4)
4,612
41,162
68,558
41,162
Adjusted EBITDA
$
101,704
$
96,111
$
295,904
$
359,422
Operating margin
7.5
%
1.8
%
6.2
%
11.6
%
Depreciation and amortization
2.9
%
2.5
%
2.8
%
2.4
%
Other income, net
3.5
%
1.9
%
1.2
%
0.2
%
Integration/acquisition costs (1)
0.6
%
0.4
%
0.6
%
0.4
%
Impairment of fixed assets (2)
—
%
0.7
%
0.1
%
0.2
%
Impairment of right of use assets (3)
—
%
0.8
%
0.1
%
0.3
%
Restructuring charges, net (4)
0.7
%
6.0
%
3.3
%
2.0
%
Adjusted EBITDA margin
15.2
%
14.1
%
14.3
%
17.1
%
Net income attributable to Korn Ferry
$
59,071
$
11,247
$
103,965
$
162,035
Integration/acquisition costs (1)
3,899
2,456
13,057
9,472
Impairment of fixed assets (2)
—
4,375
1,575
4,375
Impairment of right of use assets (3)
—
5,471
1,629
5,471
Restructuring charges, net (4)
4,612
41,162
68,558
41,162
Tax effect on the adjusted items (5)
(2,092
)
(11,705
)
(20,763
)
(13,410
)
Tax adjustment (6)
(9,714
)
—
(9,714
)
—
Adjusted net income attributable to Korn Ferry
$
55,776
$
53,006
$
158,307
$
209,105
Explanation of Non-GAAP Adjustments
(1)
Costs associated with previous acquisitions, such as legal and professional fees, retention awards and the on-going integration expenses to combine the companies.
(2)
Costs associated with impairment of fixed assets primarily due to software impairment charge in our Digital segment in FY'24 and impairment on leasehold improvements due to terminating and deciding to sublease some of our office leases in FY'23.
(3)
Costs associated with impairment of right-of-use assets due to terminating and deciding to sublease some of our office leases.
(4)
Restructuring charges incurred to align our workforce to the challenging macroeconomic business environment arising from persistent inflationary pressures, rising interest rates and global economic geopolitical uncertainty.
(5)
Tax effect on integration/acquisition costs, impairment of fixed assets and right of use assets, and restructuring charges, net.
(6)
Due to actions taken in connection with the worldwide minimum tax, the Company recorded a $9.7 million non-recurring tax benefit in the quarter ended January 31, 2024 that resulted in the release of a valuation allowance, which is included in the Company's US GAAP results but excluded from the Adjusted results.
KORN FERRY AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES - CONTINUED
(unaudited)
Three Months Ended
January 31,
Nine Months Ended
January 31,
2024
2023
2024
2023
Basic earnings per common share
$
1.14
$
0.21
$
2.00
$
3.07
Integration/acquisition costs (1)
0.07
0.05
0.25
0.18
Impairment of fixed assets (2)
—
0.08
0.03
0.08
Impairment of right of use assets (3)
—
0.10
0.03
0.10
Restructuring charges, net (4)
0.09
0.80
1.32
0.79
Tax effect on the adjusted items (5)
(0.04
)
(0.23
)
(0.40
)
(0.26
)
Tax adjustment (6)
(0.19
)
—
(0.19
)
—
Adjusted basic earnings per share
$
1.07
$
1.01
$
3.04
$
3.96
Diluted earnings per common share
$
1.13
$
0.21
$
1.99
$
3.05
Integration/acquisition costs (1)
0.07
0.05
0.25
0.18
Impairment of fixed assets (2)
—
0.08
0.03
0.08
Impairment of right of use assets (3)
—
0.10
0.03
0.10
Restructuring charges, net (4)
0.09
0.80
1.32
0.78
Tax effect on the adjusted items (5)
(0.04
)
(0.23
)
(0.40
)
(0.26
)
Tax adjustment (6)
(0.18
)
—
(0.19
)
—
Adjusted diluted earnings per share
$
1.07
$
1.01
$
3.03
$
3.93
Explanation of Non-GAAP Adjustments
(1)
Costs associated with previous acquisitions, such as legal and professional fees, retention awards and the on-going integration expenses to combine the companies.
(2)
Costs associated with impairment of fixed assets primarily due to software impairment charge in our Digital segment in FY'24 and impairment on leasehold improvements due to terminating and deciding to sublease some of our office leases in FY'23.
(3)
Costs associated with impairment of right-of-use assets due to terminating and deciding to sublease some of our office leases.
(4)
Restructuring charges incurred to align our workforce to the challenging macroeconomic business environment arising from persistent inflationary pressures, rising interest rates and global economic geopolitical uncertainty.
(5)
Tax effect on integration/acquisition costs, impairment of fixed assets and right of use assets, and restructuring charges, net.
(6)
Due to actions taken in connection with the worldwide minimum tax, the Company recorded a $9.7 million non-recurring tax benefit in the quarter ended January 31, 2024 that resulted in the release of a valuation allowance, which is included in the Company's US GAAP results but excluded from the Adjusted results.
KORN FERRY AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES - CONTINUED
(unaudited)
Three Months Ended January 31,
2024
2023
Fee revenue
Total revenue
Adjusted EBITDA
Adjusted EBITDA margin
Fee revenue
Total revenue
Adjusted EBITDA
Adjusted EBITDA margin
(dollars in thousands)
Consulting
$
166,947
$
169,929
$
27,812
16.7
%
$
162,155
$
164,414
$
23,305
14.4
%
Digital
90,317
90,394
27,370
30.3
%
85,071
85,087
22,153
26.0
%
Executive Search:
North America
121,449
123,059
29,382
24.2
%
132,810
134,255
30,446
22.9
%
EMEA
48,999
49,171
7,799
15.9
%
48,960
49,195
7,981
16.3
%
Asia Pacific
21,324
21,384
4,500
21.1
%
22,621
22,694
5,538
24.5
%
Latin America
7,541
7,543
1,750
23.2
%
7,654
7,658
2,462
32.2
%
Total Executive Search
199,313
201,157
43,431
21.8
%
212,045
213,802
46,427
21.9
%
Professional Search & Interim
130,890
131,824
23,795
18.2
%
117,980
118,616
21,969
18.6
%
RPO
81,212
83,569
9,291
11.4
%
103,531
104,926
9,849
9.5
%
Corporate
—
—
(29,995
)
—
—
(27,592
)
Consolidated
$
668,679
$
676,873
$
101,704
15.2
%
$
680,782
$
686,845
$
96,111
14.1
%
Nine Months Ended January 31,
2024
2023
Fee revenue
Total revenue
Adjusted EBITDA
Adjusted EBITDA margin
Fee revenue
Total revenue
Adjusted EBITDA
Adjusted EBITDA margin
(dollars in thousands)
Consulting
$
512,830
$
521,675
$
81,920
16.0
%
$
501,731
$
508,994
$
83,944
16.7
%
Digital
275,395
275,563
80,678
29.3
%
263,161
263,479
73,855
28.1
%
Executive Search:
North America
381,459
386,405
87,574
23.0
%
426,839
431,286
112,164
26.3
%
EMEA
138,873
139,621
19,056
13.7
%
140,661
141,443
24,577
17.5
%
Asia Pacific
65,167
65,454
14,690
22.5
%
72,410
72,669
18,723
25.9
%
Latin America
22,041
22,050
4,296
19.5
%
23,283
23,289
7,686
33.0
%
Total Executive Search
607,540
613,530
125,616
20.7
%
663,193
668,687
163,150
24.6
%
Professional Search & Interim
411,453
414,348
73,746
17.9
%
351,670
354,430
83,587
23.8
%
RPO
264,653
270,466
28,617
10.8
%
324,779
330,122
43,562
13.4
%
Corporate
—
—
(94,673
)
—
—
(88,676
)
Consolidated
$
2,071,871
$
2,095,582
$
295,904
14.3
%
$
2,104,534
$
2,125,712
$
359,422
17.1
%
View source version on businesswire.com: https://www.businesswire.com/news/home/20240301952759/en/
Investor Relations: Tiffany Louder, (214) 310-8407
Media: Dan Gugler, (310) 226-2645
Source: Korn Ferry
What was Korn Ferry's fee revenue in Q3 FY'24?
Korn Ferry reported a fee revenue of $668.7 million in Q3 FY'24.
What was the net income attributable to Korn Ferry in Q3 FY'24?
The net income attributable to Korn Ferry was $59.1 million in Q3 FY'24.
What were the operating income and margin in Q3 FY'24?
Operating income was $49.9 million with an operating margin of 7.5% in Q3 FY'24.
Did Consulting and Digital segments show growth in Q3 FY'24?
Yes, Consulting fee revenue grew 3% year-over-year with a 12% increase in average bill rate, and Digital fee revenue grew 6% year-over-year with an 11% increase in Subscription & License fee revenue.
Did Korn Ferry repurchase any shares in Q3 FY'24?
Yes, the Company repurchased 382,500 shares of stock during the quarter for $21.0 million.
Was a dividend declared by Korn Ferry in Q3 FY'24?
Yes, Korn Ferry declared a quarterly dividend of $0.33 per share on March 5, 2024.