Korn Ferry Announces Second Quarter Fiscal 2024 Results of Operations

Highlights

• Korn Ferry reports Q2 FY'24 fee revenue of $704.0 million, a decrease of 3% (5% at constant currency) from Q2 FY'23.
• Net loss attributable to Korn Ferry was $1.7 million in Q2FY'24, which includes a $52.8 million charge, net of tax, primarily relating to restructuring actions taken to realign our workforce due to the current challenging macroeconomic business environment, while diluted loss per share and adjusted diluted earnings per share were $0.04 and $0.97 in Q2 FY'24, respectively.
• Operating income was $22.8 million (operating margin of 3.2%) and Adjusted EBITDA was $98.5 million (Adjusted EBITDA margin of 14.0%), in Q2 FY'24.
• Continued fee revenue resilience in both Consulting and Digital, with each business reporting year-over-year growth of almost 3% in Q2 FY'24.
• Strong new business wins in RPO totaling $141 million with $88 million in renewals and $53 million in new logos.
• On December 5, 2023, the Company increased its regular quarterly cash dividend by 83% to $0.33 per share, which is payable on January 12, 2024 to stockholders of record on December 21, 2023.

LOS ANGELES--(BUSINESS WIRE)-- Korn Ferry (NYSE: KFY), a global organizational consulting firm, today announced second quarter fee revenue of $704.0 million. In addition, second quarter diluted loss per share was $0.04 and adjusted diluted earnings per share was $0.97. Diluted earnings per share includes a $52.8 million, or $1.01 per share, net of tax charge, primarily relating to restructuring actions taken to realign our workforce due to the current challenging macroeconomic business environment that is excluded from adjusted earnings per share.

“During the fiscal second quarter we generated $704 million in fee revenue, down 3% year-over-year. Despite a persistent, uneven economic environment, earnings and profitability held steady sequentially as we delivered $99 million of Adjusted EBITDA, at a 14% margin,” said Gary D. Burnison, CEO, Korn Ferry.

“I’m very proud of our organization and how we continue to develop increasingly relevant solutions in a rapidly changing world. In particular, our Consulting and Digital businesses now generate almost 40% of our top line, with Digital achieving all-time record revenue at constant currency during the quarter. Throughout history, change is a catalyst for opportunity. It’s times like these when great companies make their best moves – and Korn Ferry is a great company.”

Selected Financial Results

(dollars in millions, except per share amounts) ^(a)

The Company reported fee revenue in Q2 FY'24 of $704.0 million, a year-over-year decrease of 3% (down 5% on a constant currency basis). Fee revenue decreased primarily due to decreases in our permanent placement talent acquisition offerings, which includes Executive Search, Professional Search Permanent Placement and RPO, due to a decline in demand driven by global economic and other factors. This was partially offset by increases in the Interim portion of Professional Search & Interim, resulting from the acquisition of Salo (“the acquisition”) which was effective February 1, 2023, and increases in fee revenue in Consulting and Digital.

Operating margin was 3.2% in Q2 FY'24, compared to 16.4% in the year-ago quarter. Adjusted EBITDA margin was 14.0% in Q2 FY'24, compared to 18.0% in the year-ago quarter. Net loss attributable to Korn Ferry was $1.7 million in Q2 FY'24, compared to net income attributable to Korn Ferry of $73.5 million in Q2 FY'23 and Adjusted EBITDA was $98.5 million in Q2 FY'24 compared to $131.1 million in Q2 FY'23.

Operating income decreased primarily due to 1) restructuring charges, net recorded in Q2 FY'24 in order to align our workforce to eliminate excess capacity resulting from the challenging macroeconomic business environment, 2) the decrease in fee revenue discussed above, and 3) higher cost of services expense associated with the recently acquired Interim businesses, partially offset by a decrease in compensation and benefits expense driven by reduced headcount and other cost control measures. Net income attributable to Korn Ferry decreased due to the same factors discussed above, partially offset by lower income tax provision.

Adjusted EBITDA decreased due to the same factors discussed above, with the exception of restructuring charges.

Results by Line of Business

Selected Consulting Data

(dollars in millions) ^(a)

Fee revenue was $177.8 million in Q2 FY'24 compared to $173.1 million in Q2 FY'23, an increase of $4.7 million or 3% (up 1% on a constant currency basis). The increase in Consulting fee revenue was driven by growth in our organizational strategy and assessment & succession solutions.

Adjusted EBITDA was $28.9 million in Q2 FY'24 with an Adjusted EBITDA margin of 16.3% compared to Adjusted EBITDA of $31.1 million with an Adjusted EBITDA margin of 18.0%, in the year-ago quarter. This decrease in Adjusted EBITDA resulted primarily from increases in compensation and benefits expense and cost of services, partially offset by an increase in Consulting fee revenue.

Selected Digital Data

(dollars in millions) ^(a)

Fee revenue was $97.1 million in Q2 FY'24 compared to $94.3 million in Q2 FY'23, an increase of $2.8 million or 3% (up 1% on a constant currency basis). The increase was driven by increases in total rewards, organizational strategy and sales effectiveness offerings.

Adjusted EBITDA was $29.0 million in Q2 FY'24 with an Adjusted EBITDA margin of 29.9% compared to $27.5 million and 29.2%, respectively, in the year-ago quarter.

Selected Executive Search Data ^(a)

(dollars in millions) ^(b)

Fee revenue was $203.0 million and $218.4 million in Q2 FY'24 and Q2 FY'23, respectively, a year-over-year decrease of $15.4 million or 7% (down 9% 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 economic environment.

Adjusted EBITDA was $39.7 million in Q2 FY'24 with an Adjusted EBITDA margin of 19.6% compared to Adjusted EBITDA of $54.5 million and an Adjusted EBITDA margin of 25.0%, respectively, in the year-ago quarter. The decrease in Adjusted EBITDA was primarily due to the decrease in fee revenue discussed above.

Selected Professional Search & Interim Data

(dollars in millions) ^(a)

Fee revenue was $138.4 million in Q2 FY'24, an increase of $3.7 million or 3% (up 2% on a constant currency basis) compared to the year-ago quarter. 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 $25.6 million in Q2 FY'24 with an Adjusted EBITDA margin of 18.5% compared to $32.5 million and 24.1%, respectively, in the year-ago quarter. The decrease in Adjusted EBITDA and Adjusted EBITDA margin was primarily due to a change in the revenue mix, with increases in fee revenue from the acquisition, partially offset by the decreases in permanent placement fee revenue.

Selected Recruitment Process Outsourcing ("RPO") Data

(dollars in millions) ^(a)

Fee revenue was $87.7 million in Q2 FY'24, a decrease of $19.6 million or 18% (down 20% on a constant currency basis) compared to the year-ago quarter. RPO fee revenue decreased due to reduced demand for the number of placements being requested by existing clients as a result of the challenging economic environment.

Adjusted EBITDA was $8.9 million in Q2 FY'24 with an Adjusted EBITDA margin of 10.1% compared to $16.0 million and 14.9%, respectively, in the year-ago quarter. The decrease in Adjusted EBITDA was primarily due to the decline in demand and fee revenue driven by global economic factors, partially offset by a decrease in compensation and benefit expenses due in large part to a decrease in the average headcount compared to the year-ago quarter.

Outlook

Assuming no new major pandemic related lockdowns or further changes in worldwide geopolitical conditions, economic conditions, financial markets or foreign exchange rates, on a consolidated basis:

• Q3 FY’24 fee revenue is expected to be in the range of $645 million and $665 million; and
• Q3 FY’24 diluted earnings per share is expected to range between to $0.87 to $0.95.

On a consolidated adjusted basis:

• Q3 FY’24 adjusted diluted earnings per share is expected to be in the range from $0.96 to $1.02.

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 this 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;
• 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;
• 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, 3) impairment of right of use assets due to the decision to terminate and sublease some of our offices and 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. 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

CONSOLIDATED STATEMENTS OF OPERATIONS

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FINANCIAL SUMMARY BY REPORTING SEGMENT

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CONSOLIDATED BALANCE SHEETS

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RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES

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RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES - CONTINUED

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