Executive Summary / Key Takeaways

• Korn Ferry has successfully navigated a challenging macroeconomic environment through strategic diversification, operational discipline, and investment in proprietary technology and IP, leading to six consecutive quarters of Adjusted EBITDA margin expansion.
• The firm's pivot towards larger, more impactful, and integrated client engagements, particularly in Consulting and Digital, is building a more durable and predictable revenue base, evidenced by a growing backlog and increasing cross-solution referrals.
• Proprietary assets like the Korn Ferry Talent Suite and extensive data repositories (including 10 billion data points and over 100 million assessments) provide a significant competitive moat, enabling data-driven insights and scalable, technology-enabled service delivery.
• Despite softness in some areas like Interim services, growth in Executive Search and stabilization in RPO, coupled with disciplined cost management and enhanced productivity, underscore the resilience of the diversified model.
• Management's outlook reflects cautious optimism, anticipating continued profitability and strategic investment, while acknowledging ongoing market uncertainties and positioning the firm to capitalize on long-term demographic shifts and the increasing demand for integrated talent solutions.

A Transformed Firm for a Changing World

Korn Ferry, a firm with a history spanning over five decades, has undergone a significant transformation, evolving from its roots primarily in executive search to become a comprehensive global consulting firm focused on powering organizational performance. This evolution, accelerated by strategic acquisitions and a deliberate pivot towards integrated solutions, positions the company at the intersection of strategy, operations, and talent – a critical nexus in today's complex business landscape. The firm's journey, marked by early expansion into consulting and digital offerings and more recently by bolstering its Professional Search and Interim capabilities through acquisitions like ICS, Salo, and Trilogy, reflects a strategic response to the increasing complexity of client needs and a recognition of a large, addressable market opportunity estimated by management to be $300 billion.

The current macroeconomic environment, characterized by persistent inflationary pressures, rising interest rates, geopolitical tensions, and what management has described as a "multi-quarter economic reset," has presented significant challenges. Companies globally are grappling with elusive growth and are intensely focused on cost optimization. This backdrop has led to a unique labor market dynamic with historically low employee turnover and anemic job growth in some regions, impacting demand for certain talent acquisition services. However, underlying demographic trends, notably the "Peak 65" phenomenon in the US where a significant number of executives are nearing retirement, coupled with lower birth rates, point to a looming supply-demand imbalance in labor. This structural shift, alongside the accelerating impact of technology like AI on the workforce, creates a compelling long-term opportunity for firms like Korn Ferry that can help organizations reimagine, reskill, and effectively manage their talent.

In this dynamic landscape, Korn Ferry operates within a highly competitive market. In traditional human resource consulting, it faces off against large advisory firms like McKinsey (MCK), Deloitte, Mercer (MMC), and Willis Towers Watson (WTW). In the digital space, competitors range from HR technology vendors like AON (AON), Eightfold, and SHL to enterprise platforms. Executive Search sees competition from global firms such as Heidrick & Struggles (HSII), Russell Reynolds Associates, and Spencer Stuart, as well as smaller boutiques and increasingly, in-house capabilities enhanced by technology. The Professional Search and Interim market includes global staffing giants like Robert Half (RHI) and ManpowerGroup (MAN), alongside regional specialists. RPO competes with firms like Allegis, Cielo, and Randstad (RAND). Beyond direct rivals, the rise of platforms like LinkedIn (MSFT) and Upwork (UPWK) presents indirect competition by offering alternative talent sourcing methods.

Korn Ferry differentiates itself by leveraging its extensive "Foundational Assets" – a vast repository of proprietary data, behavioral science, and intellectual property built over decades. This includes over 10 billion data points, more than 108 million assessments, 11,000 validated success profiles, and compensation data covering over 28 million professionals. This deep well of talent intelligence is embedded in its offerings, providing unique insights.

The Technological Edge: Powering Performance Through Data and AI

Central to Korn Ferry's strategy and competitive positioning is its investment in technology, particularly the Korn Ferry Talent Suite. This proprietary platform is designed to transform decades of science and data into real-time insights, enabling data-driven decision-making across the talent lifecycle. The Talent Suite integrates Korn Ferry's IP, data, and advanced analytics directly into client workflows, supporting scalable delivery through subscription and license-based models. Products within the suite, such as Architect, Assess, Pay, Recruit, and Sell, can be deployed independently or as part of broader engagements.

The strategic intent behind the Talent Suite is to move beyond traditional service delivery by productizing Korn Ferry's expertise and data. This allows clients to license the firm's knowledge base via subscription agreements, fostering deeper engagement and recurring revenue streams. While specific, comprehensive quantitative metrics on the platform's benefits compared to alternatives are not fully detailed, management highlights that it enables data-driven decisions at scale, enhances consultant efficiency, and improves client adoption. The ongoing integration of generative AI into the platform aims to further enhance its capabilities, driving scale, efficiency, and quality in service delivery and improving hiring precision.

Korn Ferry is actively working to integrate the Talent Suite seamlessly into major Human Capital Management (HCM) providers, with one significant integration targeted for completion around the third quarter of calendar year 2025. This initiative, along with exploring partnerships, is crucial for extending the platform's reach and embedding Korn Ferry's IP within clients' existing technological ecosystems. This technological differentiation, built on a foundation of unparalleled data and IP, provides Korn Ferry with a competitive moat, allowing it to offer unique, integrated solutions that rivals, particularly those with less developed digital capabilities like Heidrick & Struggles, may struggle to replicate. While competitors like Robert Half and ManpowerGroup have staffing technology, Korn Ferry's focus on integrating its deep talent science and IP across the entire talent lifecycle via the Talent Suite offers a distinct advantage in higher-value, strategic engagements.

Strategic Execution and Financial Resilience

Korn Ferry's strategic execution in the face of macroeconomic challenges has been notable, particularly in its ability to maintain and improve profitability. For fiscal year 2025, despite a slight 1% decrease in total fee revenue to $2.73 billion compared to fiscal 2024, the firm saw a significant 45% increase in Net Income Attributable to Korn Ferry, reaching $246.1 million. Adjusted EBITDA grew by 14% to $463.9 million, driving the Adjusted EBITDA margin up by 220 basis points to 17.0%. This marked the sixth consecutive quarter of Adjusted EBITDA margin improvement, a testament to operational discipline and strategic adjustments.

This profitability improvement was achieved through a combination of factors. Disciplined cost management, including a 7% reduction in average headcount in fiscal 2025 and adjustments to restructuring accruals, played a key role in reducing compensation and benefits expense. Furthermore, the firm's focus on driving productivity resulted in fee revenue per employee being 35% higher than pre-pandemic levels as of the second quarter of fiscal 2025. The pivot towards more profitable engagements, particularly within the Professional Search and Interim segments, also contributed, with average bill rates for Interim services increasing year-over-year.

Segment performance in fiscal 2025 reflected the mixed market environment and strategic shifts. Consulting fee revenue decreased by 5%, impacted by lower demand for certain offerings and the transition to larger, longer-duration engagements that take more time to convert from backlog to revenue. Digital fee revenue saw a slight 1% decrease, although subscription and license revenue grew by 5.1%, indicating progress in the shift towards recurring revenue models. Executive Search was a bright spot, growing 5% overall, led by a strong 6% increase in North America, benefiting from demographic trends and demand for senior talent. Professional Search Interim revenue decreased by 7%, reflecting challenging market demand, particularly in the broader interim market, although the firm's focus on higher-end engagements and integration of acquisitions like Trilogy are strategic positives for the long term. RPO revenue remained flat, stabilizing after a period of decline, with management noting green shoots in new business, particularly from new logos.

The firm's go-to-market strategy, centered on its 350 Marquee and Diamond accounts, continues to yield results, representing 39% of fiscal 2025 fee revenue. The increasing penetration of these key accounts with multiple solutions (nearly all use three or more) and a cross-solution referral rate of 25% underscore the power of the integrated model and provide a foundation for more durable revenue streams. The introduction of the "Estimated remaining fees under existing contracts" metric, totaling $1.7 billion as of Q4 FY25 (up 12% YoY), provides further visibility into future revenue, with over half expected within the next year.

Korn Ferry maintains a balanced approach to capital allocation. In fiscal 2025, it invested $62.4 million in capital expenditures (focused on technology), spent $44.4 million on the Trilogy acquisition, returned $88.9 million to shareholders through share repurchases, and paid $83.6 million in dividends. The quarterly dividend was increased multiple times, reaching $0.48 per share in March 2025, the sixth increase in five years, reflecting management's confidence in the firm's cash flow generation. With $1.01 billion in cash and cash equivalents and $645.6 million available under its Revolver as of April 30, 2025, the firm appears well-positioned to fund its operations, strategic investments, and shareholder returns while managing its debt obligations.

Outlook and Key Considerations

Looking ahead, management's guidance for the first quarter of fiscal year 2026 anticipates fee revenue between $675 million and $695 million and an Adjusted EBITDA margin of 16.8% to 17.2%. This outlook, while reflecting continued stability in a volatile environment, is grounded in the assumption of no further changes in worldwide geopolitical or economic conditions. Management acknowledges that external factors and holiday timing can introduce short-term choppiness, as seen in past quarterly guidance.

The investment thesis for Korn Ferry hinges on several key factors. The firm's strategic evolution and diversification have clearly enhanced its resilience and profitability in a difficult market. The continued investment in and leverage of its proprietary IP and the Talent Suite platform are crucial for driving future growth and maintaining a competitive edge, particularly as AI reshapes the labor market and talent management needs. The ability to capture the long-term opportunity presented by demographic shifts and the increasing demand for integrated talent and organizational solutions will be key to realizing the estimated $300 billion market potential.

However, investors should remain mindful of potential risks. The business remains sensitive to macroeconomic downturns, which could impact client spending on consulting and talent acquisition services. Competition across all segments is intense, and rivals may develop competing technologies or pricing strategies. The successful integration of acquired businesses and the realization of expected synergies are critical. Attracting and retaining qualified consultants and execution staff is an ongoing challenge. Furthermore, evolving government regulations, particularly concerning data privacy and the use of AI, could impose additional costs or restrictions. Cybersecurity vulnerabilities also pose a constant threat to the firm's operations and reputation.

In conclusion, Korn Ferry has demonstrated a strong ability to execute its strategic plan and improve profitability amidst a challenging global economic backdrop. The firm's diversified service portfolio, coupled with its deep IP and technological investments, provides a differentiated offering in the market. While short-term revenue trends may remain subject to macroeconomic volatility and the longer conversion cycles of larger engagements, the underlying strategic pivot, operational efficiency gains, and positioning to address long-term labor market dynamics suggest a compelling trajectory for sustained earnings growth. The firm's balanced capital allocation strategy further underscores management's confidence in its future prospects.