Executive Summary / Key Takeaways

• Korn Ferry ($KFY) is strategically transforming into a diversified global consulting firm, leveraging its extensive proprietary data, intellectual property (IP), and advanced technology, including the new Talent Suite and AI initiatives, to drive organizational performance.
• The company demonstrated resilient financial performance in Q1 FY26, with a 5% year-over-year fee revenue increase to $708.6 million and an 8% rise in Adjusted EBITDA to $120.4 million, even amidst a challenging "labor recession" and macroeconomic uncertainty.
• Key growth drivers include robust Executive Search performance (up 8% year-over-year), significant contributions from the Trilogy International acquisition in Professional Search Interim, and improving new business trends in RPO and Digital.
• Korn Ferry's balanced capital allocation strategy, marked by six dividend increases in five years and an expanded share repurchase program, underscores management's confidence in sustained earnings and cash flow generation.
• The long-term investment thesis is strengthened by demographic shifts ("Peak 65") and the increasing demand for integrated talent solutions, with the Talent Suite and AI poised to enhance competitive advantage and scalability, though full financial benefits from the Talent Suite are anticipated towards the end of calendar 2026.

A Strategic Evolution: Powering Performance in a Dynamic World

Korn Ferry, a global consulting firm founded in 1969, has evolved significantly from its origins as Korn/Ferry International, officially adopting its current name in January 2019. The company's core business is to "power performance" by helping organizations "unlock the potential in people and unleash transformation," synchronizing strategy, operations, and talent to accelerate growth and inspire change. This strategic pivot has transformed Korn Ferry into a comprehensive partner for talent and organizational performance, delivering a broad range of offerings across the talent lifecycle through deep expertise and scalable delivery models. The company's long-term growth trajectory is evident, with total fee revenue growing at a 10% compounded annual rate over the last decade and 9% over the past two decades, as of fiscal year 2025.

Korn Ferry's overarching strategy emphasizes diversification and integrated solutions, fostering a client-centric approach. This is exemplified by its Marquee & Diamond Accounts Program, where approximately 40% of its fee revenue is generated from these key relationships, and nearly all Marquee clients utilize at least three of Korn Ferry's five solution areas. This integrated model also drives significant internal synergy, with 25% of consolidated fee revenue generated from cross-solution referrals.

The broader industry landscape presents both challenges and opportunities. The global business environment remains highly uncertain, characterized by lingering economic challenges, cautious investment spending, unresolved tariff issues, and geopolitical tensions. Management has described the past two years as a "labor recession," noting that companies are "letting natural attrition take its course and they're not replacing those hires." This environment, coupled with a "cost of living crisis" where costs have escalated "50% over the last 5.5 to 6 years" in the Americas, has led companies to prioritize cost-cutting as growth becomes elusive. However, significant demographic shifts, particularly "Peak 65" in the U.S. where millions of executives are reaching retirement age, are creating a substantial supply-demand imbalance in the labor market. This imbalance, alongside the transformative potential of Artificial Intelligence (AI), necessitates that companies reimagine and reskill their workforce, presenting a tremendous opportunity for Korn Ferry. The overall HR & recruitment services market is forecasted to grow at a robust 15% compounded annual rate from 2024 to 2034.

Technological Edge: The Korn Ferry Talent Suite and AI Integration

A cornerstone of Korn Ferry's strategy and a significant competitive differentiator is its investment in proprietary technology and data assets. The company has amassed over 10 billion individual data points, 108 million assessments, and compensation data for 28 million people across 31,000 firms as of fiscal year 2025. This vast intellectual property (IP) forms the foundation of its offerings.

The company's core technological innovation is the Korn Ferry Talent Suite, a new HR integrated software platform launched in Q2 FY25 (ending October 31, 2024), with a commercial market launch planned for November 2025. This suite "brings together all of our talent management capabilities, our assessment data, development data, reward solutions, allowing our clients to license our decades of expertise, proprietary insights and data driven intelligence via subscription agreements to power their decisions." The Talent Suite is designed to enable consultants and clients "to more easily derive and prioritize insights across our multiple Talent products using client data, our own proprietary data and select third-party data to help them make better and more insightful talent decisions." A key goal is to offer clients a seamless, integrated experience, moving towards an annual subscription model for all solutions rather than per-item purchases. Korn Ferry is actively working to integrate the Talent Suite into major Human Capital Management (HCM) providers, with one such integration expected to be completed by Q3 calendar 2025. While the full financial benefits are expected to materialize towards the end of calendar 2026, management aims for digital subscription and license revenue to eventually represent "north of, say, 60%" of the Digital segment's total revenue.

Korn Ferry is also formally organized around AI and Generative AI (Gen AI), driving its usage both internally and externally. Internally, the company has centralized approximately 40 individuals to lead AI/Gen AI initiatives, rolling out licenses and evaluating impact. Externally, AI is being integrated into service delivery, including consulting engagements to assess clients' "AI readiness" and in assessment and coaching programs. Management's mantra is "human plus AI," viewing AI primarily as an efficiency tool. This is expected to "have an impact on our overall head count" but also "free up capacity to provide and deliver services to our clients more -- on a more rapid basis." For investors, these technological advancements represent a significant competitive moat, enhancing scalability, driving future growth, and enabling Korn Ferry to deliver higher-value, data-driven solutions that are increasingly critical for organizational success.

Operational Excellence and Strategic Pillars

Korn Ferry's strategic pillars are clearly reflected in its operational achievements. The Marquee & Diamond Accounts Program continues to be a cornerstone, contributing nearly 40% of consolidated fee revenue and demonstrating over 7% year-over-year fee revenue growth in Q1 FY26. The ability to generate 25% of consolidated fee revenue through cross-solution referrals highlights the strong synergies across its diverse offerings.

The company's acquisition strategy is highly targeted, focusing on expanding into large addressable markets that are synergistic with the Korn Ferry brand. The acquisition of Trilogy International, effective November 1, 2024, substantially expanded Korn Ferry's interim professional offerings in EMEA and North America. This move aligns with management's view of a "mega trend" towards fractional workers. Korn Ferry is deliberately focusing on the "higher end of the Interim business" and avoids contingent placement models, which management believes "does not work for us for the most part" and "doesn't fit well with the brand in the Marquee and Diamond account strategy." This strategic focus has yielded over 1,200 cross-referral engagements since 2021 within the interim business alone.

Operational excellence is also evident in productivity improvements. The company's overall productivity, measured by fee revenue per employee, is 35% higher than pre-pandemic levels. This has been achieved through disciplined cost management and a conscious pivot towards more profitable work. Average bill rates in Consulting and Interim both grew year-over-year in Q1 FY26, by 9% and 4% respectively, with Consulting reaching $470 per hour. Executive Search consultant productivity reached $1.6 million annualized in Q4 FY25.

Financial Resilience and Capital Allocation

Korn Ferry's financial performance in the first quarter of fiscal year 2026 (ended July 31, 2025) demonstrates the resilience of its diversified strategy amidst a challenging macroeconomic backdrop. Fee revenue grew 5% year-over-year to $708.6 million, marking the second consecutive quarter of positive growth. Net income attributable to Korn Ferry increased 6% year-over-year to $66.6 million, achieving a 9.4% margin.

Adjusted EBITDA saw an 8% year-over-year increase to $120.4 million, with the Adjusted EBITDA margin expanding by 50 basis points to 17%. This consistent profitability improvement is a testament to the company's strategic focus and cost discipline, with Adjusted EBITDA margin increasing for six consecutive quarters as of Q2 FY25. The company has also improved its Net Operating Profit After-Tax (NOPAT) margin from 8.6% in fiscal 2015 to 9.7% in fiscal 2025, and its Return on Invested Capital (ROIC) from 12.3% to 13.6% over the same period.

Segment-specific performance highlights the benefits of diversification:

• Executive Search was a standout, growing 8% year-over-year to $224.3 million in Q1 FY26, marking its fifth consecutive quarter of year-over-year growth. This growth was broad-based, with EMEA up 17% and APAC up 12%, while North America grew 4%.
• Professional Search Interim fee revenue increased 10% year-over-year, significantly boosted by a $9.7 million contribution from the Trilogy International acquisition.
• Digital fee revenue grew 1% year-over-year to $89.2 million, with subscription and licensed new business growing 10% year-over-year and representing 39% of total digital new business, adding to revenue stability.
• Consulting fee revenue increased 1% year-over-year to $169.96 million, driven by higher bill rates, though partially offset by a shift to larger, longer-duration engagements and slower backlog delivery. The consulting backlog is increasing, with 42% of it comprising engagements over $1 million.
• RPO fee revenue grew 3% year-over-year to $91.3 million, primarily due to new logo clients in North America, with new business awards of $99 million in Q1 FY26, 46% of which came from new logos.

Liquidity remains robust, with cash and cash equivalents and marketable securities totaling $963.3 million as of July 31, 2025. Net of amounts held in trust for deferred compensation plans and accrued bonuses, investable cash stood at $617.7 million. Working capital increased by $22 million to $816.5 million. The company also enhanced its financial flexibility by entering into a new $850 million five-year senior secured revolving credit facility on July 1, 2025, with $845.6 million available as of July 31, 2025.

Korn Ferry maintains a balanced approach to capital allocation, prioritizing investments in growth initiatives, returning excess capital to shareholders, and opportunistic share repurchases. For fiscal year 2025, $173 million was returned to shareholders, $44 million invested in M&A, and $62 million in capital expenditures for technology platforms like the Talent Suite. The Board of Directors declared a cash dividend of $0.48 per share on September 8, 2025, marking the sixth dividend increase in five years. The company also repurchased $9.9 million of common stock in Q1 FY26, and on September 18, 2025, the Board approved an additional $250 million for share repurchases, bringing the total available capacity to $331.4 million. From fiscal 2020 through fiscal 2025, Korn Ferry generated $1.1 billion in free cash flow, representing 35% of its enterprise value.

Competitive Landscape and Strategic Positioning

Korn Ferry operates in a competitive landscape encompassing global leadership advisory, executive search, professional staffing, and RPO services. Key publicly traded direct competitors include Heidrick & Struggles (HSII), Robert Half (RHI), and ManpowerGroup (MAN).

Korn Ferry distinguishes itself through its integrated, holistic approach and proprietary technology. While Heidrick & Struggles focuses on high-level executive placements and advisory, Korn Ferry's broader scope, particularly in integrated organizational strategy and digital solutions, offers a qualitative edge in serving clients requiring comprehensive talent ecosystems. Korn Ferry's tech-enabled solutions for identifying roles and behaviors provide greater efficiency in talent matching processes compared to more traditional approaches. In terms of financial performance, Korn Ferry's TTM P/E ratio of 15.04 is lower than HSII's 30.02 and RHI's 19.78, suggesting a potentially more attractive valuation relative to earnings.

Against Robert Half, a leader in professional staffing and RPO, Korn Ferry's offerings in executive search and RPO emphasize strategic consulting and leadership development, providing greater value in complex organizational transformations. While Robert Half might offer a lower cost structure in basic recruitment, Korn Ferry's premium advisory positioning and global expertise aim for stronger customer loyalty in executive-level services. Similarly, when compared to ManpowerGroup, which focuses on workforce management and digital talent platforms, Korn Ferry's organizational strategy and executive search offerings provide deeper expertise in leadership development, particularly for clients undergoing digital transformations. Korn Ferry's proprietary tech-enabled tools could result in faster processing for talent assessments, while ManpowerGroup might have advantages in scalability due to its extensive distribution network.

Korn Ferry's competitive advantages, or "moats," include its strong global brand and network effects, which enhance customer loyalty and recurring revenue. Its proprietary technology, such as the Talent Suite and vast data assets, provides a distinct edge in efficiency and innovation. The company's integrated service model allows it to bundle services, offering higher-value solutions that exploit competitors' narrower focuses or less integrated platforms. Korn Ferry is recognized for its excellence, ranked by Forbes as the #1 executive recruiting firm and #4 professional recruiting firm in the U.S. in 2025. It has also been consistently recognized as a Leader in Everest Group's RPO Services PEAK Matrix® Assessment for eight consecutive years, with the highest designation in Asia Pacific.

Despite these strengths, Korn Ferry faces vulnerabilities, including its sensitivity to economic cycles and less scale in high-volume, lower-margin RPO segments compared to some competitors. However, the company's diversified service lines and global reach help mitigate these risks. Barriers to entry in its industries, such as the need for extensive networks and specialized expertise, help defend its market position.

Outlook and Risks

Korn Ferry's outlook for the second quarter of fiscal year 2026 (ending October 31, 2025) reflects a cautious yet confident stance. Management expects fee revenue to range from $690 million to $710 million, Adjusted EBITDA margin to be between 17% and 17.5%, and adjusted diluted earnings per share to range from $1.23 to $1.33. GAAP diluted earnings per share is projected between $1.10 and $1.16, notably including approximately $10 million, or $0.14 per share, of accelerated depreciation related to the sunsetting of the current Digital platform as the Talent Suite commercially launches in November. Management explicitly stated that this guidance is "on little bit on the conservative side" given ongoing global uncertainties.

The long-term outlook remains positive, driven by several macro trends. The demographic shifts of "Peak 65" and lower birth rates are expected to create a significant and persistent labor supply-demand imbalance, increasing the need for Korn Ferry's talent solutions. The increasing impact of AI on how organizations get work done and with how many people presents both a challenge and an opportunity, with Korn Ferry positioning itself to help clients navigate "AI readiness" and workforce transformation.

Key risks to the investment thesis include the persistent macroeconomic uncertainty, particularly the "cost of living crisis" which limits companies' pricing power and drives cost-cutting, impacting discretionary spending on consulting services. The "labor recession" has led to companies allowing natural attrition rather than replacing hires, which could temper demand for certain recruitment services. Geopolitical tensions also contribute to a cautious investment environment. While the consulting market has been "very, very difficult for 8 quarters now," Korn Ferry's diversified portfolio has provided resilience. Slower client consumption of larger, longer-duration engagements in consulting also impacts revenue recognition.

Conclusion

Korn Ferry's journey from a traditional executive search firm to a diversified, technology-driven global consulting powerhouse underpins a compelling investment thesis. The company's strategic focus on integrated talent and organizational solutions, powered by its vast proprietary data and innovative platforms like the Talent Suite and AI initiatives, has enabled resilient financial performance and consistent profitability improvements even in a challenging global labor market. This strategic evolution, coupled with a disciplined approach to capital allocation, positions Korn Ferry to capitalize on profound demographic shifts and the increasing demand for organizational transformation.

While macroeconomic headwinds and slower client consumption of large-scale projects present near-term challenges, Korn Ferry's strong competitive advantages—its global brand, deep IP, and integrated service model—provide a robust foundation. The company's ability to deliver higher-value, data-driven solutions and its commitment to technological leadership are critical for sustained growth and market share expansion. Korn Ferry's proactive adaptation to market dynamics, combined with its balanced financial strategy, suggests it is well-positioned to continue "powering performance" for clients and delivering value for shareholders in the evolving landscape of human capital.