管理層發言
Ladies and gentlemen, thank you for standing by, and welcome to the Korn Ferry Fourth Quarter and Fiscal Year End April 30, 2024 Conference call. At this time all participants are in a listen-only mode. Following the prepared remarks we will conduct a question-and-answer session. As a reminder, this conference call is being recorded for replay purposes. We have also made available in the Investor Relations section of our website a copy of the financial presentation that we will be reviewing with you today. Before we turn the call over to your host, Mr. Gary Burnison, let me first read a cautionary statement to investors. Certain statements made in the call today, such as those relating to future performance, plans, and goals, constitute forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Although the Company believes the expectations reflected in such forward-looking statements are based on reasonable assumptions, investors are cautioned not to place undue reliance on such statements.
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 Company's control. Additional information concerning such risks and uncertainties can be found in the release relating to this presentation and in the periodic and other reports filed by the company with the SEC, including the Company's soon-to-be-filed Annual Report for fiscal year 2024. Also, some of the comments today may reference non-GAAP financial measures such as constant currency amount, EBITDA, and adjusted EBITDA. Additional information concerning these measures, including reconciliations to the most directly comparable GAAP financial measure, is contained in the financial presentation and earnings release relating to this call. Both of which are posted in the Investor Relations section of the Company's website. With that, I'll turn the call over to Gary Burnison.
Thanks, Leah. Good morning. Good afternoon, everybody. Our team, I'm joined by Bob and Tiffany, and Gregg. They'll get into the results in more detail. But the earnings and profitability were really strong in the fourth quarter. They increased year-over-year and sequentially. We came in with an adjusted EBITDA margin of over 16%, which is our fourth consecutive quarter of profitability improvement. And in fact, when you adjust for the mix change of us getting into a brand new business line, that has a huge market opportunity for us, Interim. Our adjusted EBITDA margin is about 300 basis points higher than pre-pandemic levels and the revenue is way higher compared to four years ago. Probably 35%, 40% higher for sure. Much has changed over the last four years, not only in how we live but also in how we relate to others and how we work. The one thing that hasn't changed though, is our purpose to enable people and organizations to be more than and as the premier organizational consulting firm in the world.
We're a company that impacts the lives and careers of tens of thousands of people across thousands of organizations. A company that continues to innovate and align our business to help our clients perform and transform. A company Korn Ferry that sits at the intersection of our client's business strategy, their talent to ultimately drive superior performance. It's clear that our strategy is working, the cyclically sensitive talent acquisition offerings are being buoyed by growth and stability from our diversified offerings, particularly Consulting, although that's complemented by digital. They've both generated very solid performance during the year. It all begins though with data. 109 million assessments we've done, 6 million professionals developed, a million people put to work, more than 10,000 success profiles, compensation information on 30 million professionals, covering 30,000 organizations around the world.
More importantly, our incredible colleagues transformed that data into unique and scalable insights and compelling solutions for our clients. Nowhere is that more pronounced than in our marquee and regional account program, which represents 37% of our portfolio for the fiscal year. These accounts benefit from the breadth and depth of all things Korn Ferry, from our IP to our full suite of offerings, to the expertise of our colleagues. To put that into perspective, today the growth from these accounts is outpacing the rest of the company. Almost all our marquee clients use at least three of our business lines, which is a key contributor to our success in cross line of business referrals. We exit the year at about 26% of total fee revenue in cross-business referrals. In everything we do, we are really striving hard to work more interdependently, more horizontally, less vertically, scaling our data insights and offerings.
Our purpose, our vision, strategy puts us at the threshold of even greater opportunity, regardless of the environment, from one cycle to the next. So with that very high-level overview, I will now turn it over to Bob.
Great. Thanks, Gary, and good afternoon or good morning. We ended fiscal year '24 on a high note, generating $691 million of fee revenue in the fourth quarter, which was at the upper end of our guidance. More importantly, we delivered really strong earnings and profitability. Adjusted EBITDA over $112 million at a 16.3% margin, which is up nearly 300 basis points year-over-year. Additionally, our adjusted fully diluted earnings per share were $1.26 and GAAP fully diluted earnings per share were $1.24. As Gary indicated, the fourth quarter marked a full year of quarter sequential margin expansion, highlighting our strong cost management and improvement in our consultant and execution staff productivity. Overall, fiscal '24 was another example of the success of our long-term diversification strategy and a clear demonstration of the relevancy of our solutions. Additionally, our growing earnings power in today's challenging environment also demonstrates the resilience of our business model and the diligent execution of our strategy by all of our colleagues.
Now let's take a step back and look at the pieces that helped shape the year. One of our key growth drivers, marquee and regional accounts, which represents over $1 billion, or 37% of our FY '24 total fee revenue, grew 3%, even though our overall business was down 3% for the full year year-over-year. These accounts include many of our largest clients, with several accounts exceeding $10 million in annual fee revenue. Those are the accounts that are consuming multiple lines of our business. Two of our less cyclical segments, consulting and digital, both reached all-time highs in fee revenue for fiscal '24, underscoring both relevance and durability of their solution sets. Additionally, our full-year average bill rate for consulting increased 11% year-over-year. We exited the year at $437 per hour. Across the business, consultant and execution staff productivity continues to improve. Our productivity in the fourth quarter, measured by fee revenue per headcount, was up 31% versus the third quarter of FY '20, which is the quarter right before the pandemic hit.
Finally, fee revenue generated by cross-line of business referrals was about 25% of total fee revenue in FY '24, which grew sequentially in both Q3 and Q4, and as Gary mentioned, we exited the year at about 26%. All these are important factors that help drive stability in our fee revenue despite the cyclical moderation in the talent acquisition market and were also key factors in driving the improvement in our earnings and profitability throughout fiscal year '24. Lastly, I'd like to provide an update on our capital deployment. Return of capital to shareholders has been a priority for Korn Ferry. In fiscal '24, we returned $107 million to shareholders through dividends and share repurchases. In the fourth quarter, we repurchased approximately $23 million worth of stock, about 365,000 shares, bringing our total share repurchases for FY '24 to about 930,000 shares. In addition to the 83% increase in our dividend earlier this year, our Board has just approved another increase in our dividend of $0.04 per share, which is about a 12% increase, bringing our quarterly dividend to $0.37 per share, which is actually double what it was at the beginning of the year.
All our capital allocation initiatives really speak to the confidence we have in the outlook for our business and our future earnings power. Now I'm going to turn it over to Gregg, who will take you through some overall company financial highlights.
Okay. Thanks, Bob. Fee revenue in the fourth quarter grew to $691 million, supported by seasonally strong and stable demand for consulting and digital, complementing seasonally strong and stabilizing revenue for our permanent placement talent acquisition solutions. By the line of business, consulting fee revenue grew 4% year-over-year, digital was flat, and fee revenue for our talent acquisition solutions of executive search, professional search, interim, and RPO combined were down 10% year-over-year but up 1% sequentially. Within talent acquisition, executive search was down 6% year-over-year and flat sequentially. The permanent placement portion of PSI was down 10% year-over-year and up 7% sequentially. RPO was down 10% year-over-year and up 10% sequentially, while the interim portion of PSI was down 18% year-over-year but down only 8% sequentially. Consolidated new business in the fourth quarter, excluding RPO, was down 2% year-over-year at constant currency.
Like fee revenue, stable new business growth in consulting, digital, and executive search was offset by slower demand for professional search and interim solutions. At constant currency, consulting new business was flat year-over-year, digital was up 4%, executive search was up 1%, and professional search and interim were down 12%, with permanent placement stable and essentially flat year-over-year and interim down 14%. For RPO, new business in the fourth quarter was strong at $128 million, which includes $61 million of renewals and extensions and $67 million of new logo wins. As Bob said, earnings and profitability were higher in the fourth quarter, driven by strong cost control and greater consultant and execution staff productivity across all lines of business. Adjusted EBITDA in the fourth quarter grew $14 million or 15% year-over-year and was up $111 million or 10% sequentially to over $112 million.
Adjusted EBITDA margin grew to 16.3% in the fourth quarter and has now improved sequentially for four consecutive quarters. Adjusted fully diluted earnings per share in the fourth quarter were $1.26, up $0.25, or 25% year-over-year, and up 18% sequentially. Fully diluted earnings per share measured by GAAP were $1.24 in the fourth quarter. The fourth quarter was positively impacted by a lower tax rate of 24.6%, which benefited both adjusted and GAAP fully diluted earnings per share by approximately $0.04 to $0.05. Our investable cash position at the end of the fourth quarter grew $110 million sequentially to $606 million. Our capital allocation continues to be balanced. For all of fiscal '24, we deployed $172 million of cash, investing $47 million in capital expenditures, using $19 million for debt service, and returning $107 million to shareholders in combined dividends and share repurchases. With that, I'll turn the call over to Tiffany to review our operating segments in more detail.
Thanks, Gregg. Starting with KF Digital, global fee revenue in the fourth quarter was $91 million, which was flat year-over-year at actual rates and up 1% at constant currency. Digital subscription and license fee revenue in the fourth quarter was $33 million, approximately 36% of fee revenue for the quarter and up 3% year-over-year. Global new business for KF Digital was $104 million, with $39 million or 37% of the total tied to subscription and license sales. The overall pipeline for digital remains strong as we head into the next fiscal year. For consulting, fee revenue in the fourth quarter was $182 million, which was up approximately 4% year-over-year at actual rates and up 5% at constant currency, and an all-time high for the segment. Fee revenue growth was strongest in assessment and succession, which increased 10% year-over-year. Consulting's average hourly bill rate remained in line with the previous quarter and is up $47 an hour, or 12% from one year ago.
Adjusted EBITDA margins continue to improve, increasing 110 basis points sequentially and by 380 basis points year-over-year, driven by a mix of higher billing rates and increased utilization rates. Additionally, global new business for consulting in the fourth quarter was essentially flat year-over-year and strongest in North America with 5% growth. Total fee revenue in Professional Search & Interim in the fourth quarter was $129 million, down $23 million, or 15% year-over-year. Breaking down the quarter, year-over-year softness in fee revenue was driven by an industry-wide slowdown in the interim business. Interim fee revenue was $73 million for the quarter, which was down $16.5 million or 18% year-over-year, and down 11% when excluding a one-time client engagement winddown. Despite the slowdown in demand, Interim's average hourly bill rate has increased to $129 per hour, which is up $5 an hour, or 4% from one year ago, reflective of the added value of being part of the broader Korn Ferry ecosystem.
Professional Search and permanent placement fee revenue of $56 million was down $7 million, or 11% year-over-year, but was up $4 million, or about 8% sequentially. Also, Professional Search consultant productivity is up both year-over-year and sequentially to approximately 670,000 annualized. New business for the combined segment during the quarter was down 12% year-over-year but essentially flat sequentially. Moving on to recruitment process outsourcing. New business for the fourth quarter was $128 million, comprised of $67 million of new logos and $61 million of renewals and extensions. Fee revenue in the fourth quarter totaled $89 million, down $111 million or 10% year-over-year at actual rates and at constant currency but was up $8 million or 10% sequentially. Fee revenue was impacted by a moderation in hiring volume within the existing base of contracts as well as recruiter labor hoarding conditions that have continued in the market.
Although the timing of new business can be lumpy, we believe RPO is well-positioned to benefit when client hiring returns to more normalized levels. The pipeline remains strong as RPO continues to renew existing clients and win new business with a differentiated service offering in the marketplace. Finally, global fee revenue for Executive Search in the fourth quarter was $199 million, down 7% at actual and 6% at constant currency. Global demand for Executive Search has been stable with each of the last four quarters of fee revenue near $200 million. Additionally, consulting productivity continues to improve, contributing to a higher EBITDA of almost $46 million and an adjusted EBITDA margin of 22.9%. I will now turn the call back over to Bob to discuss our outlook for the first quarter of fiscal '25.
It's great. Thanks, Tiffany. In recent months, new business growth trends have been somewhat inconsistent. In the fourth quarter, new business improved each month from February to April, increasing by 4% year-over-year, which aligned with our expectations for the full quarter. As we begin fiscal year '25, May's new business also met our expectations. Assuming typical seasonal patterns, we anticipate June's new business will grow sequentially while July is expected to remain mostly flat or slightly decrease compared to June. Additionally, in line with seasonal trends, we expect both Consulting and Digital growth for Q1 to decrease sequentially but remain stable on a year-over-year basis. For our talent acquisition services, we foresee the usual seasonal shifts from Q4 to Q1 in light of current market conditions. Barring any significant changes in global geopolitical and economic conditions, financial markets, or foreign exchange rates, we expect first quarter fee revenue for fiscal '25 to be between $655 million and $675 million.
Our adjusted EBITDA margin is expected to stay around 15.8% to 16.2%, with consolidated adjusted diluted earnings per share projected to range from $1.07 to $1.17, and GAAP diluted earnings per share expected to be between $1.05 and $1.15. In conclusion, we remain focused on executing our strategy to become the leading organizational consulting firm. We have a significant opportunity ahead and will continue to drive initiatives for growth. This includes focusing our go-to-market strategy on key marquee and regional accounts to attract more clients at scale and enhancing top-line synergies through cross-business referrals. We are also enhancing our incentives and will continue to leverage both our core and integrated solutions, emphasizing their relevance in today's environment. Our initiatives in digital growth will include creating a unified delivery platform to enhance client experience and consultant efficiency, particularly for large subscription and licensing deals.
As Gary mentioned, we aim to maximize unique, client-specific insights from our extensive data repository. Lastly, we are developing what we refer to as the next level of one Korn Ferry consultants—fee earners skilled at utilizing all our firm’s resources to address our clients’ critical human capital challenges. We recognize the complex uncertainties and challenges of the current world and, as a management team, remain focused on controlling what we can, including balancing our cost base and productivity to maintain profitability while making timely investments for long-term growth. I genuinely believe we are at the start of a lengthy journey, and our best days are ahead of us. We are now happy to take any questions you may have.
分析師問答
We go to the line of George Tong with Goldman Sachs. Please go ahead.
Hi, thanks. Good morning. You talked about cyclical moderation in the talent acquisition market. Can you elaborate on trends that you're seeing in your cyclically sensitive businesses?
I would say, that the good news in what we shared in the last quarterly call was that we would expect RPO to see some improvement, which it did. As you know, depending on what part of employment services you're talking about, comparables could be down anywhere from 8% or 9% to 28%. Clearly, what we've seen over the last several months is definitely stabilization, some improvement in RPO. Also, as we talked about last quarter, we thought we would see some improvement in perm, in professional recruiting. So what you've seen is our Professional Search business up sequentially. Executive Search has been essentially flat over the last several months. RPO, although down year-over-year, has definitely improved. New business has been flat sequentially. Another thing we discussed with the RPO business is we thought we would see a shift more towards new logos, and that actually materialized in the quarter.
That's helpful context. And then with respect to profitability, you delivered over 16% EBITDA margins in the quarter, which meaningfully outperformed your guidance. Can you talk about what drove the outperformance versus your initial expectations and how sustainable these margins are?
Well, how sustainable depends on the economic environment that we're handed. We've guided for this next quarter at the midpoint. We think revenue is guiding down 5% to 6% year-over-year at the midpoint of the guide, and we're guiding to a 16% EBITDA margin at that revenue level. One of the things we're really proud of is that the revenue is up 35% to 40% since the pandemic. That was an all-time high, by the way; pre-pandemic revenue levels was an all-time high for Korn Ferry at that point, and our revenue now is 35% to 40% higher. Our profitability, once you adjust for the mix change, getting into a bigger market of interim is up 300 basis points. At this level of revenue, it's certainly sustainable. At the same time, we're investing and returning cash to shareholders. As Bob mentioned, we've doubled our dividend now over the last year, and we continue to systematically repurchase stock.
Next, we go to the line of Mark Marcon with Baird. Please go ahead.
Hi, Gary, Bob, Gregg, Tiffany. Hi, congrats on a really nice margin performance and sustaining the profitability. One, I'm going to take George's question, but flip it around a little bit, so you're able to do these margins while revenue is still kind of choppy, the outlook is still kind of choppy. How should we think about the margins when things eventually end up being a little bit more stable?
Well, stable is a relative term. In an environment with economic tailwinds, you're going to see a couple of hundred basis points of margin improvement for sure. That's been our kind of long-term guide. We think in this kind of environment where most economies are still producing jobs, we can comfortably operate the firm at 15.5% to 16% EBITDA margins, and we're guiding towards the higher end of that for this next quarter.
Great. And then you've had a lot of success with regards to changing the incentives, and it's been something, Gary, that you worked a long time on in terms of getting the cross-selling motion up. When you think about where we are today relative to your aspirations for two to five years from now in terms of that cross-selling motion, what inning are we in? How much better can we become, do you think?
I think we're like in the second inning. We're not crawling anymore, but we're not running; we've just started to walk. I think we could do a lot more. We have to think much more horizontally. When we first met, Mark, at that point, we were doing engagement sizes of $5,000 or $6,000. Now the interesting thing is the pivot toward transformational consulting engagements. Probably 40% of our new business this year are million-dollar engagements. So what comes with that is definite stability, and the ability to leverage has a real impact on clients. We're at the beginning, and we have to move from cross-referrals to more integrated solutions. The Consulting and Digital businesses have clearly been a huge differentiator for Korn Ferry. That cross-referral percentage could very well be 35% for sure; however, we have to continue to innovate our solution sets and continue to modify how we reward our colleagues.
Hi, Mark. It's Bob. Just add maybe a little more context to that. If you look at the consulting new business in FY '24 for the full year versus FY '23, engagements that are close to or above $1 million were up 36% year-over-year. You can see the strategy clearly working in terms of the push towards no more point solutions but selling integrated solutions that help solve client's human capital needs.
Great. And then on Professional Search & Interim, and then I'll jump back in the queue. On Professional Search & Interim, for everybody who follows the space, it's been a tough market, particularly on the Interim side, we've seen declines across the board. I wonder, do you think on the Interim side that things are stabilizing, and how would you characterize the differences between your various Interim businesses from a top-line perspective? But yet you're able to improve margins while revenue is declining certainly as a trend for everybody. What are you doing to get the margins up while the revenue is declining as much as it is? Given the current economic environment, how does that impact your desire in the short term to make investments in the Interim or Permanent?
We would continue to make investments in Interim. We made a conscious decision almost a year ago that we would modify where we placed emphasis on our Professional Search business. If you were to look at the data on the number of consultants we have in that business, you would find that it's down significantly. We made portfolio switches and said, okay, let's go to this industry versus that industry and that was a conscious decision we made, and it's paid off. The temp penetration rate now is 1.7%, the 25-year average is 1.86%. The next three to five years are going to see major talent issues, and I think the so-called Peak 65 will bring about significant retirement leading to talent shortages. We're going to maintain investments in the Interim business; we've seen the power of the Korn Ferry brand and the number of cross-referrals we've had; it's a much larger market opportunity. Clearly, the margin profile is different; we're going to stay towards the higher end this quarter. Our average rate is $129 an hour. We're for sure going to stay at the upper end, but there's more market opportunity yet for Korn Ferry.
Hi, Mark. It's Bob. I can touch on how we make those businesses profitable, and we discussed this in the past. We have an incredible integration playbook. When we look at these companies we acquire, their adjusted EBITDA is somewhere around 8%. We built a company that's plug-and-play. We have common systems, processes, and controls across the globe. A lot of these businesses we buy are underinvested, maybe not as well-managed, and we just literally pick them up and plug them into our systems and processes. By doing that, it allows us to bring the EBITDA margin up into the 12% to 14% range relatively quickly, and as the go-to-market activity becomes more integrated, we start to see referrals elevating the top line.
Next, we have a question from Tobey Sommer with Truist Securities. Please go ahead.
Yes, good morning. This is Jack Wilson on for Tobey. Maybe just to start out, so that continued momentum in new business and digital, is that a product of a change in the market or a change in what you're doing? Could we just dig into that a little bit?
Well, some of it can be lumpy for sure, so I wouldn't read too much into that. We hope that this tremendous IP we have can be monetized. It's not a small business today, $360 million. It's the most profitable part of Korn Ferry. It can significantly impact a client organization. We can change thousands of people's lives. We are trying to get the entire firm to push these offerings to solve client problems. The offerings are centered around organizations, professional development, learning, anchored around compensation, and sales force effectiveness. We've got legacy products as well, around assessment and org design. The goal is to monetize this IP effectively. We're also working on creating a better ecosystem with partners because, looking at the Big Four consulting firms, they enjoy an ecosystem of partners that brings them hundreds of millions. We see that same potential for us.
And Jack, this is Bob. Just one other point I would make on the digital business going forward; we're now selling $3 million, $4 million, $5 million deals that span multiple years. You might see some choppiness in reporting due to this, with a mix of large multi-year deals versus point solutions. The key is we're selling larger engagements now.
Yes, and I think part of the digital capabilities actually fuels our RPO and consulting business.
All right. And then maybe one more for me. I think you've previously spoken about using AI more as a growth driver rather than a cost reducer. Can you throw some color on specific business lines you see that as a key driver?
Nobody knows where this is going. We are very concerned about the ethical ramifications. We've developed 6 million people over the last few years and put someone in a new job every three minutes. We're spending time ensuring that whatever we do in this area, we’re building a moat around our data. Yes, we're using it in some of the coaching, assessment, and over time we will look at how we can make Korn Ferry more efficient, but that's not in this next quarter.
All right. Good morning, team. Thanks so much for taking the questions. I know we've had several margin questions already, but just wanted to ask another one a bit differently. Given the outperformance, I think for most of the segments, you're running at a lower headcount than you had been kind of a year ago, yet seeing much better productivity and higher bill rates for a lot of the segments. I was just wondering if you could talk more about which specific productivity initiatives you've implemented recently that are starting to really pay off now, and how much further you can improve on those productivity metrics?
We do think there's room to go. Part of the improvement comes from clearly technology like Bob indicated. The other part comes from doing more impactful multimillion-dollar engagements, leading to improved scale and productivity evidenced in the numbers. On the interim side, we want to maintain a certain level and I'm not going to claim there’s going to be gigantic productivity there. We've made some significant strides over the last 15 months but there isn't a long way to go. It's a combination of our technology and our go-to-market strategy for Consulting and Digital.
Okay, thanks, Gary. That makes a lot of sense. Another one on search: revenue was somewhat flattish sequentially; not quite as strong an uptick as other competitors reported. Would you speak about demand specific to search, whether you're still seeing those green shoots, and whether they're stronger, weaker, or about the same as last quarter?
I think they're about the same. We previously talked about expecting some uptick in Professional Search and we’ve seen an improvement in RPO. Clearly, we are in the middle of a multi-quarter reset, adapting to a rate environment not seen in 25 years. I don't see much changing in the near term. The encouraging news pertains to megatrends. For instance, 19% of the US population is retired, which may soon reach 20%. For every retired person, there are two workers. That balance will change. With 'Peak 65' and baby boomers retiring, companies will face challenges dealing with that demographic. Part of this will be addressed through technology and services we offer.
Hi. Good morning. This is Karan on for Josh. Thanks for taking my question. I had a question on Executive Search. With Executive Search seeing positive new business growth and new engagements, do you think it can return to growth in the first quarter? Which regions do you see as playing a role in this?
No. This environment we're in is incredibly challenging for every company. There is currently a fight for growth and relevancy. Companies that invest in key areas now will find advantage through the turn. I think the US labor market won't change much in the near future, and I don't foresee major adjustments to interest rates either. Costs for most Americans have risen significantly, while wages haven’t kept up. If you're looking at the next quarter, you may find that view myopic. Although there’s room for market share, we're navigating a difficult environment. Great companies always make their best moves in these economic climates, and that's what we'll do. Okay. Thank you for joining us and for taking an interest. The thing I'm most proud of is that when we say something, we do it. You have an organization with tremendous colleagues and a solid leadership team. We're everywhere where you want to be in every industry, building solutions that matter particularly over the next five years.
Ladies and gentlemen, this conference call will be available for replay for one week starting today at 02:00 p.m. Eastern Time, running through June 21, 2024, at midnight. You may access the AT&T Executive playback service by dialing 866-207-1041 and entering the access code 5486987. International participants may dial 402-970-0847. Additionally, the replay will be available for playback at the Company's website in the Investor Relations section. That does conclude your conference for today. Thank you for your participation. You may now disconnect.