Korn Ferry Posts 8.6 Revenue Increase, Suspends Fiscal Q4 Guidance Amid Coronavirus Concerns

The nation's No. 1 leadership provider delivers its quarterly revenue report to Wall Street. Let’s go inside the latest numbers.

March 11, 2020 – Korn Ferry (NYSE:KFY) has posted fiscal third quarter revenues of $515.3 million, up 8.6 percent from last year. The Los Angeles-headquartered executive recruiter and leadership consultant – the largest globally and in the Americas as ranked by Hunt Scanlon Media – recorded net income of $20 million, or $0.36 and $0.75 per share and adjusted diluted earnings per share, respectively.

During the third quarter, Korn Ferry completed the acquisition of Miller Heiman Group, AchieveForum and Strategy Execution (“acquired companies”) that are part of a newly branded reporting segment­— Korn Ferry Digital (formerly the Products Group).

“For Korn Ferry’s recently completed third quarter, we generated fee revenue of approximately $515 million (up 8.6 percent using actual rates; up 9.4 percent on a constant currency basis) with net income attributable to Korn Ferry of $20 million and solid adjusted EBITDA of $78 million,” said Gary D. Burnison, CEO of Korn Ferry. “Organically and through M&A, our global scope and capability continues to expand. Today Korn Ferry is much more diversified and balanced, with almost two-thirds of our fee revenue generated outside of our historical core executive search business.”

Mr. Burnison said the firm believes that the expansion of its business into larger addressable markets offers higher growth potential and more durable and visible revenue streams. “More recently, the acquisitions of Miller Heiman, Strategy Execution and AchieveForum have added professional development and upskill capabilities to our Korn Ferry Digital business, giving us a bigger presence in the learning and development space,” he said. “Indeed, today’s Korn Ferry is the firm that synchronizes a client’s talent and strategy which will enable individuals, teams and organizations to exceed their potential.”

“Finally, as we manage our way through the global COVID-19 situation, our unwavering commitment to protecting the health and safety of our colleagues, as well as our focus on our clients’ success remain, as always, our top priorities,” said Mr. Burnison.

During the third quarter, Korn Ferry continued with its balanced approach to capital allocation, buying back 0.2 million shares or $6.1 million of stock during the quarter and declaring a quarterly dividend of $0.10 per share on March 10, 2020 payable on April 15, 2020 to stockholders of record on March 26, 2020.

Acquisitions

During the quarter, Korn Ferry completed its acquisitions of three companies from TwentyEighty Inc. in the leadership development area: Miller Heiman Group, AchieveForum and Strategy Execution. Financial details of the deal were not disclosed.

Byron Matthews of Miller Heiman Group, Christoffer Ellehuus of Strategy Execution and Scott Bohannon of AchieveForum said: “We are delighted to find the perfect strategic home at Korn Ferry. We are enthusiastic about what the future will bring from this acquisition in terms of synergistic product and consulting solution offerings for our customers as well as career opportunities for our employees.”

Miller Heiman Group specializes in transforming sales performance and customer experience. AchieveForum offers frontline leadership development. Strategy Execution provides organizational and project management training. Combined, the three companies have trained thousands of professionals and hundreds of clients across the globe and have substantial expertise in sales performance and customer experience, frontline leadership development and project management, which is expected to benefit future clients.


The Recruiting Sector is Creating Durable Revenue Streams, with Higher Margins
Korn Ferry will begin reporting a “KF Digital” segment that consolidates its compensation databases, leadership development platforms and sales training modules into one reporting disclosure, according to a new report by investment firm Kerrisdale Capital. 

By the next fiscal year, KF Digital should generate $400 million in revenue as a stand-alone unit. Other search firms are following suit as they turn to high margin platforms for growth and expansion. It is a topic Hunt Scanlon Media will address in the April issue of its newsletter ESR and in the Greenwich, Conn-based research company’s annual State of the Industry rankings report this spring.


These companies are part of a newly branded Korn Ferry Digital (formerly the Products Group), which, working closely with its consulting unit, will provide clients direct access to data, insights and analytics. The addition of these three companies is expected to further expand Korn Ferry’s intellectual property and content and leverage the firm’s digital delivery platforms.

Hedge Fund Investing Activity 

Publicly-held search outfits, namely Korn Ferry and rival Heidrick & Struggles, have recently seen a flurry of investor activity. Hedge funds, in particular, have been acquiring new stakes in both companies, while others have been reducing positions and moving on to other investments throughout the talent management sector.

A number of institutional investors have recently added to or reduced their stakes in Korn Ferry’s stock: BlackRock boosted its stake in the firm by 0.9 percent during the second quarter. It now owns 8,688,818 shares of Korn Ferry’s stock worth $348,161,000 after buying an additional 74,062 shares during the period. Paradice Investment Management recently boosted its stake in the firm by 18 percent. It now owns 160,250 shares of the firm’s stock worth $6,192,000 after buying an additional 24,426 shares during the period.

Voloridge Investment Management recently purchased a new position in Korn Ferry worth $887,000. California Public Employees Retirement System also boosted its stake in the firm by 33.1 percent. It now owns 152,615 shares of Korn Ferry’s stock worth $5,897,000 after buying an additional 37,982 shares during the period. Lastly, Barclays recently lifted its position in shares of the firm by 22.2 percent. It now owns 78,528 shares of Korn Ferry’s stock worth $3,035,000 after purchasing an additional 14,256 shares during the last quarter. Currently, 94.75 percent of the stock is owned by institutional investors.

Coronavirus Concerns

The uncertainty caused by the coronavirus, primarily due to the largescale efforts being taken to contain its continued spread and the number of conflicting and rapidly changing datapoints regarding the impact of the virus on society, has clouded the near-term predictability of Korn Ferry’s business. In recent weeks and days, out of an abundance of caution, select governments and companies have implemented social distancing—limiting either travel or in-person individual or group face-to-face interaction.

“The extent to which further, incremental measures are put in place or additional authoritative bodies adopt such measures is a major unknown,” Korn Ferry said. “The measures taken to date will most certainly impact our business for the fiscal fourth quarter and potentially beyond and due to the rapidly changing nature of this crisis, combined with the lack of visibility with respect to further measures to be taken, it is too difficult for us to accurately assess and quantify the impact at this point.”

Consequently, Korn Ferry will not be issuing any specific revenue and earnings guidance for the fourth quarter. The firm said it will reassess the suspension of its guidance once Korn Ferry is comfortable that the coronavirus uncertainties have passed.

Contributed by Scott A. Scanlon, Editor-in-Chief; Dale M. Zupsansky, Managing Editor; and Stephen Sawicki, Managing Editor – Hunt Scanlon Media

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