Korn Ferry (KFY) Earnings

Management highlights

- Overall Company Performance * Full year fiscal 2026 fee revenue hit a new record high of ~$2.9 billion, up 7% YoY. Adjusted EBITDA was ~$500 million, also up 7% YoY, and adjusted EPS was $5.28, up 8% YoY. * Q4 FY26 marked the fifth consecutive quarter of top-line growth, with consolidated fee revenue up 7% YoY to $760 million. Adjusted EBITDA grew 7% YoY to $130 million, with a steady 17% adjusted EBITDA margin, and adjusted diluted EPS grew 6% YoY to $1.40. * End-of-period estimated remaining fees under contract grew 10% YoY to ~$1.9 billion, with growth across all solutions: 57% (~$1 billion) will be recognized within the next 12 months, and 43% (~$800 million) will be recognized after that. * Cross-business referral revenue increased 320 basis points to 29.1% of consolidated fee revenue in Q4, and marquee/diamond client account penetration contributes 40% of consolidated revenue, both metrics demonstrating the success of the "We Are Korn Ferry" go-to-market strategy. - Strategic and Operating Model Changes * Korn Ferry is shifting its operating model to prioritize integrated, client-centric delivery across the full talent continuum, transitioning external reporting from a solution-based structure to a regional structure (Americas, EMEA, APAC) starting Q1 FY27. Solution-level performance will still be disclosed in three new grouped categories: Search (executive + professional search), Talent and Organizational Solutions (digital + consulting), and Workforce Solutions (RPO + interim). * This new structure aligns with how clients buy services and supports the integrated "one firm" operating model, which aims to increase cross-solution penetration of Korn Ferry's 5,000 core clients that currently only use an average of 1.5 of the firm's solutions. * Management has already implemented process changes to drive collaboration, including regular biweekly leadership reviews of all large new engagement opportunities to ensure cross-functional alignment and maximize revenue expansion with existing clients. - Capital Allocation * In Q4 FY26, Korn Ferry repurchased 1.24 million shares for ~$78 million, following through on prior guidance to increase share buyback activity. For full fiscal 2026, the firm returned $221 million to shareholders via a combination of share repurchases and dividends, and invested $85 million in CapEx for the development of TalentSuite and other productivity tools.

Guidance

- For the first quarter of fiscal 2027, management expects consolidated fee revenue in the range of $725 million to $745 million, an adjusted EBITDA margin of approximately 17%, and adjusted diluted EPS in the range of $1.32 to $1.38. * Management maintains a long-term overall company adjusted EBITDA margin target range of 16% to 18%, with the Q1 FY27 guidance falling in the middle of this range. * The guidance assumes no material further changes to global geopolitical conditions, macroeconomic conditions, financial markets, or foreign exchange rates. * Management expects the new "We Are Korn Ferry" integrated go-to-market strategy will continue to drive deeper client penetration and above-industry growth over the long term.

Segment performance

This call marks the final quarter of fiscal 2026, with legacy solution-level segment performance reported as follows: 1) Executive Search: Grew 7% YoY in Q4 FY26, with 8 consecutive quarters of growth, and average fees up nearly 10% over the past two years as the business has expanded upmarket. 2) Professional Search & Interim (part of future Workforce Solutions): Grew 14% YoY overall, with 17% growth in professional search and 12% growth in interim. Interim outperforms peers, driven by cross-business referrals and expanding bill rates that have increased from ~$100/hour to $150/hour. Annualized interim revenue is now ~$400 million. 3) Digital Subscription & License (part of future Talent and Organizational Solutions): Grew 10% YoY. 4) Consulting (also part of future Talent and Organizational Solutions): Grew 7% YoY, driven by larger engagements and higher bill rates. 5) RPO (part of future Workforce Solutions): Won $137 million in new Q4 business, 74% of which came from new client logos. For regional performance (the new reporting structure going forward): Americas fee revenue grew 8% YoY, EMEA fee revenue grew 8% YoY, and APAC fee revenue was flat YoY, impacted by geopolitical instability in the Middle East.

Risks & headwinds

- Geopolitical instability in the Middle East has negatively impacted new business growth in APAC and EMEA, contributing to a deceleration of ex-RPO new business growth in Q4 FY26. * Forward-looking performance is subject to risks and uncertainties beyond the company's control, which could cause actual future results to differ materially from current expectations. Additional details on these risks are included in the company's filings with the SEC. * Global data privacy regulation varies across the 70+ countries where Korn Ferry operates, requiring careful guardrails for AI-related development to protect client and candidate proprietary data and maintain the firm's trust-based reputation.

Analyst Q&A

• Q: Why has executive search moved into higher-level C-suite roles, and is this trend sustainable? What is the outlook for search volume after flattish new engagements this quarter? /

  A: Korn Ferry's executive search brand has intentionally moved upmarket over time, leading to a nearly 10% increase in average fees over the past two years. The firm's large market access from high-level search also enables cross-selling of adjacent solutions, and management sees a large total market opportunity to grow share across the full $300 billion global talent market. On volume, after several years of acceleration, pipeline activity over the past four months and current month remains very strong, and long-term supportive demographic trends for executive turnover remain intact.

• Q: What is driving outperformance in pro search and interim, and what trends are you seeing in bill rates and verticals? /

  A: The biggest driver is cross-business synergies from the integrated We Are Korn Ferry strategy, with over 10% of interim revenue coming from internal referrals from other business lines. Overall cross-referral revenue has increased from 25% to 29% of total revenue this year after the strategy launched. Interim bill rates have grown from ~$100/hour to $150/hour, with strongest demand in technology, finance and accounting, HR, and supply chain verticals. The market opportunity is massive, and the business is still in an early growth stage.

• Q: What explains the deceleration in ex-RPO new business growth, and why were EBITDA margins flat year-over-year this quarter? /

  A: The deceleration is primarily due to geopolitical instability in the Middle East, which suppressed new business activity in APAC and EMEA. Management expects pent-up demand will emerge once geopolitical conditions stabilize, though the timing of this recovery is uncertain. Flat margins this quarter were due to higher variable bonus expense tied to better-than-expected revenue outperformance, which management frames as a positive outcome that it welcomes for future growth.

• Q: How does the new reporting structure change the internal operating and reporting model, and what incentives are in place to grow cross-referral revenue? /

  A: The core priority is shifting organizational mindset to a one-firm, client-centric approach, rather than just changing formal org structure. A matrixed model will remain, with a deliberate shift to more regional leadership to enable deeper local client penetration, since 60-65% of core clients only use 1.5 of Korn Ferry's solutions today, creating large cross-selling upside. Incentive programs for referrals have been expanded and enriched, and formal biweekly leadership reviews of all large engagement opportunities have driven the recent increase in referral revenue from 25% to 29%.