Korn Ferry (KFY) September 2026 Conference Transcript

All right. Hi, everyone. Welcome to William Blair's second annual Human Capital Services Virtual Conference. And thank you to everyone for joining this session with Korn Ferry. So very excited today to have Korn Ferry CFO Bob Rosick and VP of Investor Relations Tiffany Lauder as well. So thank you for joining us today. As always, we look forward to the discussion. And if anyone in the audience has any questions, there should be a little Q&A box in the top right of your screen. We can try to get to those at the end. So thanks for joining. I think, Bob, you have a little presentation prepared, so I'll pass it to you and maybe come back with some questions after that.

Thanks, Trevor, and thanks for having us. I'm about to do what I love to do, which is talk about Corn Fairy. Why don't we go to the first slide, Tiffany? This is a slide that we've used over time and really helps set the stage for the transformational journey that we're on. You know, when I joined the company back in 2012, we were pretty much a monoline talent acquisition firm. We had about $750 million in fee revenue on an annual basis, about 80% to 85% of that came from search. Not quite at the Rolodex stage when I joined, but it wasn't too far off. At that time, we had a very small RPO business and a very small consulting business, and those two made up the difference between talent acquisition and the $750 million in total fee revenue. Our strategy really was built on two things. One is leveraging search senior-client-partner relationships. Gary, our CEO, was a partner at KPMG. You know, he had good relationships with his audit clients, but when he recognized how strong the search-partner relationships are, When you think about it, a search partner essentially changes people's lives by putting them into new and better roles. He viewed that as really an untapped asset that we had. Second, we wanted to diversify both our revenue stream and our profitability, making it more durable and more resilient. Because you think about executive search, you know, from signing an engagement letter to, you know, booking all the revenue, that converts pretty quickly over a three-month period. And so the visibility and durability of the fee revenue and profits was not great at that time. Shift over to the concentric circles, and that's the company that we are today. So we just finished our first quarter. Our annualized fee revenue run rate is about $3 billion. So think about that. What we did in the full year when I joined, we're now doing in a quarter at this moment in time. Our mix has changed substantially. If you look at the sort of the middle concentric circle, search, which is a combination of executive search and professional search, about 39% of the business, north of $300 million in the quarter. talent and organization, which is a combination of consulting and digital. It's about 37% of the business, roughly $260 million, again, in the first quarter. And then Workforce Solutions is our RPO in interim business combined. It's about 24%. This is pre-AMS acquisition, about $190 million, again, in the quarter. We changed our reporting segments. We had historically looked at the organization by solution. And while we enjoyed success doing that, what we found was by managing the business that way, we were actually creating silos. So if we had a problem in consulting, I'd go to Leslie Uren and say, hey, Leslie, what's going on in consulting? And then it became her issue. What we are now doing is we're going by region. And when you think about that, regions for us are the natural integration point. Everything we do now is singularly focused on clients. And you meet clients where they're at, which is locally, right? So we've switched to a geography segment reporting lens. And I think we're actually starting to see that pay off if you look at our business referrals over time, especially last year. we grew from 25% to almost 30% of our total consolidated fee revenue being referred across the organization. The outside consensual circles lay out our capabilities. So, org strategy, assessment, succession, and those assessments are ours. We created them based on our behavioral science using psychometrics, talent acquisition, leadership and professional development, and total rewards. But what's really important on this slide, if you look at the circles in the center, that's where all of our foundational assets sit. And when I say foundational assets, you should be thinking about data, IP, content, behavioral science. We've got 12 billion, over 12 billion data points at the center of the organization. And those data points permeate everything that we do. So when you think about the science or the assessments that drive executive search or talent acquisition, it's the same science that drives assessments for development or assessments for succession planning. We rolled out a platform that we call TalentSuite back in January. And what TalentSuite really does is it brings together all of these assets onto a common platform. Historically, they were disaggregated and sitting in different repositories. And TalentSuite really brings them together and makes them easier to get at in a more effective way of doing analytics and so on. And right now, we're working hard on the value proposition, enabling clients, enabling our colleagues on the go-to-market side. But we've got some worth it. I would say that rollout and the impact of talent, so it's probably been a little bit slower than we'd like, but we still feel very, very good about the potential that it has to deliver. And then the segue to the next page. It's our AMS acquisition. And, you know, we closed that on September 1st. It's a $650 million run rate business. I would say that AMS is by far going to be the most transformational thing that we've done as an organization. And the Hay Group was big and transformational. But I think AMS has a different DNA, and it's really going to elevate us much more than the Hague group did. It's a really buttoned-up organization. They have great talent. They're on common platforms across the globe, although we're going to migrate them onto ours. It was founded in 1996. They have 8,000 colleagues. We have 9,000. So we'll start with 17,000 colleagues serving our clients. You know, when I think about AMS, I think about how complementary it is to Korn Ferry. And, you know, initially when we started down this path, I thought I was just taking sort of more of the same and adding it together. But it really isn't. So we have a very strong RPO practice. Our practice is strong in industrial health care. Their practice is strong in financial services and life sciences. They're very strong in RPO in Europe. That's an area of opportunity for improvement for us. When I think about some of the other things that they do, so the RPO business is about 65% of that $650 million. Early career and campus recruiting is about 10%. So think about our – in our RPO business, we do some of that for the select number of clients, but we really don't manage it as a separate business. They do. So bringing – for us, it's about $20, $25 million. We're going to bring that underneath their management structure and really focus on growing that. That's predominantly a European activity for them. We see a huge opportunity in North America. And you think about the recruiting. They're recruiting for Deloitte, PwC, firms like Goldman Sachs, right? So there's a huge opportunity for us to bring that over to North America. Contingent Workforce Solutions is also about 10% of their business. That's what I'm pretty excited about. If you think about our interim business, right, we place an individual at a time. And what they did is they went into an organization and said, hey, if you look at the activity around your contract worker talent acquisition, it's pretty ineffective, pretty inefficient, dispersed all over the place. My guess is you probably don't even have a handle on exactly how much you're spending. So they created a business where they went in and they actually outsourced that whole function. So they took over the contract recruiting, and they actually recruit the majority of the candidates themselves. So they're able to pass on a level of saving. So as a CFO, to me, that's a really interesting value proposition. If they can come in and save us, you know, 6%, 7%, 8% on our contractor spend, you know, I would do that every day of the week. Their consulting business is small. It's about 5%. That's focused on system implementation. Not that they do the entire system implementation, but they have a niche skill set around the talent acquisition component. So many times they get brought into an engagement like an Accenture or a PwC or Deloitte has where they're doing the broader implementation, and they bring AMS in to do the talent acquisition component of that. And then the last is skills creation. it's really resource augmentation so one of the things that we have a large technology client who's building out data centers and they need talent so they've contracted with CBRE and CBRE finds the real estate we help them find the people and then actually do the training and development of those individuals before they start work at the at the data centers and about 10% of AMS's business is doing the same thing. And again, we'll roll that into a common management structure. So I'm really excited about this acquisition. I think it's hugely transformational for us. One of the things that this is really going to change our DNA, if I go back, I walked you through how executive search worked earlier, and we had very little what we call estimated remaining fees under existing contracts, or it's really backlogged. So when I joined, we had, you know, really small amounts of backlogged. Through the transformation that we've done in the last quarter, when we announced earnings, we talked about having about $1.9 billion in backlogged, so a $3 billion company with $1.9 billion. AMS has $1.5 billion, so think about that, a $650 million organization with $1.5 billion in backlog. And that just goes to show you the strength and tenure of their client relationships. And so as you bring those two together, all of a sudden now we're going to sit there with almost $3.5 billion in backlog. So the durability, visibility, resilience of our top line and profitability will become much, much stronger with AMS. Last page, I'll just hit quickly, Tiffany. So as we think about our long-term financial model, historically we've grown kind of 10%, 11%, doing it through a combination of organic and M&A. It was about 60% organic, 40% M&A. You know, with AMS, we think it's probably going to shift a little bit to kind of 50-50. But our goal is to continue at that same CAGR that we've experienced historically. EBITDA margin, 16-18%. We've talked about that for a while now. We're right at the midpoint. I think if you simply get the synergies from AMS, that takes us to the high end, potentially through the high end of that range. You know, the one thing that I do want to get across to folks is when we guided to the second quarter, AMS was, the impact of AMS was slightly dilutive. But if you just step back and think about our $40 million commitment to drive synergies, if you simply take that $40 million tax effect at our rate of 27.5%, that creates about $29 million dollars of earnings and if you divide that by our 55 million shares outstanding you know right there we've created 52 to 53 cents a share so we definitely expect this to be a creative substantially creative as we generate those synergies and we've committed to do that within a year we generate cash flow strong cash flow generator we've always followed a balanced approach to capital allocations. Primarily, we want to put money back into the business. Next, we pay a dividend. It's a little bit north of a 3% yield, sorry. And then we buy shares back on a more what I would call opportunistic basis. One of the things that we've talked about is with the incremental debt that we've taken on with AMS, our inclination is going to be to pay down debt first versus buying shares back. But obviously, if there's significant dislocation in the share price for some macro reason, we would reevaluate that decision. So with that, Trevor, I think I did a little bit more than my 15 minutes, but why don't you ask some questions or if anybody in the audience has some questions, happy to answer.

Great. Well, thanks, Bob. You did hit on a few of my different questions already, so it was time efficiently used. So maybe let's just follow up on the Q2 guidance, because I did want to just make sure that's kind of clarified to everybody. So for one, I think it's important to point out, you're not adding back intangible amortization to adjusted EPS. Other companies out there do. And I think that higher level of amortization is part of why it's dilutive initially. Also, just to clarify, you know, the 52 to 53 cents and the 40 million of synergies, that's kind of a run rate number that you expect to get to by the end of the first year, correct? Not kind of realized all the way through.

That's right. Yeah, that's right. We're actually putting together a plan right now that we're going to meet with our board next week, a revision of our annual operating plan. And I'm working with the team to try to understand if we or when we get to 40 million within a year, how much of that do we actually realize this year? So we're working on that now. And you're right, if you think about the incremental amortization, and maybe if you peel the onion back a little bit, when we typically buy a company, about 15% of the purchase price goes to customer relationships. And when we were doing the modeling for this, we said, well, their relationships are very strong. So in our model, we bumped that up to 20%. We have PwC do our valuation. When they did the valuation, it was actually 33% of the purchase price, so much larger than we would normally see. And that's adding about $10 million of incremental amortization a quarter. And, you know, as I think about that, to me, you know, you hate to have more amortization, and to your point, we don't add it back. But what that really demonstrates is the value of the customer relationships that AMS has, right? And that's one of the driving factors behind our acquisition of them. So I look at that as good news. And basically what ended up happening, Trevor, was the EBITDA that they generate covered that and the incremental interest costs that were incurring. and then the incremental shares we issued really created a slight amount of dilution. But again, that'll go away, especially on a run-right basis within a year. Yep.

Very helpful. All right. I do want to have a couple others on AMS just because, as you mentioned, it is quite a transformational deal for you. So maybe first of all, I think AMS is best known for its premier RPO business out there. So just given that, you know, you as Corn Fairy are kind of doubling down on the RPO business, you know, one, does this, in your view, make you kind of the number one player in that market? You know, how much market share do you think you can gain with an even better solution? And then where do you see the whole kind of outsourcing industry here or the penetration opportunity for outsourcing for RPO with kind of white space you can go into over the long term?

Yeah. So I would, if I unpack that, I would say that we're definitely the leading in terms of size RPO organization in the world. If you combine their business and our business, it's kind of $850 million. You know, there's varying views on the addressable market, and obviously it's more art than science. But, you know, if you looked at what's out there, you would conclude that the market for Opportunity Force is about, you know, somewhere around $10, $11, $12 billion. And then what's estimated is that the CAGR on that through somewhere in the early 2030s is going to be somewhere between 10% to 15%. So you're talking about an opportunity that's in excess of $20 billion over time. And what we're seeing is companies are becoming much more accepting of outsourcing that activity. um i think uh we've seen that definitely i think when when i started the addressable market was probably low single digits um and we're seeing that with our clients every now and then you get one that wants to take it back in uh but what we find with those is they bring it in and then a year and a half to two years later it's back out again um so we we're you know really excited about that. And I think as you think about, even though AMS 65% of his RPO, think about it as the, especially with the other 35%, what it does, it brings a more holistic talent solution to our clients, right? And that's really what this is all about. You know, being able to become a talent partner with our clients is really important. And then when you think about, again, all the foundational assets that we can drive through that. To me, it's a really interesting value proposition.

Great. And you mentioned the 40 million of synergies you're expecting and kind of still working on the timing of how much is realized within the first year, I guess. But maybe you could help us kind of break down different components of those synergies, which ones you think might be easier or harder, quicker, slower, anything like that would be great.

Yeah, I would say that I think about it from the different buckets. So there's some real estate activity that we're going to be able to move on relatively quickly. Like they have an office in London. We have an office in London. As luck would have it, there's a tenant in our building. We actually occupy most of the building, but the tenant wants to leave. So the space will free up, so we'll shut down their office and move their people into ours. And so we'll get some savings there. And there's a couple of other locations we're able to combine pretty quickly. I would say the other areas would be more on the G&A side. You know, we don't need two auditors. We don't need two law firms. We're going to get rid of, you know, the private equity guys, you know, put a tax on their port coast. That'll go away. So it'll be some things like that that that we'll be able to get after pretty quickly. And then I would say medium term is going to be more around the other parts of G&A where we've got, you know, they have a Microsoft contract. We have one. We're going to have to work with Microsoft to sort that out. They use Microsoft Dynamics. We use Salesforce. We're going to have to sort that out. So that stuff will take a little bit longer. And then we're going to – our plan is to migrate them onto our systems May 1. Right? And at that point in time, you would probably see the majority of, if there's any actions on personnel, you would see it happen at that point in time. And then after that, they actually have established these global capability centers, and they're in Pune, in the Philippines, in Monterey, Mexico, and they've got a significant labor arbitrage with those centers. And so as I step back and I think about our ability to have Korn Ferry leverage those centers, and it's not just on the RPO and delivery side, but it's also if we have opportunities on the corporate side, different corporate functions that we can put in a low-cost labor area, we'll take advantage of that as well. And that's probably a little bit longer-term activity for us.

Great. And maybe one more on AMS, you know, since it is such a notable deal, you know, let's talk about the integration a little bit and how complex it could be. And I know that you have some learnings from the Hay Group 10 or 11 years ago. So, you know, what are you thinking in terms of complexity? What have you learned that could potentially make this one a little bit smoother?

Yeah, I think the couple of things, the Hay Group, and I hope nobody out there is listening from Hay Group, but they were probably the worst managed company I've ever seen in my life. They were 65 sort of individual franchises who just did their own thing. They had their own systems, processes, and they had a corporate function that basically just, you know, tried to add it all up together. So when we did that one, we actually had to go out to each individual country, pick it up, plug it in, then go to the next one, pick it up, plug it in. And so that was a lot of brain damage at that point in time. AMS is a really buttoned-up company. Again, they've got common platforms, common processes across the globe. I would say that their corporate functions are very sophisticated, and I would say their operating folks and business folks are extremely sophisticated. So it's going to be a little bit easier as we pick them up and move them over. You don't have to do it 65 times. It's going to be a heavy lift. Don't get me wrong, but it's going to be easier because of that. And I think the mindset and mentality, because when you come into a public company, you know, with all the SOX controls and all that stuff that we have to do, you know, people that have never experienced that before a lot of times kind of scratch their head and say, geez, this is crazy. but it's something we have to do. I think that with AMS, they're going to have an easier recognition of that. We're going to follow our playbook, and we've got a really good, strong governance model in place that sits on top of that. So I'm very confident that we'll be able to move these guys over. And, again, we'll work up a sweat, but it won't be anything like A-Group.

Okay, well, in the maybe three minutes that we have left, let's shift over to, you know, demand trends, which, you know, your revenue growth has been accelerating for, I think, six or seven straight quarters. And you've, you know, pretty clearly been outperforming a lot of the, you know, public peers you're often compared to, but still seeing acceleration. So maybe you could just talk broadly or across the solution areas. I mean, we do only have three minutes, so we'll fit in what we can. But what you're seeing from clients and, you know, new business and the revenue under contract accelerating and how that makes you feel about the outlook over the next, say, several quarters to a few years?

I would say a couple of things. I think, you know, the world definitely is filled with uncertainty and it's ebbs and flows amongst the different items every day. But I think people, at some point, you get a little bit numb and you recognize that life has to go on and I have to make some decisions. And so I think that's contributing to what we've seen. I think, you know, dynamics in the labor market, like baby boomers, I think, you know, that past five years has been really tough and people are just burned out and they want to move on. So that's, we're seeing that and that's helping us. I would also say, you know, there was a big AI overhang at one point where AI was going to take everybody's job. Now it's going to kill all of us, but, you know, it's not going to take everybody's job I think people have gotten the tools in everybody's hands. And then all of a sudden, you realize, well, how am I going to gather up all the productivity? Right? Because if you just give everybody a tool, they're all going to use it independently. And so clients are coming to us now asking for help in terms of, you know, re-architecting jobs. And when you really start to get into it and you deconstruct a job, it could be 20 tasks and you realize AI is only going to help with three of those tasks. So I still need a human. So some of that stuff is also helping us in terms of the demand generation that we're seeing. And listen, I don't see a ton of change. I think the world is still demonstrating resiliency. So, you know, we're relatively confident that, you know, the next couple of quarters are going to continue with what we've seen. And I would say with the addition of AMS, you know, once we get everybody kind of saddled down and familiar with each other, should be an accelerant for us.

All right. Excellent. Well, that was, I think, a perfect three minutes. So we are now at the time. So I think it was a great discussion. Bob, Tiffany, thank you so much for joining us as always.

Great. Great.

Thank you, everybody.

Yeah.