Korn Ferry's Q2 2025 to Q2 Earnings Call: Contradictions Emerge on Referral Trends, Digital Strategy, and Executive Search Growth Drivers

Date of Call: None provided

Financials Results

• Revenue: $722 million, up 7% year-over-year
• EPS: $1.33 adjusted diluted EPS, up $0.12 or 10% year-over-year

Guidance:

• Fee revenue for Q3 FY'26 expected to be $680M to $694M.
• Adjusted EBITDA margin expected to be approximately 17.2% to 17.4%.
• Consolidated adjusted diluted EPS expected $1.19 to $1.25; GAAP diluted EPS expected $1.15 to $1.21.
• Guidance assumes no material changes in geopolitical, economic, financial markets or FX and accounts for year-end holidays.

Business Commentary:

• **Revenue and Profitability Growth:
• Korn Ferry reported consolidated fee revenue of $722 million for Q2, up 7% year-over-year.
• Earnings and profitability remained strong, with adjusted EBITDA growing $8 million, and adjusted diluted earnings per share increasing by 10% year-over-year.

• Growth was attributed to the intentional execution of their strategy, focusing on client centricity and leveraging foundational assets.

• **Executive Search Performance:

• Executive Search fee revenue grew 10%, marking the sixth consecutive quarter of year-over-year growth.

• This trend was driven by increased demand for leadership skills, baby boomer retirements, and a shift in work-life balance among C-suites.

• **RPO and Digital Solutions:

• RPO delivered $253 million in new business, with 16% from new logos and 84% from renewals.
• Subscription and licensed new business in Digital grew to 43% of the solution's total new business.
• The strong performance in RPO was due to the quality of IP and AI integration, while the shift in Digital strategy aimed to pivot towards enterprise-oriented solutions.

• **Cross-referral Success:
• Business referrals grew to 27.6% of consolidated fee revenue, approximately 250 basis points year-over-year and quarter sequential.
• This increase was attributed to the We Are Korn Ferry go-to-market evolution, emphasizing integration and client partnerships across solutions.
  

  Sentiment Analysis:

  Overall Tone: Positive

  • "In the quarter, our performance was outstanding," and "I'm more confident and excited than I have ever been about what this company can become." Management also reported concrete improvements: "Consolidated fee revenue grew 7% year-over-year to $722 million," adjusted EBITDA rose 7% to $125 million and adjusted diluted EPS increased 10% to $1.33, supporting an upbeat tone.

Q&A:

• Question from Joshua Chan (UBS): It seems like the Executive Search business continues to perform well. Could you talk about where you're seeing the sources of strength within North America and how you think about the business in light of slower job market velocity, but you're still posting pretty good results?
  Response: Growth driven by secular demand for new leadership skills, baby-boomer retirements ("Peak 65"), shifting leader priorities and stronger internal referrals/cross-sell under the 'We Are Korn Ferry' one-business model.

• Question from Joshua Chan (UBS): On referrals, where has it been historically and where could it go as you focus more on this strategy?
  Response: Referrals historically ~25-26%, recently ~28%; management targets ~35% over time by pivoting to one integrated go-to-market approach and better mobilizing ~1,800 originators.

• Question from Trevor Romeo (William Blair): Are the improvements you're seeing driven by clients becoming more willing to hire/spend or mainly cross-sell efforts from the 'We Are Korn Ferry' strategy?
  Response: Primarily the strategy and cross-sell/integration are driving improvement (including strong RPO renewals and AI-enabled IP); macro hasn't meaningfully changed—green shoots exist but not a broad market shift.

• Question from Trevor Romeo (William Blair): Consulting bill rates were up ~10% Y/Y — is this mix (senior vs junior) or service mix driving it, and is AI pressuring pricing?
  Response: Higher rates reflect a mix shift to larger, higher-value integrated engagements (org strategy etc.), with many >$500k projects; AI hasn't driven pricing pressure—focus is on impact rather than bill‑rate alone.

• Question from Sami on behalf of George Tong (Goldman Sachs): Search typically steps down in Q3; with current new business strength, should we expect different seasonality — can new business offset usual Q3 softness?
  Response: No — guidance already factors in year-end holiday seasonality; new business strength isn't modeled to offset the typical Q3 step-down.

• Question from Sami on behalf of George Tong (Goldman Sachs): Consulting: bill rates strong but margins flat — how much runway remains in shifting mix to higher-value work and do delivery costs cap margin upside?
  Response: Substantial runway remains; firm has moved from small assessments to transformational 'health and wellness' engagements (~40% of new consulting business >$500k) and can scale margin by leveraging IP and adding talent.

• Question from Tobey Sommer (Truist): In Search, are AI tools shortening time-to-fill or are customers using saved time to request more work so durations remain similar?
  Response: Search is more efficient now (tech + remote work), with AI having larger impact in RPO; Executive Search remains high-touch so productivity gains are present but limited in scope.

• Question from Tobey Sommer (Truist): Can you unpack the sunsetting of the old system, the accounting impact, and why it was done relative to the new Talent Suite?
  Response: Talent Suite (launched Nov 17) consolidated disparate repos into one SSO, harmonized data and analytics; sunsetting the old Talent Hub led to accelerated depreciation of undepreciated costs, which produced the quarter's accounting impact.

• Question from Tobey Sommer (Truist): What are your expectations for the financial impact from Talent Suite?
  Response: Expected to be materially positive over time by enabling cross-sell/licensing of IP (e.g., pay transparency and job architecture opportunities), though adoption and monetization will take time.

• Question from Tobey Sommer (Truist): Have you seen any change in competitor behavior or diverse hiring since a competitor went public?
  Response: No observed change in competitive dynamics or candidate/client behavior; major firms all retain strong positioning.

• Question from Alex Sinatra (Robert W. Baird): Digital declined a bit — what drove that and what should we expect for new sales pace in that business?
  Response: Decline was intentional: reduced sellers ~35% to refocus on enterprise sellers and pivot to licensing; timing also impacted by a couple of large transformational deals slipping into the next quarter—expect improvement as enterprise capability is added.

• Question from Alex Sinatra (Robert W. Baird): On new RPO contracts, where are they coming from — switches from other firms vs new-to-RPO vs cross-sell?
  Response: About 75% were renewals (marquee/diamond house accounts, especially industrial and healthcare) and ~25% new logos; strong renewals reflect solution quality and significant cross-sell/referral contribution.

Contradiction Point 1

Referral Trends within the Firm

It involves the shift in referral trends within the firm, which impacts the company's growth strategy and client acquisition.

Where have referrals historically been, and where do you expect them to go with increased strategy focus? - Joshua Chan (UBS)

20251209-2026 Q2: Historically, business referrals were around 25%-26%, but we aim to increase them to a good 35%. We are using only 10% of our potential. - Gary Burnison(CEO)

What are the key milestones for the November Talent Suite rollout? - Trevor Romeo (William Blair)

2026Q1: Our strategy is to leverage this integrated IP foundation to drive greater cross-selling, and we are seeing that element of our strategy accelerate. Referrals are now at close to 28%. - Gary Burnison(CEO)

Contradiction Point 2

Digital Segment's Strategy and Performance

It involves the strategic shift and performance of the Digital segment, which impacts the company's growth and competitive positioning.

What caused the decline in the Digital segment? What is the outlook for future sales growth? - Alex Sinatra (Robert W. Baird)

20251209-2026 Q2: We've reduced the number of sellers in Digital by 35% to focus on enterprise-level engagement. Complex deals are now being secured, and some were initially expected in the previous quarter. - Gary Burnison(CEO)

Why was there a significant reduction in Digital consultants? - George Tong (Goldman Sachs)

2026Q1: We have pruned back the number of sellers in the digital business by approximately 35% as we focus on higher-value enterprise transactions that we believe will be more accretive. - Gary Burnison(CEO)

Contradiction Point 3

Executive Search Growth Drivers

It involves the primary reasons behind the growth in the executive search business, which is crucial for understanding the company's strategic direction and market positioning.

What are the key sources of strength in North America for the Executive Search business? How is the business adapting to slower job market growth while maintaining strong performance? - Joshua Chan(UBS)

20251209-2026 Q2: Growth in Executive Search is driven by a realization that past leadership skills won't suffice, baby boomer retirements, and work-life balance considerations. The retirement of baby boomers, or 'Peak 65,' is an important factor, with approximately 4 million Americans retiring over several years. - Gary Burnison(CEO)

Can you discuss new business trends and how they've been impacted by recent geopolitical events, April's tariff announcements, and business confidence trends? And what are the executive search trends, particularly peak age demographics and turnover rates? - Trevor Romeo(William Blair)

2025Q4: Executive search has been consistent, and the growth is attributed to demographic factors and demand for new types of leaders. - Gary Burnison(CEO)

Contradiction Point 4

Influence of AI on Consulting Business Pricing

It addresses the impact of AI on pricing in the consulting business, which can significantly influence revenue and market positioning.

Does AI have any impact on consulting pricing? - Trevor Romeo(William Blair)

20251209-2026 Q2: We've seen no negative impact from AI on consulting pricing. The bill rate has steadily climbed, and our consulting solution is now more holistic, focusing on large, impactful engagements. - Gary Burnison(CEO)

Can you provide an update on sales cycles and client spending behavior evolution across segments, and consulting and digital new business performance year-over-year? - Keen Fai Tong(Goldman Sachs)

2025Q4: Digital solutions have been consistent despite the recessionary environment. - Robert Rozek(CFO)

Contradiction Point 5

Retirement of Baby Boomers and Market Demand

It involves differing perspectives on the impact of baby boomer retirements on market demand, which affects business strategy and future outlook.

Where are the key sources of strength for the Executive Search business in North America? - Joshua Chan(UBS)

20251209-2026 Q2: The retirement of baby boomers, or 'Peak 65,' is an important factor, with approximately 4 million Americans retiring over several years. - Gary Burnison(CEO)

What drove the growth in the North America Executive Search business, and is a recovery expected? - Karandeep Singhania(UBS)

2025Q3: The growth reflects the firm's strategic success and macro trends like Peak 65 and work-life balance shifts. - Gary Burnison(CEO)