Korn Ferry posts revenue and EBITDA gains but faces operating cash burn despite ample liquidity

Korn Ferry (NYSE: KFY) - Quick read on what's happening inside

Short take: top-line momentum continues but operating cash use and cost pressure are notable. The company grew revenue and adjusted EBITDA year-over-year while absorbing higher severance, cost of services and depreciation tied to a digital platform sunset. Liquidity remains solid with a refreshed $850M credit facility and large cash & marketable securities balances.

Key points & statistics
* Fee revenue: $708,613 (in thousands) - up 5% YoY ($674,946 in Q1 FY'25).
* Total revenue: $715,543 (in thousands).
* Net income attributable to Korn Ferry: $66,636 (in thousands) - up 6% YoY ($62,604).
* Diluted EPS: $1.26 (Q1 FY'26) vs $1.17 (Q1 FY'25).
* Adjusted EBITDA: $120,394 (in thousands) - up 8% YoY; margin 17.0% (+50 bps).
* Operating income: $83,448 (in thousands).
* Cash and cash equivalents: $684,855 (in thousands) at July 31, 2025 (down from $1,006,964 at April 30, 2025).
* Cash & marketable securities combined: $963,132 (in thousands) at July 31, 2025; net of trusts $617,700 (in thousands).
* Net cash used in operating activities: $(237,367) (in thousands) for the quarter.
* Accounts receivable, net: $600,362 (in thousands). Days sales outstanding increased from 58 to 64 days.
* Long-term debt (Notes): $400,000 principal; long-term borrowings net $397,939 (in thousands).
* Credit facility: new $850.0 million five‑year revolving facility (entered July 1, 2025).
* Quarterly dividend declared/paid in period: $0.48 per share; dividends paid $26,209 (in thousands).
* Repurchases: 145,770 shares for $9,900 (in thousands) in the quarter; $83.9M remaining buyback capacity.

Positive aspects of the income statement
* Revenue growth across key businesses - Fee revenue rose 5% YoY to $708,613 (in thousands); Executive Search total $224,253 (in thousands), +8% YoY.
* Strong profitability expansion on a non-GAAP basis - Adjusted EBITDA increased to $120,394 (in thousands) and margin expanded to 17.0%.
* GAAP net income and EPS improved - net income attributable to Korn Ferry $66,636 (in thousands), diluted EPS $1.26 (+8% vs prior year).
* Digital and Professional Search & Interim showed healthy segment performance: Digital Adjusted EBITDA margin ~31%; Professional Search & Interim fee revenue +10% YoY.

Negative aspects / warning signs in the income statement
* Operating cash burn: net cash used in operating activities $(237,367) (in thousands) despite reported net income - working capital and timing (bonuses, DSO) pressured cash.
* Large quarter-over-quarter cash decline: cash fell from $1,006,964 to $684,855 (in thousands) - a $322,109 (in thousands) decrease.
* Rising personnel and restructuring costs: compensation & benefits expense increased to $461,411 (in thousands), driven in part by $12.5M of severance-related expense noted in the quarter.
* Cost of services jumped to $77,194 (in thousands), up $9.7M YoY - interim placements (higher cost content) contributed materially.
* Depreciation & amortization rose to $22,686 (in thousands), linked to accelerated amortization as the company sunsets an older Digital platform.
* Credit risk and receivables: allowance for doubtful accounts increased to $41,497 (in thousands); receivables are elevated at $600,362 (in thousands) and DSO moved to 64 days.
* Effective tax rate increased to 27.2% (from 25.8%), raising the tax drag on incremental profit.
* Market-sensitive other income down: gains on ECAP-trust marketable securities were smaller (other income $12,752 vs $14,505 prior year).
* Material long-term debt outstanding ($400,000 principal) with maturity in 2027 warrants monitoring of refinancing risk / leverage metrics.

Internal actions & liquidity posture
* Capital allocation: Board increased dividend to $0.48 per quarter and continues opportunistic buybacks (remaining program ~$83.9M).
* Balance sheet: working capital $816,521 (in thousands) and ample available capacity under new $850M Facility ($845.6M available after letters of credit as of July 31, 2025).
* Management flagged investments in Growth (hiring, IP, M&A) while keeping dividends and repurchases in play subject to covenant compliance.

Bottom line: Korn Ferry shows steady revenue and EBITDA growth with improving EPS, but profitability gains are partially offset by higher severance, cost of services and non-cash charges (depreciation). The cash flow profile is the main watch item - significant operating cash outflow and a large quarter cash drawdown require monitoring, even though liquidity (cash + securities + credit facility) remains strong today.