Korn Ferry Announces First Quarter Fiscal 2019 Results of Operations

LOS ANGELES, Sept. 6, 2018 /PRNewswire/ --

Highlights

• Korn Ferry reports fee revenue of $465.6 million in Q1 FY'19, a 16.0% increase from Q1 FY'18, driven by organic growth in all solutions.
• During the first quarter the Company announced a rebranding campaign under which it is sunsetting all sub-brands and moving to one unified brand – Korn Ferry. In connection with this, the Company incurred a charge in the amount of $106.6 million related to tradenames from prior acquisitions that the Company will no longer be using, resulting in an operating loss of $55.1 million with an operating margin of (11.8%). Adjusted EBITDA was $70.8 million with Adjusted EBITDA margin of 15.2%.
• Q1 FY'19 diluted loss per share was $0.70 compared to diluted earnings per share of $0.51 in Q1 FY'18. Adjusted diluted earnings per share was $0.78 in Q1 FY'19 compared to Adjusted diluted earnings per share in Q1 FY'18 of $0.55.
• The Company declared a quarterly dividend of $0.10 per share on September 5, 2018 payable on October 15, 2018 to stockholders of record on September 28, 2018.

Korn/Ferry International (NYSE: KFY), a global organizational consulting firm, today announced first quarter fee revenue of $465.6 million.  First quarter diluted loss per share was $0.70 and Adjusted diluted earnings per share was $0.78.  Adjusted diluted earnings per share for the first quarter excludes the $106.6 million charge as discussed above and $3.1 million related to retention awards from a prior acquisition, or $1.48 per share.

"I am pleased to report fee revenue of approximately $466 million and strong profits, with Adjusted EBITDA of approximately $71 million during our recently completed first quarter.  Overall, our revenues are up 16% year over year, with balanced growth across the firm," said Gary D. Burnison, CEO of Korn Ferry.  "As disclosed last quarter, we are sunsetting our legacy logos and migrating to one unified brand – Korn Ferry.  Over the next 15 months, we will continue to move our organization towards an industry, solution and geographic orientation to capture the substantial opportunity we have as an organizational consulting firm."

Selected Financial Results
(dollars in millions, except per share amounts) ^(a)

Fee revenue was $465.6 million in Q1 FY'19, an increase of 16.0% (15.7% increase on a constant currency basis) compared to Q1 FY'18.  The increase in fee revenue was due to organic growth in all solutions.

Operating margin was (11.8%) in Q1 FY'19 compared to 10.5% in the year-ago quarter.  The decrease in operating margin was primarily due to the $106.6 million tradename write-offs in Q1 FY'19 and an increase in compensation and benefits, partially offset by an increase in fee revenue.

Adjusted EBITDA margin was 15.2%, compared to 15.0% in the year-ago quarter.

Results by Segment

Selected Executive Search Data
(dollars in millions) ^(a)

Fee revenue was $192.9 million in Q1 FY'19, an increase of $31.7 million or 19.7% (19.3% on a constant currency basis) compared to Q1 FY'18.  The increase in fee revenue was attributable to higher fee revenue in all regions.

Operating income was $40.9 million in Q1 FY'19 compared to $32.9 million in Q1 FY'18. Operating margin was 21.2% in Q1 FY'19 compared to 20.4% in the year-ago quarter.  The increase in operating income was due to higher fee revenue in Q1 FY'19 compared to Q1 FY'18, partially offset by an increase in compensation and benefits expense driven by 3.6% increase in average headcount and an increase in performance related bonus expense.

Adjusted EBITDA was $46.8 million in Q1 FY'19 with an Adjusted EBITDA margin of 24.2% compared to $35.2 million and 21.9%, respectively, in the year-ago quarter.

Selected Advisory Data
(dollars in millions) ^(a)

Fee revenue was $195.4 million in Q1 FY'19 compared to $179.5 million in Q1 FY'18, an increase of $15.9 million or 8.9% (8.6% on a constant currency basis) compared to Q1 FY'18.  The increase in fee revenue was driven by increases in each of our Advisory solution areas, primarily from Consulting.

Operating loss was $83.1 million in Q1 FY'19 with an operating margin of (42.5%) compared to operating income of $19.1 million and an operating margin of 10.6% in the year-ago quarter.  The change of $102.2 million from operating income in the year-ago quarter to operating loss in the current quarter was primarily due to the tradename write-offs in Q1 FY'19 of $106.6 million.

Adjusted EBITDA was $34.5 million in Q1 FY'19 with an Adjusted EBITDA margin of 17.7% compared to $30.4 million and 16.9%, respectively, in the year-ago quarter.

Selected RPO and Professional Search Data
(dollars in millions) ^(a)

Fee revenue was $77.3 million in Q1 FY'19, an increase of $16.7 million or 27.6% (27.2% increase on a constant currency basis), compared to the year-ago quarter.  The higher fee revenue was primarily driven by an increase in fee revenue in recruitment process outsourcing and professional search of $9.3 million and $7.4 million, respectively, in Q1 FY'19 compared to Q1 FY'18.

Operating income was $11.6 million in Q1 FY'19, an increase of $3.4 million compared to Q1 FY'18 operating income of $8.2 million.  Operating margin was 15.1% in the current quarter compared to 13.6% in the year-ago quarter. 

EBITDA was $12.5 million during Q1 FY'19, an increase of $3.5 million compared to Q1 FY'18.  EBITDA margin was 16.2% in Q1 FY'19 and 14.9% in Q1 FY'18.

Outlook

Assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady, on a consolidated basis:

• Q2 FY'19 fee revenue is expected to be in the range of $470 million and $490 million; and
• Q2 FY'19 diluted earnings per share is likely to range between $0.73 to $0.81.

On a consolidated adjusted basis:

• Q2 FY'19 Adjusted diluted earnings per share is expected to be in the range from $0.76 to $0.84.

 

Earnings Conference Call Webcast

The earnings conference call will be held today at 4:30 PM (EDT) and hosted by CEO Gary Burnison, CFO Robert Rozek and SVP Finance Gregg Kvochak.  The conference call will be webcast and available online at ir.kornferry.com.  We will also post to this section of our website earnings slides, which will accompany our webcast, and other important information, and encourage you to review the information that we make available on our website.

About Korn Ferry

Korn Ferry is a global organizational consulting firm.  We help clients synchronize strategy and talent to drive superior performance.  We work with organizations to design their structures, roles, and responsibilities.  We help them hire the right people to bring their strategy to life.  And we advise them on how to reward, develop, and motivate their people.  Visit kornferry.com for more information.

Forward-Looking Statements

Statements in this press release and our conference call that relate to future results and events ("forward-looking statements") are based on Korn Ferry's current expectations.  These statements, which include words such as "believes", "expects" or "likely", include references to our outlook.  Readers are cautioned not to place undue reliance on such statements.  Actual results in future periods may differ materially from those currently expected or desired because of a number of risks and uncertainties that are beyond the control of Korn Ferry.  The potential risks and uncertainties include those relating to competition, changes in demand for our services as a result of automation, the dependence on attracting and retaining qualified and experienced consultants, our ability to maintain relationships with customers and suppliers and retain key employees, maintaining our brand name and professional reputation, potential legal liability and regulatory developments, the portability of client relationships, global and local political or economic developments in or affecting countries where we have operations, currency fluctuations in our international operations, risks related to growth, alignment of our cost structure, restrictions imposed by off-limits agreements, reliance on information processing systems, cyber security vulnerabilities, changes to data security, data privacy and data protection laws, limited protection of our intellectual property, our ability to enhance and develop new technology, our ability to develop new products and services, the utilization and billing rates of our consultants, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, tax accounting effects of the Tax Act, impairment of goodwill and other intangible assets, deferred tax assets that we may not be able to use, seasonality, risks related to the integration of recently acquired businesses and employment liability risk.  For a detailed description of risks and uncertainties that could cause differences, please refer to Korn Ferry's periodic filings with the Securities and Exchange Commission.  Korn Ferry disclaims any intention or obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.

Use of Non-GAAP Financial Measures

This press release contains financial information calculated other than in accordance with U.S. Generally Accepted Accounting Principles ("GAAP").  In particular, it includes:

• Adjusted net income attributable to Korn/Ferry International, adjusted to exclude restructuring charges, net, integration/acquisition costs and tradename write-offs, net of income tax effect;
• Adjusted basic and diluted earnings per share, adjusted to exclude restructuring charges, net, integration/acquisition costs and tradename write-offs, net of income tax effect; and in the case of the outlook section, also adjusted for tax rate impact;
• Constant currency (calculated using a quarterly average) amounts that represent the outcome that would have resulted had exchange rates in the reported period been the same as those in effect in the comparable prior year period;
• EBITDA, or earnings before interest, taxes, depreciation and amortization and EBITDA margin; and
• Adjusted EBITDA, which is EBITDA further adjusted to exclude restructuring charges, net, integration/acquisition costs and tradename write-offs, and Adjusted EBITDA margin.

This non-GAAP disclosure has limitations as an analytical tool, should not be viewed as a substitute for financial information determined in accordance with GAAP, and should not be considered in isolation or as a substitute for analysis of the Company's results as reported under GAAP, nor is it necessarily comparable to non-GAAP performance measures that may be presented by other companies.

Management believes the presentation of non-GAAP financial measures in this press release provides meaningful supplemental information regarding Korn Ferry's performance by excluding certain charges and other items that may not be indicative of Korn Ferry's ongoing operating results.  These non-GAAP financial measures are performance measures and are not indicative of the liquidity of Korn Ferry.  These charges represent 1) costs we incurred to acquire and integrate a portion of our Advisory business, 2) charges we incurred to restructure the combined company due to the acquisition of a portion of our Advisory business, and 3) tradename write-offs associated with the rebranding plan initiated by Korn Ferry.  The use of non-GAAP financial measures facilitates comparisons to Korn Ferry's historical performance.  Korn Ferry includes non-GAAP financial measures because management believes they are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making.  Management further believes that EBITDA is useful to investors because it is frequently used by investors and other interested parties to measure operating performance among companies with different capital structures, effective tax rates and tax attributes and capitalized asset values, all of which can vary substantially from company to company.  In the case of constant currency amounts, management believes the presentation of such information provides useful supplemental information regarding Korn Ferry's performance as excluding the impact of exchange rate changes on Korn Ferry's financial performance allows investors to make more meaningful period-to-period comparisons of the Company's operating results, to better identify operating trends that may otherwise be masked or distorted by exchange rate changes and to perform related trend analysis, and provides a higher degree of transparency of information used by management in its evaluation of Korn Ferry's ongoing operations and financial and operational decision-making. 

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SOURCE Korn Ferry