Korn Ferry International Announces Second Quarter Fiscal 2018 Results of Operations

LOS ANGELES, Dec. 6, 2017 /PRNewswire/ --

Highlights

  • Korn Ferry reports record fee revenue of $443.0 million in Q2 FY'18 driven by organic growth in all three lines of business as compared to Q2 FY'17:

 


Futurestep


16.7%



Executive Search


13.2%



Hay Group


5.9%


 

  • Operating income was $51.2 million in Q2 FY'18 with an operating margin of 11.6%. Adjusted EBITDA was $69.6 million with Adjusted EBITDA margin of 15.7%.
  • Q2 FY'18 diluted earnings per share was $0.64 compared to diluted earnings per share of $0.52 in Q2 FY'17. Adjusted diluted earnings per share was $0.67 in Q2 FY'18, compared to adjusted diluted earnings per share in Q2 FY'17 of $0.59.
  • The Company continued to return capital to stockholders during the quarter, paying $5.7 million in dividends and repurchasing $25.2 million worth of its outstanding shares.
  • The Company declared a quarterly dividend of $0.10 per share on December 6, 2017 payable on January 12, 2018 to stockholders of record on December 20, 2017.

Korn/Ferry International (NYSE: KFY), the preeminent global people and organizational advisory firm, today announced record fee revenue of $443.0 million for its second quarter of fiscal 2018.  In addition, second quarter diluted earnings per share was $0.64 and adjusted earnings per share was $0.67.  Adjusted diluted earnings per share for the second quarter excluded $1.5 million, or $0.03 per share, mainly driven by integration/acquisition costs net of related taxes.

"I am pleased to report fee revenue of $443 million, an all-time high, up 10% year over year for our recently completed second quarter.  Profits were solid, with diluted earnings per share and adjusted diluted earnings per share of $0.64 and $0.67 and Adjusted EBITDA of approximately $70 million," said Gary D. Burnison, CEO of Korn Ferry.  "Korn Ferry has evolved into a full-fledged consulting firm, with offerings that span search, organizational advisory services, strategy execution, leadership development, compensation and rewards and more.  The acquisitions we have made over the years, the talent we have brought on board and our relentless focus on solutions aligned toward our clients' business outcomes are making a notable impact.  I look forward to what the future holds as we enter calendar year 2018."     

Selected Financial Results

(dollars in millions, except per share amounts) (a)





Second Quarter


Year to Date




FY'18


FY'17


FY'18


FY'17



Fee revenue

$       443.0


$      401.9


$   844.3


$     777.5



Total revenue

$       455.5


$      415.0


$   870.4


$     807.9



Operating income

$         51.2


$        46.5


$     92.0


$       51.1



Operating margin

11.6%


11.6%


10.9%


6.6%



Net income attributable to Korn Ferry

$         36.3


$        30.2


$     65.4


$       33.4



Basic earnings per share

$         0.65


$        0.53


$     1.16


$       0.59



Diluted earnings per share

$         0.64


$        0.52


$     1.15


$       0.58













EBITDA Results (b):

Second Quarter


Year to Date




FY'18


FY'17


FY'18


FY'17



EBITDA

$        67.4


$       57.5


$    123.9


$     77.7



EBITDA margin

15.2%


14.3%


14.7%


10.0%













Adjusted Results (c):

Second Quarter


Year to Date




FY'18


FY'17


FY'18


FY'17



Adjusted fee revenue

$      443.0


$     401.9


$    844.3


$    781.1



Adjusted EBITDA (b)

$        69.6


$       63.3


$    128.9


$    119.7



Adjusted EBITDA margin (b)

15.7%


15.7%


15.3%


15.3%



Adjusted net income attributable to Korn Ferry

$        37.8


$       34.1


$      69.0


$      63.6



Adjusted basic earnings per share

$        0.68


$       0.60


$      1.23


$      1.12



Adjusted diluted earnings per share

$        0.67


$       0.59


$      1.21


$      1.11



___________

(a)

Numbers may not total due to rounding.

(b)

EBITDA refers to earnings before interest, taxes, depreciation and amortization.  Adjusted EBITDA further adjusts EBITDA to exclude restructuring (recoveries) charges, net and integration/acquisition costs and includes the FY'17 deferred revenue adjustment related to the acquisition of HG (Luxembourg) S.à.r.l ("Legacy Hay").  EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations). 

(c)

Adjusted results are non-GAAP financial measures that adjust for the following, as applicable (see attached reconciliations):

 


Second Quarter


Year to Date



FY'18


FY'17


FY'18


FY'17


Integration/acquisition costs

$                2.4


$              5.8


$           5.0


$           13.8


Restructuring (recoveries) charges, net

$              (0.2)


$               —


$           0.1


$           24.5


Deferred revenue adjustment related to the Legacy Hay acquisition

$                 —


$               —


$            —


$             3.5


Write-off of debt issuance costs

$                 —


$               —


$            —


$             1.0


The Company reported record fee revenue in Q2 FY'18 of $443.0 million, an increase of $41.1 million or 10.2% (an increase of $35.9 million or 8.9% on a constant currency basis) compared to Q2 FY'17.  The organic growth was driven by all three lines of business:

Futurestep


16.7%


Executive Search


13.2%


Hay Group


5.9%


Fee revenue growth in the quarter was partially offset by increased compensation and benefits as well as general and administrative expenses resulting in operating income and Adjusted EBITDA each growing 10% as compared to Q2 FY'17 and diluted earnings per share and Adjusted diluted earnings per share growing 23.1% and almost 13.6%, respectively, as compared to Q2 FY'17.

Results by Segment




Selected Executive Search Data


(dollars in millions) (a)





Second Quarter


Year to Date




FY'18


FY'17


FY'18


FY'17



Fee revenue

$       176.8


$   156.2


$       338.0


$    302.6



Total revenue

$       180.6


$   160.6


$       346.4


$    312.1



Operating income

$         35.2


$     37.4


$         68.0


$      64.4



Operating margin

19.9%


24.0%


20.1%


21.3%













Ending number of consultants

538


501


538


501



Average number of consultants

535


495


528


495



Engagements billed

3,723


3,486


5,752


5,312



New engagements (b)

1,578


1,509


3,171


2,955













EBITDA Results (c):

Second Quarter


Year to Date




FY'18


FY'17


FY'18


FY'17



EBITDA

$         37.6


$       39.0


$      72.8


$      67.9



EBITDA margin

21.3%


25.0%


21.5%

%

22.4%













Adjusted Results (d):

Second Quarter


Year to Date




FY'18


FY'17


FY'18


FY'17



Adjusted EBITDA (c)

$        37.9


$       39.0


$      73.1


$      70.7



Adjusted EBITDA margin (c)

21.5%


25.0%


21.6%

%

23.4%



___________

(a)

Numbers may not total due to rounding.

(b)

Represents new engagements opened in the respective period.

(c)

EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).

(d)

Adjusted results are non-GAAP financial measures that exclude the following (see attached reconciliations):

 


Second Quarter


Year to Date



FY'18


FY'17


FY'18


FY'17


Restructuring charges, net

$                 0.3


$                —


$             0.3


$               2.8


Fee revenue was $176.8 million in Q2 FY'18, an increase of $20.6 million or 13.2% (an increase of $18.6 million or 11.9% on a constant currency basis) compared to Q2 FY'17.  The overall increase in fee revenue was attributable to higher fee revenue in the North American, EMEA and APAC regions.

Operating income was $35.2 million in Q2 FY'18 compared to $37.4 million in Q2 FY'17.  Operating margin was 19.9% in Q2 FY'18 compared to 24.0% in the year-ago quarter.  The decrease in operating income was due to increases in compensation expenses driven by an 8.4% increase in headcount and an increase in the amounts owed under certain deferred compensation plans.  In addition, there were increases in general and administrative expenses due to unfavorable impact of foreign exchange rates and slightly higher bad debt expense.

Adjusted EBITDA was $37.9 million in Q2 FY'18 with an adjusted EBITDA margin of 21.5% compared to $39.0 million and 25.0%, respectively, in the year-ago quarter.  

Selected Hay Group Data


(dollars in millions) (a)





Second Quarter


Year to Date




FY'18


FY'17


FY'18


FY'17



Fee revenue

$      200.0


$    188.8


$     379.4


$   363.4



Total revenue

$      203.8


$    192.4


$     387.1


$   373.9



Operating income

$        26.4


$      22.9


$       45.5


$     15.2



Operating margin

13.2%


12.1%


12.0%


4.2%













Ending number of consultants (b)

594


563


594


563



Staff utilization (c)

67%


69%


65%


68%













EBITDA Results (d):

Second Quarter


Year to Date




FY'18


FY'17


FY'18


FY'17



EBITDA

$        34.6


$     31.0


$       61.8


$      31.5



EBITDA margin

17.3%


16.4%


16.3%


8.7%













Adjusted Results (e):

Second Quarter


Year to Date




FY'18


FY'17


FY'18


FY'17



Adjusted fee revenue

$      200.0


$    188.8


$     379.4


$    367.0



Adjusted EBITDA (d)

$        36.4


$      35.3


$       66.4


$      65.1



Adjusted EBITDA margin (d)

18.2%


18.7%


17.5%


17.7%



___________

(a)

Numbers may not total due to rounding.

(b)

Represents number of employees originating consulting services. 

(c)

Calculated by dividing the number of hours our full-time Hay Group professional staff record to engagements during the period, by the total available working hours during the same period.

(d)

EBITDA, EBITDA margin, Adjusted EBITDA and Adjusted EBITDA margin are non-GAAP financial measures (see attached reconciliations).

(e)

Adjusted results are non-GAAP financial measures that adjust for the following, as applicable (see attached reconciliations):

 


Second Quarter


Year to Date



FY'18


FY'17


FY'18


FY'17


Integration/acquisition costs

$                 2.3


$                4.4


$                4.9


$               8.6


Restructuring (recoveries) charges, net

$                (0.5)


$                  —


$              (0.2)


$             21.5


Deferred revenue adjustment related to the Legacy Hay acquisition

$                   —


$                  —


$                 —


$               3.5


Fee revenue was $200.0 million in Q2 FY'18 compared to $188.8 million in Q2 FY'17, an increase of $11.2 million or 5.9% (an increase of $8.9 million or 4.7% on a constant currency basis) compared to Q2 FY'17.  The increase in fee revenue was primarily driven by increases in consulting services.

Operating income was $26.4 million in Q2 FY'18 with an operating margin of 13.2% in the current quarter compared to $22.9 million and 12.1%, respectively, in the year-ago quarter.  The change in operating income was primarily due to higher fee revenue compared to the year-ago quarter, offset by increases in compensation and benefits expense and general and administrative expenses driven by a 2.5% increase in headcount and the unfavorable impact of foreign exchange rates.

Adjusted EBITDA was $36.4 million in Q2 FY'18 with an Adjusted EBITDA margin of 18.2% compared to $35.3 million and 18.7%, respectively, in the year-ago quarter.  

Selected Futurestep Data


(dollars in millions) (a)





Second Quarter


Year to Date




FY'18


FY'17


FY'18


FY'17



Fee revenue

$       66.3


$       56.8


$     126.9


$    111.5



Total revenue

$       71.0


$       62.0


$     136.9


$    121.9



Operating income

$         9.4


$         7.8


$       17.6


$      15.3



Operating margin

14.2%


13.7%


13.9%


13.7%













Engagements billed (b)

1,228


1,025


1,907


1,595



New engagements (c)

711


559


1,443


1,078













EBITDA Results (d):

Second Quarter


Year to Date




FY'18


FY'17


FY'18


FY'17



EBITDA

$       10.2


$         8.5


$       19.2


$      16.6



EBITDA margin

15.4%


14.9%


15.2%


14.9%



___________

(a)

Numbers may not total due to rounding.

(b)

Represents search engagements billed.

(c)

Represents new search engagements opened in the respective period.

(d)

EBITDA and EBITDA margin are non-GAAP financial measures (see attached reconciliations).

Fee revenue was $66.3 million in Q2 FY'18, an increase of $9.5 million or 16.7% (a $8.6 million or 15.1% increase on a constant currency basis), compared to the year-ago quarter.  The higher fee revenue was primarily driven by an increase in recruitment process outsourcing and professional search of $7.3 million and $2.8 million, respectively, in Q2 FY'18 compared to Q2 FY'17.

Operating income was $9.4 million in Q2 FY'18, an increase of $1.6 million compared to Q2 FY'17 operating income of $7.8 million.  Operating margin was 14.2% in the current quarter compared to 13.7% in the year-ago quarter.  The change in operating income was primarily due to higher fee revenue compared to the year-ago quarter, offset by increases in compensation and benefits expense and general and administrative expenses driven by a 16.1% increase in headcount associated with increased recruitment process outsourcing engagements and higher premise costs and bad debt expense.

EBITDA was $10.2 million during Q2 FY'18, an increase of $1.7 million compared to Q2 FY'17. EBITDA margin was 15.4% in Q2 FY'18 compared to 14.9% in the year-ago quarter.

Outlook

Assuming worldwide economic conditions, financial markets and foreign exchange rates remain steady and no changes in U.S. tax laws, on a consolidated basis:

  • Q3 FY'18 fee revenue is expected to be in the range of $406 million and $426 million; and
  • Q3 FY'18 diluted earnings per share is likely to range between $0.51 to $0.59.

On a consolidated adjusted basis:

  • Q3 FY'18 adjusted diluted earnings per share is expected to be in the range from $0.54 to $0.62.

Q3 FY'18

Earnings Per Share
Outlook
(1)



Low


High


Consolidated diluted earnings per share

$                            0.51


$                         0.59


  Retention bonuses

0.04


0.04


  Tax rate impact

(0.01)


(0.01)


Consolidated adjusted diluted earnings per share

$                            0.54


$                         0.62


___________

(1)

Consolidated adjusted diluted earnings per share is a non-GAAP financial measure that excludes the items listed in the table.

Earnings Conference Call Webcast

The earnings conference call will be held today at 4:30 PM (EST) 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 the preeminent global people and organizational advisory firm.  We help leaders, organizations and societies succeed by releasing the full power and potential of people.  Our more than 7,000 colleagues deliver services through Executive Search, Hay Group and Futurestep divisions.  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 successfully integrate acquired businesses including Legacy Hay, our ability to recognize the anticipated benefits of the acquisition of Legacy Hay which may be affected by, among other things, competition, our ability to grow and manage growth profitability, maintain relationships with customers and suppliers and retain key employees, costs related to the acquisition of Legacy Hay, maintaining our brand name and professional reputation, potential legal liability, 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 with our growth, 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, consolidation of industries we serve, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, changes in U.S. tax laws, impairment of goodwill and other intangible assets, deferred tax assets, seasonality, our ability to successfully rationalize our cost structure 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 (recoveries) charges, net, integration/acquisition costs and write-off of debt issuance costs and to include the deferred revenue adjustment related to the Legacy Hay acquisition, net of income tax effect;
  • adjusted basic and diluted earnings per share, adjusted to exclude restructuring (recoveries) charges, net, integration/acquisition costs and write-off of debt issuance costs and to include the deferred revenue adjustment related to the Legacy Hay acquisition, 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;
  • Adjusted EBITDA, which is EBITDA further adjusted to exclude restructuring (recoveries) charges, net and integration/acquisition costs and to include the deferred revenue adjustment related to the Legacy Hay acquisition and Adjusted EBITDA margin; and
  • adjusted fee revenue, which includes revenue that Hay Group would have realized over the ensuing year if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue.

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 the Legacy Hay acquisition, 2) charges we incurred to restructure the combined company due to the acquisition of Legacy Hay, 3) debt issuance costs written-off upon replacement of our credit facility and 4) revenue that Hay Group would have realized if not for business combination accounting that requires a company to record the acquisition balance sheet at fair value and write-off deferred revenue where no future services are required to be performed to earn that revenue.  As such, reported fee revenue can make fee revenue and operating results appear to fluctuate more than they would if business combination accounting did not require deferred revenue to be written off. Adjusted fee revenue is not a measure that substitutes an individually tailored revenue recognition or measurement method for those of GAAP, rather, it is an adjustment for a short period of time that will provide better comparability in the current and future periods.  Management believes the presentation of adjusted fee revenue assists management in its evaluation of ongoing operations and provides useful information to investors because it 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 distorted by write-offs required under business combination accounting 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.  Management no longer has adjusted fee revenue after Q1 FY'17.  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. 

[Tables attached]

KORN FERRY AND SUBSIDIARIES

 CONSOLIDATED STATEMENTS OF INCOME 

 (in thousands, except per share amounts) 













 Three Months Ended 


 Six Months Ended 



 October 31 


 October 31 



2017


2016


2017


2016



 (unaudited) 

 Fee revenue 


$ 443,018


$ 401,917


$ 844,272


$ 777,538

 Reimbursed out-of-pocket engagement expenses 


12,450


13,037


26,113


30,349

           Total revenue 


455,468


414,954


870,385


807,887










 Compensation and benefits 


301,043


270,609


574,997


533,576

 General and administrative expenses 


58,603


54,134


116,864


109,476

 Reimbursed expenses 


12,450


13,037


26,113


30,349

 Cost of services 


19,883


18,874


35,696


35,706

 Depreciation and amortization 


12,447


11,752


24,656


23,196

 Restructuring (recoveries) charges, net 


(202)


-


78


24,520

           Total operating expenses 


404,224


368,406


778,404


756,823










 Operating income 


51,244


46,548


91,981


51,064

 Other income (loss), net 


3,626


(879)


7,158


3,380

 Interest expense, net 


(2,579)


(2,736)


(5,239)


(5,797)

           Income before provision for income taxes and equity in earnings of unconsolidated subsidiaries 


52,291


42,933


93,900


48,647

 Equity in earnings of unconsolidated subsidiaries 


60


29


90


108

 Income tax provision 


15,619


11,906


27,829


13,631

 Net income 


36,732


31,056


66,161


35,124

           Net income attributable to noncontrolling interest 


(401)


(904)


(789)


(1,764)

 Net income attributable to Korn/Ferry International 


$   36,331


$   30,152


$   65,372


$   33,360










 Earnings per common share attributable to Korn/Ferry International: 









      Basic 


$       0.65


$       0.53


$       1.16


$       0.59

      Diluted 


$       0.64


$       0.52


$       1.15


$       0.58










 Weighted-average common shares outstanding: 









      Basic 


55,390


56,614


55,592


56,401

      Diluted 


55,978


56,983


56,252


56,863










 Cash dividends declared per share: 


$       0.10


$       0.10


$       0.20


$       0.20

 

KORN FERRY AND SUBSIDIARIES

FINANCIAL SUMMARY BY SEGMENT

(in thousands)

 (unaudited) 

























Three Months Ended October 31,


Six Months Ended October 31,



2017




2016


% Change


2017




2016


% Change


















Fee Revenue:
















Executive search:

















North America

$ 101,544




$   92,732


9.5%


$ 193,377




$ 174,534


10.8%


EMEA 

41,346




34,779


18.9%


81,467




70,149


16.1%


Asia Pacific

25,912




19,470


33.1%


47,490




39,096


21.5%


Latin America

7,964




9,247


(13.9%)


15,623




18,810


(16.9%)

Total executive search

176,766




156,228


13.1%


337,957




302,589


11.7%

Hay Group

199,953




188,842


5.9%


379,406




363,424


4.4%

Futurestep

66,299




56,847


16.6%


126,909




111,525


13.8%


Total fee revenue

443,018




401,917


10.2%


844,272




777,538


8.6%

 Reimbursed out-of-pocket engagement expenses 

12,450




13,037


(4.5%)


26,113




30,349


(14.0%)


Total revenue

$ 455,468




$ 414,954


9.8%


$ 870,385




$ 807,887


7.7%


















Operating Income (Loss):



Margin




Margin




Margin




Margin

Executive search:

















North America

$   22,945


22.6%


$   26,272


28.3%


$   44,940


23.2%


$   42,740


24.5%


EMEA

6,345


15.3%


6,847


19.7%


13,020


16.0%


12,874


18.4%


Asia Pacific

4,381


16.9%


2,028


10.4%


7,522


15.8%


4,130


10.6%


Latin America

1,527


19.2%


2,284


24.7%


2,553


16.3%


4,614


24.5%

Total executive search

35,198


19.9%


37,431


24.0%


68,035


20.1%


64,358


21.3%

Hay Group

26,370


13.2%


22,943


12.1%


45,453


12.0%


15,200


4.2%

Futurestep

9,409


14.2%


7,787


13.7%


17,646


13.9%


15,300


13.7%

Corporate

(19,733)




(21,613)




(39,153)




(43,794)




 Total operating income

$   51,244


11.6%


$   46,548


11.6%


$   91,981


10.9%


$   51,064


6.6%

 

KORN FERRY AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 (in thousands, except per share amounts) 













October 31,


April 30,



2017


2017

ASSETS


 (unaudited) 



Cash and cash equivalents


$    282,625


$    410,882

Marketable securities


13,671


4,363

Receivables due from clients, net of allowance for doubtful accounts of $15,930 and $15,455 at October 31, 2017 and April 30, 2017, respectively


397,374


345,314

Income taxes and other receivables


40,312


31,573

Prepaid expenses and other assets


66,809


51,542

Total current assets


800,791


843,674






Marketable securities, non-current


117,566


115,574

Property and equipment, net


115,090


109,567

Cash surrender value of company owned life insurance policies, net of loans


115,627


113,067

Deferred income taxes


22,167


20,175

Goodwill


581,780


576,865

Intangible assets, net


210,016


217,319

Investments and other assets


99,064


66,657

Total assets


$ 2,062,101


$ 2,062,898






LIABILITIES AND STOCKHOLDERS' EQUITY





Accounts payable


$      34,645


$      37,481

Income taxes payable


14,687


4,526

Compensation and benefits payable


191,512


248,354

Term loan


21,473


19,754

Other accrued liabilities


150,855


148,464

Total current liabilities


413,172


458,579






Deferred compensation and other retirement plans


222,755


219,905

Term loan, non-current


224,626


236,222

Deferred tax liabilities


16,807


7,014

Other liabilities


50,018


54,130

Total liabilities


927,378


975,850






Stockholders' equity





Common stock: $0.01 par value, 150,000 shares authorized, 71,529 and 70,811 shares

issued and 56,511 and 56,938 shares outstanding at October 31, 2017 and April 30, 

2017, respectively


674,105


692,527

Retained earnings


515,811


461,976

Accumulated other comprehensive loss, net


(57,902)


(71,064)

Total Korn/Ferry International stockholders' equity


1,132,014


1,083,439

Noncontrolling interest


2,709


3,609

Total stockholders' equity


1,134,723


1,087,048

Total liabilities and stockholders' equity


$ 2,062,101


$ 2,062,898

 

KORN FERRY AND SUBSIDIARIES

 RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES 

 (in thousands, except per share amounts) 













 Three Months Ended 


 Six Months Ended 



 October 31, 


 October 31, 



2017


2016


2017


2016



 (unaudited) 

 Fee revenue 


$ 443,018


$ 401,917


$ 844,272


$ 777,538

 Deferred revenue adjustment due to acquisition (1) 


-


-


-


3,535

           Adjusted fee revenue 


$ 443,018


$ 401,917


$ 844,272


$ 781,073










 Operating income 


$   51,244


$   46,548


$   91,981


$   51,064

 Depreciation and amortization 


12,447


11,752


24,656


23,196

 Other income (loss), net 


3,626


(879)


7,158


3,380

 Equity in earnings of unconsolidated subsidiaries, net 


60


29


90


108

           EBITDA 


67,377


57,450


123,885


77,748

 Deferred revenue adjustment due to acquisition (1) 


-


-


-


3,535

 Restructuring (recoveries) charges, net (2) 


(202)


-


78


24,520

 Integration/acquisition costs (3) 


2,393


5,820


4,981


13,847

           Adjusted EBITDA 


$   69,568


$   63,270


$ 128,944


$ 119,650










 Operating margin 


11.6%


11.6%


10.9%


6.6%

 Depreciation and amortization 


2.8%


2.9%


2.9%


3.0%

 Other income (loss), net 


0.8%


(0.2%)


0.9%


0.4%

 Equity in earnings of unconsolidated subsidiaries, net 


-


-


-


-

            EBITDA margin 


15.2%


14.3%


14.7%


10.0%

 Deferred revenue adjustment due to acquisition (1) 


-


-


-


0.4%

 Restructuring (recoveries) charges, net (2) 


-


-


-


3.1%

 Integration/acquisition costs (3) 


0.5%


1.4%


0.6%


1.8%

           Adjusted EBITDA margin 


15.7%


15.7%


15.3%


15.3%










 Net income attributable to Korn/Ferry International 


$   36,331


$   30,152


$   65,372


$   33,360

 Deferred revenue adjustment due to acquisition (1) 


-


-


-


3,535

 Restructuring (recoveries) charges, net (2) 


(202)


-


78


24,520

 Integration/acquisition costs (3) 


2,393


5,820


4,981


13,847

 Write-off of debt issuance costs (4) 


-


-


-


954

 Tax effect on the above items (5) 


(681)


(1,916)


(1,405)


(12,634)

           Adjusted net income attributable to Korn/Ferry International 


$   37,841


$   34,056


$   69,026


$   63,582










 Basic earnings per common share 


$       0.65


$       0.53


$       1.16


$       0.59

 Deferred revenue adjustment due to acquisition (1) 


-


-


-


0.06

 Restructuring (recoveries) charges, net (2) 


-


-


-


0.43

 Integration/acquisition costs (3) 


0.04


0.10


0.10


0.25

 Write-off of debt issuance costs (4) 


-


-


-


0.02

 Tax effect on the above items (5) 


(0.01)


(0.03)


(0.03)


(0.23)

           Adjusted basic earnings per share 


$       0.68


$       0.60


$       1.23


$       1.12










 Diluted earnings per common share 


$       0.64


$       0.52


$       1.15


$       0.58

 Deferred revenue adjustment due to acquisition (1) 


-


-


-


0.06

 Restructuring (recoveries) charges, net (2) 


-


-


-


0.43

 Integration/acquisition costs (3) 


0.04


0.10


0.09


0.24

 Write-off of debt issuance costs (4) 


-


-


-


0.02

 Tax effect on the above items (5) 


(0.01)


(0.03)


(0.03)


(0.22)

           Adjusted diluted earnings per share 


$       0.67


$       0.59


$       1.21


$       1.11



 Explanation of Non-GAAP Adjustments 

(1)

This represents the deferred revenue recorded on the opening balance sheet of  Hay Group, required by fair value accounting. The adjustment is included in the Hay Group segment for the six months ended October 31, 2016. Management has no longer adjusted fee revenue after Q1 FY'17. 

(2)

Restructuring plan implemented in order to rationalize our cost structure by eliminating redundant positions and consolidating office space due to the acquisition of Legacy Hay on December 1, 2015. 

(3)

Costs associated with completing the acquisition of Legacy Hay, such as legal and professional fees, and the on-going integration expenses to combine the companies. 

(4)

Write-off of debt issuance costs as a result of replacing our prior Credit Agreement with a new senior secured Credit Agreement. 

(5)

Tax effect on deferred revenue adjustment associated with the acquisition of Legacy Hay, restructuring (recoveries) charges, net, integration/acquisition costs and write-off of debt issuance cost. 

 

KORN FERRY AND SUBSIDIARIES


RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO


EBITDA AND ADJUSTED EBITDA (NON-GAAP)


(in thousands)


(unaudited)








 Three Months Ended October 31, 2017 




 Executive Search 












 North
America 


 EMEA 


 Asia Pacific 


Latin
America 


 Subtotal 


 Hay Group 


 Futurestep 


 Corporate 


 Consolidated 






















 Fee revenue 


$            101,544


$ 41,346


$       25,912


$               7,964


$    176,766


$   199,953


$         66,299


$                  -


$           443,018


 Total revenue 


$            104,329


$ 42,073


$       26,187


$               7,994


$    180,583


$   203,836


$         71,049


$                  -


$           455,468






















 Net income attributable to Korn/Ferry International 
















$             36,331


 Net income attributable to noncontrolling interest 
















401


 Other income, net 


















(3,626)


 Interest expense, net 


















2,579


 Equity in earnings of unconsolidated subsidiaries, net 


















(60)


 Income tax provision 


















15,619


 Operating income (loss) 


$              22,945


$   6,345


$          4,381


$               1,527


$      35,198


$     26,370


$           9,409


$     (19,733)


51,244


 Depreciation and amortization 


984


459


371


111


1,925


8,143


784


1,595


12,447


 Other income, net 


290


43


94


39


466


57


-


3,103


3,626


 Equity in earnings of unconsolidated subsidiaries, net 


60


-


-


-


60


-


-


-


60


 EBITDA 


24,279


6,847


4,846


1,677


37,649


34,570


10,193


(15,035)


67,377


 EBITDA margin 


23.9%


16.6%


18.7%


21.1%


21.3%


17.3%


15.4%




15.2%






















 Restructuring (recoveries) charges, net 


-


-


273


-


273


(481)


6


-


(202)


 Integration/acquisition costs 


-


-


-


-


-


2,313


-


80


2,393


 Adjusted EBITDA 


$              24,279


$   6,847


$          5,119


$               1,677


$      37,922


$     36,402


$         10,199


$     (14,955)


$             69,568


 Adjusted EBITDA margin 


23.9%


16.6%


19.8%


21.1%


21.5%


18.2%


15.4%




15.7%












































 Three Months Ended October 31, 2016 




 Executive Search 












 North
America 


 EMEA 


 Asia Pacific 


Latin
America 


 Subtotal 


 Hay Group 


 Futurestep 


 Corporate 


 Consolidated 






















 Fee revenue 


$              92,732


$ 34,779


$       19,470


$               9,247


$    156,228


$   188,842


$         56,847


$                  -


$           401,917


 Total revenue   


$              95,902


$ 35,507


$       19,929


$               9,296


$    160,634


$   192,352


$         61,968


$                  -


$           414,954






















 Net income attributable to Korn/Ferry International 
















$             30,152


 Net income attributable to noncontrolling interest 
















904


 Other loss, net 


















879


 Interest expense, net 


















2,736


 Equity in earnings of unconsolidated subsidiaries, net 


















(29)


 Income tax provision 


















11,906


 Operating income (loss) 


$              26,272


$   6,847


$          2,028


$               2,284


$      37,431


$     22,943


$           7,787


$     (21,613)


46,548


 Depreciation and amortization 


990


229


264


174


1,657


8,025


669


1,401


11,752


 Other (loss) income, net 


(92)


(80)


24


24


(124)


(11)


-


(744)


(879)


 Equity in earnings of unconsolidated subsidiaries, net 


29


-


-


-


29


-


-


-


29


 EBITDA 


27,199


6,996


2,316


2,482


38,993


30,957


8,456


(20,956)


57,450


 EBITDA margin 


29.3%


20.1%


11.9%


26.8%


25.0%


16.4%


14.9%




14.3%






















 Integration/acquisition costs 


-


-


-


-


-


4,365


-


1,455


5,820


 Adjusted EBITDA 


$              27,199


$   6,996


$          2,316


$               2,482


$      38,993


$     35,322


$           8,456


$     (19,501)


$             63,270


 Adjusted EBITDA margin 


29.3%


20.1%


11.9%


26.8%


25.0%


18.7%


14.9%




15.7%


 

KORN FERRY AND SUBSIDIARIES


RECONCILIATION OF NET INCOME AND OPERATING INCOME (GAAP) TO


EBITDA AND ADJUSTED EBITDA (NON-GAAP)


(in thousands)


(unaudited)








 Six Months Ended October 31, 2017 




 Executive Search 












 North
America 


 EMEA 


 Asia Pacific 


Latin
America 


 Subtotal 


 Hay Group 


 Futurestep 


 Corporate 


 Consolidated 






















 Fee revenue 


$            193,377


$ 81,467


$       47,490


$          15,623


$ 337,957


$   379,406


$       126,909


$                  -


$           844,272


 Total revenue   


$            199,534


$ 83,131


$       48,067


$          15,658


$ 346,390


$   387,132


$       136,863


$                  -


$           870,385






















 Net income attributable to Korn/Ferry  International 
















$             65,372


 Net income attributable to noncontrolling interest 
















789


 Other income, net 


















(7,158)


 Interest expense, net 


















5,239


 Equity in earnings of unconsolidated subsidiaries, net 


















(90)


 Income tax provision 


















27,829


 Operating income (loss) 


$              44,940


$ 13,020


$          7,522


$            2,553


$   68,035


$     45,453


$         17,646


$     (39,153)


91,981


 Depreciation and amortization 


1,933


887


691


218


3,729


16,228


1,580


3,119


24,656


 Other income, net 


572


99


199


59


929


89


8


6,132


7,158


 Equity in earnings of unconsolidated  subsidiaries, net 


90


-


-


-


90


-


-


-


90


 EBITDA 


47,535


14,006


8,412


2,830


72,783


61,770


19,234


(29,902)


123,885


 EBITDA margin 


24.6%


17.2%


17.7%


18.1%


21.5%


16.3%


15.2%




14.7%






















 Restructuring (recoveries) charges, net 


-


-


313


-


313


(241)


6


-


78


 Integration/acquisition costs 


-


-


-


-


-


4,862


-


119


4,981


 Adjusted EBITDA 


$              47,535


$ 14,006


$          8,725


$            2,830


$   73,096


$     66,391


$         19,240


$     (29,783)


$           128,944


 Adjusted EBITDA margin 


24.6%


17.2%


18.4%


18.1%


21.6%


17.5%


15.2%




15.3%












































 Six Months Ended October 31, 2016 




 Executive Search 












 North
America 


 EMEA  


 Asia Pacific 


Latin
America 


 Subtotal 


 Hay Group 


 Futurestep 


 Corporate 


 Consolidated 












 Fee revenue 


$            174,534


$ 70,149


$       39,096


$          18,810


$ 302,589


$   363,424


$       111,525


$                  -


$           777,538


 Deferred revenue adjustment due to acquisition 


-


-


-


-


-


3,535


-


-


3,535


 Adjusted fee revenue   


$            174,534


$ 70,149


$       39,096


$          18,810


$ 302,589


$   366,959


$       111,525


$                  -


$           781,073


 Total revenue   


$            181,327


$ 71,756


$       40,109


$          18,910


$ 312,102


$   373,860


$       121,925


$                  -


$           807,887






















 Net income attributable to Korn/Ferry  International 
















$             33,360


 Net income attributable to noncontrolling interest 
















1,764


 Other income, net 


















(3,380)


 Interest expense, net 


















5,797


 Equity in earnings of unconsolidated subsidiaries, net 


















(108)


 Income tax provision 


















13,631


 Operating income (loss) 


$              42,740


$ 12,874


$          4,130


$            4,614


$   64,358


$     15,200


$         15,300


$     (43,794)


51,064


 Depreciation and amortization 


1,820


440


489


288


3,037


16,041


1,292


2,826


23,196


 Other income (loss), net 


196


(56)


111


97


348


224


(2)


2,810


3,380


 Equity in earnings of unconsolidated  subsidiaries, net 


108


-


-


-


108


-


-


-


108


 EBITDA 


44,864


13,258


4,730


4,999


67,851


31,465


16,590


(38,158)


77,748


 EBITDA margin 


25.7%


18.9%


12.1%


26.6%


22.4%


8.7%


14.9%




10.0%






















 Restructuring charges, net 


1,706


128


622


360


2,816


21,488


-


216


24,520


 Integration/acquisition costs 


-


-


-


-


-


8,629


-


5,218


13,847


 Deferred revenue adjustment due to acquisition 


-


-


-


-


-


3,535


-


-


3,535


 Adjusted EBITDA 


$              46,570


$ 13,386


$          5,352


$            5,359


$   70,667


$     65,117


$         16,590


$     (32,724)


$           119,650


 Adjusted EBITDA margin 


26.7%


19.1%


13.7%


28.5%


23.4%


17.7%


14.9%




15.3%


 

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SOURCE Korn Ferry