Korn Ferry Announces Third Quarter Fiscal 2021 Results of Operations

FY’21 Third Quarter Highlights

• Fee revenue of $475.4 million in Q3 FY’21, a sequential increase of 9% from Q2 FY’21.
• Record net income attributable to Korn Ferry of $51.3 million in Q3 FY’21.
• Operating income and Adjusted EBITDA were both all-time highs at $65.2 million (operating margin of 13.7%) and $96.7 million (Adjusted EBITDA margin of 20.3%), respectively.
• Highest diluted earnings per share and adjusted diluted earnings per share to date at $0.94 and $0.95, respectively, for Q3 FY’21.
• Repurchased 0.2 million shares or $7.6 million of stock during the quarter consistent with disciplined capital allocation approach.
• Declared a quarterly dividend of $0.10 per share on February 21, 2021 payable on April 15, 2021 to stockholders of record on March 10, 2021.
• Revenue and earnings guidance being reinstated starting with Q4 FY'21

LOS ANGELES--(BUSINESS WIRE)-- Korn Ferry (NYSE: KFY), a global organizational consulting firm, today announced third quarter fee revenue of $475.4 million. Third quarter diluted earnings per share was $0.94 and adjusted diluted earnings per share was $0.95, both are all-time highs. Adjusted diluted earnings per share for the third quarter excludes an aggregate of $0.6 million, or $0.01 per share, of restructuring charges net of tax, due to the coronavirus pandemic (“COVID-19”).

“Our performance for the fiscal third quarter demonstrates the resilience of our business and continued extension of our brand, with strong sequential fee revenue growth of 9% and our earnings and profitability reaching record highs,” said Gary D. Burnison, CEO, Korn Ferry. “I am incredibly proud of the tireless commitment that all our Korn Ferry colleagues have shown in helping our clients re-imagine their organizational structures, recruit and retain talent and develop their people in the face of extraordinary challenges.”

“In a post-pandemic world, there will continue to be heightened demand for transformational consulting skills and expertise,” Burnison continued. “The steps we have taken to evolve our business into a more efficient, profitable, growth-oriented organization have positioned Korn Ferry to provide our clients with unparalleled expertise, data, and innovation support. With people at the center of our strategy, we are achieving our growth objectives, delivering long-term value creation to shareholders and establishing Korn Ferry as the preeminent global organizational consultancy.”

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

Fee revenue was $475.4 million in Q3 FY’21, a decrease of 8% (down 9% on a constant currency basis) compared to Q3 FY’20. While RPO and Professional Search saw a year-over-year increase of almost 4%, Digital and Executive Search declined year-over-year as those businesses continued on the path to full recovery from the impact of COVID-19 on economies around the world.

Operating margin was 13.7% in Q3 FY’21 compared to 6.1% in the year-ago quarter. Adjusted EBITDA margin was 20.3%, compared to 15.2% in the year-ago quarter. Net income attributable to Korn Ferry was $51.3 million in Q3 FY’21 compared to $20.0 million in Q3 FY’20.

The year-over-year improvement in each of the above measures of profitability was due to the cost saving actions the Company took in response to the impact of COVID-19 as well as the fact that the Company recorded $18 million in restructuring charges in Q3 FY’20 in connection with the acquisitions of Miller Heiman Group, Achieve Forum and Strategy Execution (collectively, the “acquired companies”). These positive factors were partially offset by the decline in revenues described above.

Results by Segment
Selected Consulting Data
(dollars in millions) ^(a)

Fee revenue was $136.3 million in Q3 FY’21 compared to $140.5 million in Q3 FY’20, a decrease of $4.2 million or 3% (down 4% on a constant currency basis). While COVID-19 has had an impact on Consulting fee revenue when compared to the year-ago quarter, the diversity of our consulting services and our ability to adapt to delivering the services in a virtual world has led to an increase in fee revenue of 37% over the past two fiscal quarters.

Operating income was $22.2 million in Q3 FY’21 with an operating margin of 16.3% compared to operating income of $2.7 million and an operating margin of 1.9% in the year-ago quarter. This change resulted from a decrease in net restructuring charges, a decrease in compensation and benefits expense driven by a reduction in headcount and decreases in both general and administrative expenses and cost of services expense, all of which resulted from the cost saving initiatives that were put in place. These expense reductions were partially offset by the decline in fee revenue as outlined above.

Adjusted EBITDA was $27.5 million in Q3 FY’21 with an Adjusted EBITDA margin of 20.2% compared to $18.7 million and 13.3%, respectively, in the year-ago quarter. The increase in Adjusted EBITDA was due to the same factors impacting operating income outlined above except for net restructuring charges.

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

Digital is an integrated platform that gives clients direct access to people and organizational data, insights, analytics, and digital assets that when used together, give clients a common language for all talent matters.

Fee revenue was $75.8 million in Q3 FY’21 compared to $99.4 million in Q3 FY’20, a decrease of $23.6 million or 24% (down 25% on a constant currency basis). Due to COVID-19 and the related contraction in economic activity, the Company experienced a decline in demand for pay data and professional development products and services. As economies around the world recover and companies pivot from in person to virtual delivery, the Company expects demand for these products and services to return to pre-pandemic levels.

Operating income was $19.2 million in Q3 FY’21 with an operating margin of 25.4% compared to operating income of $8.5 million and an operating margin of 8.5% in the year-ago quarter. Contributing to the increase were decreases in compensation and benefits expense, general and administrative expenses, net restructuring charges, cost of services expense and integration/acquisition costs relating to the acquired companies, partially offset by a decrease in fee revenue as outlined above.

Adjusted EBITDA was $27.1 million in Q3 FY’21 with an Adjusted EBITDA margin of 35.8% compared to $25.9 million and 26.0%, respectively, in the year-ago quarter. The increase in Adjusted EBITDA was due to the same factors impacting operating income described above except for restructuring charges and integration/acquisition costs.

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

Fee revenue was $168.1 million and $183.6 million in Q3 FY’21 and Q3 FY’20, respectively, a year-over-year decrease of $15.5 million or 8% (down 10% on a constant currency basis). The decrease in fee revenue was attributable to a decline in fee revenue in all regions, except North America which was essentially flat, due to the decrease in demand for our products and services because of the worldwide economic downturn associated with COVID-19.

Operating income was $26.9 million in Q3 FY’21 compared to operating income of $32.7 million in Q3 FY’20. Operating margin was 16.0% in Q3 FY’21 compared to 17.8% in the year-ago quarter. The change was mainly due to a decrease in fee revenue in Q3 FY’21 as compared to the year-ago quarter, partially offset by a decrease in compensation and benefits expense driven by a reduction in headcount and a decline in general and administrative expenses, all of which resulted from the cost saving initiatives that were put in place.

Adjusted EBITDA was $41.7 million in Q3 FY’21 with an Adjusted EBITDA margin of 24.8% compared to $40.7 million and 22.1%, respectively, in the year-ago quarter. The increase in Adjusted EBITDA was due to the same factors impacting operating income described above and an increase in other income, net compared to year-ago quarter.

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

Fee revenue was $95.2 million in Q3 FY’21, an increase of $3.3 million or 4% (1% increase on a constant currency basis), compared to the year-ago quarter. The higher fee revenue was driven by an increase in recruitment process outsourcing (“RPO”) fee revenue of $4.0 million, partially offset by a small decrease in Professional Search of $0.7 million due to the worldwide economic downturn associated with COVID-19. For the quarter, RPO fee revenue was up 7% (5% at constant currency) while professional search was down 2% (4% on a constant currency), both compared to the year-ago quarter.

Operating income was $18.4 million in Q3 FY’21, an increase of $4.3 million compared to operating income of $14.1 million in Q3 FY’20. Operating margin was 19.3% in the current quarter compared to 15.4% in the year-ago quarter. Adjusted EBITDA was $19.6 million in Q3 FY’21 with an Adjusted EBITDA margin of 20.6% in Q3 FY’21 compared to $15.2 million and 16.6%, respectively, in the year-ago quarter. The increase in operating income and Adjusted EBITDA was due to the higher fee revenue discussed above and lower general and administrative expenses, partially offset by an increase in compensation and benefits expense.

Outlook

Assuming no new major pandemic lockdowns, worldwide economic conditions, financial markets and foreign exchange rates remain steady, on a consolidated basis:

• Q4 FY’21 fee revenue is expected to be in the range of $475 million and $500 million; and
• Q4 FY’21 diluted earnings per share is expected to range between $0.95 to $1.05.

Earnings Conference Call Webcast

The earnings conference call will be held today at 12:00 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 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 our outlook, projections, goals, strategies, future plans and expectations, and other statements of future events or conditions are forward-looking statements that involve a number of risks and uncertainties. Words such as “believes”, “expects”, “anticipates”, “goals”, “estimates”, “guidance”, “may”, “should”, “could”, “will” or “likely”, and variations of such words and similar expressions are intended to identify such forward-looking statements. Statements that refer to or are based on estimates, forecasts, projections, uncertain events or assumptions, including statements relating to expected demand for our products and services, the expected benefits of the acquisition of the acquired companies (as defined below), the timing and expected benefits of our restructuring plan, the magnitude and duration of the impact of the COVID-19 outbreak on our business, employees, customers and our ability to provide services in affected regions, and the potential opportunities for our business as a result of worldwide changes in how companies conduct business as a result of COVID-19. Readers are cautioned not to place undue reliance on such statements. Such statements are based on current expectations; 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 the magnitude and duration of the negative impact of the COVID-19 outbreak on our business, employees, customers and our ability to provide services in affected regions, global and local political or economic developments in or affecting countries where we have operations, competition, changes in demand for our services as a result of automation, the dependence on and costs of 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, consolidation of the industries we serve, 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, dependence on third parties for the execution of critical functions, our ability to successfully recover from a disaster or other business continuity problems, changes in our accounting estimates/assumptions, technical guidance relating to the Tax Act, treaties, or regulations on our business and our company, impairment of goodwill and other intangible assets, deferred tax assets that we may not be able to use, our indebtedness, the phase-out of the London Interbank Offered Rate, expansion of social media platforms, seasonality, ability to effect acquisition and integrate recently acquired companies, including those of Miller Heiman Group, AchieveForum, and Strategy Execution (collectively, the “acquired companies”); the ability to recognize the anticipated benefits of the acquisition of the acquired companies; the costs related to the acquisition of the acquired companies 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, adjusted to exclude integration/acquisition costs, restructuring charges, separation costs and debt refinancing costs net of income tax effect;
• Adjusted basic and diluted earnings per share, adjusted to exclude integration/acquisition costs, restructuring charges, separation costs and debt refinancing costs net of income tax effect;
• Constant currency (calculated using a quarterly average) percentages that represent the percentage change that would have resulted had exchange rates in the prior period been the same as those in effect in the current period;
• EBITDA, or earnings before interest, taxes, depreciation and amortization and EBITDA margin; and
• Adjusted EBITDA, which is EBITDA further adjusted to exclude integration/acquisition costs, restructuring charges and separations costs, 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 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, which are described in the footnotes in the attached reconciliations, represent 1) costs we incurred to acquire and integrate a portion of our Digital business, 2) charges we incurred to restructure the Company as a result of COVID-19 and due to the acquisition of the acquired companies, 3) separation costs and 4) debt refinancing costs. 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. Adjusted net income attributable to Korn Ferry, adjusted basic and diluted earnings per share and Adjusted EBITDA, exclude certain charges that management does not consider on-going in nature and allows management and investors to make more meaningful period-to-period comparisons of the Company’s operating results. 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 percentages, 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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