Korn Ferry Announces Second Quarter Fiscal 2023 Results of Operations

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Highlights

  • Korn Ferry reports fee revenue of $727.8 million in Q2 FY’23, an increase of 14% (20% at constant currency) from Q2 FY’22 and a sequential increase of 5% (7% on a constant currency basis) from Q1 FY'23.
  • Net income attributable to Korn Ferry was $73.5 million in Q2 FY’23, while diluted and adjusted diluted earnings per share were $1.38 and $1.43 in Q2 FY’23, respectively.
  • Operating income and Adjusted EBITDA were $119.6 million (operating margin of 16.4%) and $131.1 million (Adjusted EBITDA margin of 18.0%), respectively, in Q2 FY’23.
  • The Company repurchased 622,500 shares of stock during the quarter for $33.1 million.
  • Declared a quarterly dividend of $0.15 per share on December 7, 2022, which is payable on January 13, 2023 to stockholders of record on December 21, 2022.
  • During the second quarter, the Company completed the acquisition of Infinity Consulting Solutions, which is included in the Professional Search & Interim segment.

LOS ANGELES--(BUSINESS WIRE)-- Korn Ferry (NYSE: KFY), a global organizational consulting firm, today announced second quarter fee revenue of $727.8 million. In addition, second quarter diluted earnings per share was $1.38 and adjusted diluted earnings per share was $1.43.

“During the fiscal second quarter we generated $728 million in fee revenue, up 14% year-over-year and up 20% at constant currency. Our diluted earnings per share and Adjusted earnings per share were $1.38 and $1.43, respectively, and our Adjusted EBITDA was $131 million, representing an 18% margin,” said Gary D. Burnison, CEO, Korn Ferry.

“It’s clear that the global economy has been in transition for several months. We are seeing change on every front – from over a decade of high liquidity and historically low interest rates to changes in Central Bank policies, significant shifts in global trade lanes and persistent inflationary pressures. In response, companies and our clients will undoubtedly have to continue adjusting their organizational and workforce strategies to tomorrow, which is opportunity for Korn Ferry.”

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

 

Second Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Fee revenue

$

727.8

 

 

$

639.4

 

 

$

1,423.8

 

 

$

1,224.8

 

Total revenue

$

735.7

 

 

$

643.4

 

 

$

1,438.9

 

 

$

1,231.5

 

Operating income

$

119.6

 

 

$

103.8

 

 

$

231.2

 

 

$

205.0

 

Operating margin

 

16.4

%

 

 

16.2

%

 

 

16.2

%

 

 

16.7

%

Net income attributable to Korn Ferry

$

73.5

 

 

$

75.8

 

 

$

150.8

 

 

$

150.6

 

Basic earnings per share

$

1.39

 

 

$

1.40

 

 

$

2.85

 

 

$

2.78

 

Diluted earnings per share

$

1.38

 

 

$

1.38

 

 

$

2.83

 

 

$

2.75

 
 

Adjusted Results (b):

Second Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Adjusted EBITDA

$

131.1

 

 

$

134.9

 

 

$

263.3

 

 

$

256.2

 

Adjusted EBITDA margin

 

18.0

%

 

 

21.1

%

 

 

18.5

%

 

 

20.9

%

Adjusted net income attributable to Korn Ferry

$

76.1

 

 

$

83.9

 

 

$

156.1

 

 

$

158.8

 

Adjusted basic earnings per share

$

1.44

 

 

$

1.55

 

 

$

2.95

 

 

$

2.93

 

Adjusted diluted earnings per share

$

1.43

 

 

$

1.53

 

 

$

2.93

 

 

$

2.90

____________________

 

Second Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Integration/acquisition costs

$

3.4

 

$

1.1

 

$

7.0

 

$

1.1

Impairment of fixed assets

$

—

 

$

1.9

 

$

—

 

$

1.9

Impairment of right of use assets

$

—

 

$

7.4

 

$

—

 

$

7.4

The Company reported fee revenue in Q2 FY’23 of $727.8 million, a year-over-year increase of 14% (up 20% on a constant currency basis) compared to Q2 FY’22. Fee revenue increased in all lines of business except Executive Search which was down about 7% compared to Q2 FY'22. The acquisitions of Lucas Group, Patina and Infinity Consulting Solutions (collectively, the “acquisitions”) which are included in the Professional Search & Interim segment, were a significant factor in the year-over-year increase in fee revenue compared to the year-ago quarter.

Operating margin was 16.4% in Q2 FY’23, compared to 16.2% in the year-ago quarter. Adjusted EBITDA margin was 18.0% in Q2 FY’23, compared to 21.1%, in the year-ago quarter. Net income attributable to Korn Ferry was $73.5 million in Q2 FY’23, compared to $75.8 million in Q2 FY’22 and Adjusted EBITDA was $131.1 million in Q2 FY’23 compared to $134.9 million in Q2 FY’22.

Operating income increased due to the increase in fee revenue as discussed above. Partially offsetting this increase were increases in 1) cost of services expense associated with the acquisitions and 2) compensation and benefits expense primarily due to an increase in headcount, partially offset by a decrease in our deferred compensation liabilities due to market movements.

Adjusted EBITDA decreased due to the factors noted above and a decrease in other income due to a decline in the value of our marketable securities (which are held in trust to satisfy obligations under our deferred compensation plans) due to market movements.

Results by Line of Business
Selected Consulting Data
(dollars in millions) (a)

 

Second Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Fee revenue

$

173.1

 

 

$

164.9

 

 

$

339.6

 

 

$

313.4

 

Total revenue

$

175.8

 

 

$

165.7

 

 

$

344.6

 

 

$

314.7

 

 

 

 

 

 

 

 

 

Ending number of consultants and execution staff (b)

 

1,899

 

 

 

1,739

 

 

 

1,899

 

 

 

1,739

 

Hours worked in thousands (c)

 

467

 

 

 

445

 

 

 

926

 

 

 

871

 

Average bill rate (d)

$

371

 

 

$

371

 

 

$

367

 

 

$

360

 

 

 

 

 

 

 

 

 

Adjusted Results (e):

Second Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Adjusted EBITDA

$

31.1

 

 

$

30.1

 

 

$

60.6

 

 

$

56.9

 

Adjusted EBITDA margin

 

18.0

%

 

 

18.2

%

 

 

17.9

%

 

 

18.2

%

______________________

 

Second Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Impairment of fixed assets

$

—

 

$

0.3

 

$

—

 

$

0.3

Impairment of right of use assets

$

—

 

$

2.5

 

$

—

 

$

2.5

Fee revenue was $173.1 million in Q2 FY’23 compared to $164.9 million in Q2 FY’22, an increase of $8.2 million or 5% (up 12% on a constant currency basis). Consulting saw growth in Organization Design, Change Management, and Workforce Sales Compensation, partially offset by a decline in Assessment & Succession.

Adjusted EBITDA was $31.1 million in Q2 FY’23 with an Adjusted EBITDA margin of 18.0% compared to Adjusted EBITDA of $30.1 million with an associated margin of 18.2%, respectively, in the year-ago quarter. This increase in Adjusted EBITDA resulted from the increase in fee revenue outlined above, partially offset by an increase in compensation and benefits expense and cost of services expense, driven by higher salaries and related payroll taxes.

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

 

Second Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Fee revenue

$

94.3

 

 

$

88.6

 

 

$

178.1

 

 

$

169.3

 

Total revenue

$

94.6

 

 

$

88.7

 

 

$

178.4

 

 

$

169.4

 

 

 

 

 

 

 

 

 

Ending number of consultants

 

365

 

 

 

282

 

 

 

365

 

 

 

282

 

Subscription & License fee revenue

$

28.9

 

 

$

26.3

 

 

$

58.5

 

 

$

50.7

 

 

 

 

 

 

 

 

 

Adjusted Results (b):

Second Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Adjusted EBITDA

$

27.5

 

 

$

28.6

 

 

$

51.7

 

 

$

54.2

 

Adjusted EBITDA margin

 

29.2

%

 

 

32.2

%

 

 

29.0

%

 

 

32.0

%

______________________

 

Second Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Impairment of fixed assets

$

—

 

$

0.2

 

$

—

 

$

0.2

Impairment of right of use assets

$

—

 

$

1.3

 

$

—

 

$

1.3

Fee revenue was $94.3 million in Q2 FY’23 compared to $88.6 million in Q2 FY’22, an increase of $5.7 million or 6% (up 15% on a constant currency basis). The increase in fee revenue continues to be driven by Development offerings as companies invest in sales effectiveness tools and training programs to build their commercial team capabilities to maximize revenue growth.

Adjusted EBITDA was $27.5 million in Q2 FY’23 with an Adjusted EBITDA margin of 29.2% compared to $28.6 million and 32.2%, respectively, in the year-ago quarter. The decrease in Adjusted EBITDA and Adjusted EBITDA margin was due to 1) an increase in general and administrative expenses and 2) an increase in compensation and benefits expense, driven by higher salaries and related payroll taxes associated with the increased investment made on product development initiatives and an increase in the commercial salesforce. This was partially offset by higher fee revenue.

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

 

Second Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Fee revenue

$

218.4

 

 

$

235.5

 

 

$

451.1

 

 

$

452.4

 

Total revenue

$

220.4

 

 

$

236.5

 

 

$

454.9

 

 

$

454.1

 

 

 

 

 

 

 

 

 

Ending number of consultants

 

621

 

 

 

570

 

 

 

621

 

 

 

570

 

Average number of consultants

 

620

 

 

 

568

 

 

 

604

 

 

 

547

 

Engagements billed

 

4,054

 

 

 

4,365

 

 

 

6,386

 

 

 

6,631

 

New engagements (c)

 

1,637

 

 

 

1,830

 

 

 

3,319

 

 

 

3,575

 

 

 

 

 

 

 

 

 

Adjusted Results (d):

Second Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Adjusted EBITDA

$

54.5

 

 

$

66.1

 

 

$

116.7

 

 

$

127.7

 

Adjusted EBITDA margin

 

25.0

%

 

 

28.1

%

 

 

25.9

%

 

 

28.2

%

______________________

 

Second Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Impairment of fixed assets

$

—

 

$

0.1

 

$

—

 

$

0.1

Impairment of right of use assets

$

—

 

$

0.9

 

$

—

 

$

0.9

Fee revenue was $218.4 million and $235.5 million in Q2 FY’23 and Q2 FY’22, respectively, a year-over-year decrease of $17.1 million or 7% (down 4% on a constant currency basis). The decrease in fee revenue was driven by a decrease in the number of the engagements billed. Fee revenue decreased in North America and Asia and was partially offset by higher fee revenue in EMEA and Latin America.

Adjusted EBITDA was $54.5 million in Q2 FY’23 with an Adjusted EBITDA margin of 25.0% compared to Adjusted EBITDA of $66.1 million and Adjusted EBITDA margin of 28.1%, respectively, in the year-ago quarter. The decrease in Adjusted EBITDA was due to the decrease in fee revenue discussed above, partially offset by a decrease in compensation and benefits expense due to a decrease in performance-related bonus expense.

Selected Professional Search & Interim Data(a)
(dollars in millions) (b)

 

Second Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Fee revenue

$

134.7

 

 

$

54.6

 

 

$

233.7

 

 

$

106.4

 

Total revenue

$

135.8

 

 

$

54.7

 

 

$

235.8

 

 

$

106.6

 

 

 

 

 

 

 

 

 

Permanent Placement:

 

 

 

 

 

 

 

Fee revenue

$

79.5

 

 

$

54.6

 

 

$

153.6

 

 

$

106.4

 

Engagements billed (c)

 

3,006

 

 

 

1,824

 

 

 

4,709

 

 

 

2,925

 

New engagements (d)

 

1,816

 

 

 

1,048

 

 

 

3,662

 

 

 

2,036

 

Ending number of consultants (e)

 

527

 

 

 

210

 

 

 

527

 

 

 

210

 

Interim (started in Q3 FY'22):

 

 

 

 

 

 

 

Fee revenue

$

55.3

 

 

$

—

 

 

$

80.1

 

 

$

—

 

Average bill rate (f)

$

107

 

 

$

—

 

 

$

111

 

 

$

—

 

Average weekly billable consultants (g)

 

1,111

 

 

 

—

 

 

 

787

 

 

 

—

 

 

 

 

 

 

 

 

 

Adjusted Results (h):

Second Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Adjusted EBITDA

$

32.5

 

 

$

21.8

 

 

$

61.6

 

 

$

41.3

 

Adjusted EBITDA margin

 

24.1

%

 

 

40.0

%

 

 

26.4

%

 

 

38.8

%

_____________________

 

Second Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Impairment of fixed assets

$

—

 

$

0.9

 

$

—

 

$

0.9

Impairment of right of use assets

$

—

 

$

1.4

 

$

—

 

$

1.4

Integration/acquisition costs

$

2.5

 

$

—

 

$

5.0

 

$

—

Fee revenue was $134.7 million in Q2 FY’23, an increase of $80.1 million or 147% (up 159% on a constant currency basis), compared to the year-ago quarter. Interim fee revenue and permanent placement fee revenue increased by $55.3 million and $24.9 million, respectively, primarily due to the acquisitions.

Adjusted EBITDA was $32.5 million in Q2 FY’23 with an Adjusted EBITDA margin of 24.1% compared to $21.8 million and 40.0%, respectively, in the year-ago quarter. The increase in Adjusted EBITDA was due to the higher fee revenue discussed above. Partially offsetting this increase were increases in compensation and benefits expense driven by higher salaries and related payroll taxes and commission expense driven by increases in fee revenue and headcount associated with the acquisitions. Also partially offsetting the increase in Adjusted EBITDA was an increase in cost of services expense due to the recently acquired interim businesses.

elected RPO Data(a)
(dollars in millions) (b)

 

Second Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Fee revenue

$

107.3

 

 

$

95.9

 

 

$

221.2

 

 

$

183.4

 

Total revenue

$

109.1

 

 

$

97.8

 

 

$

225.2

 

 

$

186.6

 

 

 

 

 

 

 

 

 

Remaining revenue under contract(c)

$

958.3

 

 

$

663.4

 

 

$

958.3

 

 

$

663.4

 

RPO new business(d)

$

290.3

 

 

$

136.2

 

 

$

438.7

 

 

$

249.2

 

 

 

 

 

 

 

 

 

Adjusted Results (e):

Second Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Adjusted EBITDA

$

16.0

 

 

$

14.4

 

 

$

33.7

 

 

$

29.0

 

Adjusted EBITDA margin

 

14.9

%

 

 

15.1

%

 

 

15.2

%

 

 

15.8

%

______________________

 

Second Quarter

 

Year to Date

 

FY’23

 

FY’22

 

FY’23

 

FY’22

Impairment of fixed assets

$

—

 

$

0.4

 

$

—

 

$

0.4

Impairment of right of use assets

$

—

 

$

1.2

 

$

—

 

$

1.2

Fee revenue was $107.3 million in Q2 FY’23, an increase of $11.4 million or 12% (up 19% on a constant currency basis), compared to the year-ago quarter. RPO fee revenue increased due to the wider adoption of RPO services in the market in combination with our differentiated solutions.

Adjusted EBITDA was $16.0 million in Q2 FY’23 with an Adjusted EBITDA margin of 14.9% compared to $14.4 million and 15.1%, respectively, in the year-ago quarter. The increase in Adjusted EBITDA was due to the higher fee revenue discussed above. Partially offsetting this were increases in compensation and benefits expense driven by higher salaries and related payroll taxes driven by increases in headcount associated with increased levels of fee revenue.

Outlook

Despite the continuing strength in new business trends coming out of Q2 FY’23, economic factors like global inflation, rising interest rates, and escalating geo-political tensions present a level of risk and uncertainty that is difficult to quantify. In light of such uncertainty, we are in the process of developing a plan (the "Plan") to reduce our operating costs by $45 million to $55 million. We expect to implement the Plan in the third quarter, but do not anticipate any meaningful run-rate savings to begin until the fourth quarter. With this in mind and assuming anticipated charges and savings related to the Plan, no new major pandemic related lockdowns or further changes in worldwide geopolitical conditions, economic conditions, financial markets or foreign exchange rates, on a consolidated basis:

  • Q3 FY’23 fee revenue is expected to be in the range of $660 million and $690 million; and
  • Q3 FY’23 diluted earnings per share is expected to range between $0.40 to $0.66.

On a consolidated adjusted basis:

  • Q3 FY’23 and Q4 FY'23 Adjusted EBITDA margin is expected to be in the range of 14% to 15%.

 

Reconciliation of Operating margin to Adjusted EBITDA margin

 

Low

 

High

Consolidated operating margin

7.0

%

 

8.0

%

Depreciation and amortization

2.6

%

 

2.6

%

Integration/acquisition and cost realignment

4.4

%

 

4.4

%

Consolidated Adjusted EBITDA margin(1)

14.0

%

 

15.0

%
  • Q3 FY’23 adjusted diluted earnings per share is expected to be in the range from $0.88 to $1.00.

 

Q3 FY’23

Earnings Per Share
Outlook

 

Low

 

High

 

 

 

 

Consolidated diluted earnings per share

$

0.40

 

 

$

0.66

 

Integration/acquisition and cost realignment

 

0.66

 

 

 

0.47

 

Tax Rate Impact

 

(0.18

)

 

 

(0.13

)

Consolidated adjusted diluted earnings per share(1)

$

0.88

 

 

$

1.00

 

______________________

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. 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 ultimate magnitude and duration of any pandemic or outbreaks, and related restrictions and operational requirements that apply to our business and the businesses of our clients, and any related negative impacts 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, dislocation in the labor markets and increasing competition for highly skilled workers, our ability to maintain relationships with customers and suppliers and retain key employees, maintaining our brand name and professional reputation, impact of inflationary pressures on our profitability, potential legal liability and regulatory developments, the portability of client relationships, consolidation of the industries we serve, changes and developments in government laws and regulations, evolving investor and customer expectations with regard to environmental, social and governmental matters, 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, 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, expansion of social media platforms, seasonality, ability to effect acquisition and integrate acquired businesses, including Infinity Consulting Solutions 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, impairment of fixed assets and impairment of right of use assets net of income tax effect;
  • Adjusted basic and diluted earnings per share, adjusted to exclude integration/acquisition costs, impairment of fixed assets and impairment of right of use assets, 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;
  • Consolidated and Executive Search Adjusted EBITDA, which is earnings before interest, taxes, depreciation and amortization, further adjusted to exclude integration/acquisition costs, impairment of fixed assets and impairment of right of use assets, when applicable, and Consolidated and Executive Search 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 Professional Search & Interim business, 2) impairment of fixed assets associated with the decision to terminate and sublease some of our offices and 3) impairment of right of use assets due to the decision to terminate and sublease some of our offices. 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 Consolidated and Executive Search 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 Consolidated and Executive Search Adjusted 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.

KORN FERRY AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(in thousands, except per share amounts)

 

Three Months Ended

October 31,

 

Six Months Ended
October 31,

 

2022

 

2021

 

2022

 

2021

 

(unaudited)

Fee revenue

$

727,849

 

 

$

639,443

 

 

$

1,423,752

 

 

$

1,224,838

 

Reimbursed out-of-pocket engagement expenses

 

7,870

 

 

 

3,955

 

 

 

15,115

 

 

 

6,658

 

Total revenue

 

735,719

 

 

 

643,398

 

 

 

1,438,867

 

 

 

1,231,496

 

 

 

 

 

 

 

 

 

Compensation and benefits

 

464,766

 

 

 

431,640

 

 

 

930,392

 

 

 

827,876

 

General and administrative expenses

 

65,086

 

 

 

64,065

 

 

 

129,543

 

 

 

114,332

 

Reimbursed expenses

 

7,870

 

 

 

3,955

 

 

 

15,115

 

 

 

6,658

 

Cost of services

 

61,257

 

 

 

24,329

 

 

 

99,249

 

 

 

46,322

 

Depreciation and amortization

 

17,093

 

 

 

15,633

 

 

 

33,322

 

 

 

31,277

 

Total operating expenses

 

616,072

 

 

 

539,622

 

 

 

1,207,621

 

 

 

1,026,465

 

 

 

 

 

 

 

 

 

Operating income

 

119,647

 

 

 

103,776

 

 

 

231,246

 

 

 

205,031

 

Other (loss) income, net

 

(9,048

)

 

 

5,066

 

 

 

(8,273

)

 

 

9,513

 

Interest expense, net

 

(7,098

)

 

 

(6,365

)

 

 

(14,710

)

 

 

(11,791

)

Income before provision for income taxes

 

103,501

 

 

 

102,477

 

 

 

208,263

 

 

 

202,753

 

Income tax provision

 

28,886

 

 

 

26,145

 

 

 

55,112

 

 

 

50,024

 

Net income

 

74,615

 

 

 

76,332

 

 

 

153,151

 

 

 

152,729

 

Net income attributable to noncontrolling interest

 

(1,074

)

 

 

(560

)

 

 

(2,363

)

 

 

(2,134

)

Net income attributable to Korn Ferry

$

73,541

 

 

$

75,772

 

 

$

150,788

 

 

$

150,595

 

 

 

 

 

 

 

 

 

Earnings per common share attributable to Korn Ferry:

 

 

 

 

 

 

 

Basic

$

1.39

 

 

$

1.40

 

 

$

2.85

 

 

$

2.78

 

Diluted

$

1.38

 

 

$

1.38

 

 

$

2.83

 

 

$

2.75

 

 

 

 

 

 

 

 

 

Weighted-average common shares outstanding:

 

 

 

 

 

 

 

Basic

 

51,868

 

 

 

53,114

 

 

 

51,820

 

 

 

52,937

 

Diluted

 

52,005

 

 

 

53,568

 

 

 

52,143

 

 

 

53,494

 

 

 

 

 

 

 

 

 

Cash dividends declared per share:

$

0.15

 

 

$

0.12

 

 

$

0.30

 

 

$

0.24

 

KORN FERRY AND SUBSIDIARIES
FINANCIAL SUMMARY BY REPORTING SEGMENT
(dollars in thousands)
(unaudited)

 

Three Months Ended October 31,

 

Six Months Ended October 31,

 

2022

 

2021

 

% Change

 

2022

 

2021

 

% Change

 

 

 

 

 

 

 

 

 

 

 

 

Fee revenue:

 

 

 

 

 

 

 

 

 

 

 

Consulting

$

173,092

 

$

164,893

 

5.0

%

 

$

339,576

 

$

313,371

 

8.4

%

Digital

 

94,329

 

 

88,639

 

6.4

%

 

 

178,090

 

 

169,310

 

5.2

%

Executive Search:

 

 

 

 

 

 

 

 

 

 

 

North America

 

142,485

 

 

158,197

 

(9.9

)%

 

 

294,029

 

 

296,875

 

(1.0

%)

EMEA

 

44,645

 

 

42,434

 

5.2

%

 

 

91,701

 

 

85,181

 

7.7

%

Asia Pacific

 

23,408

 

 

28,257

 

(17.2

)%

 

 

49,789

 

 

56,960

 

(12.6

%)

Latin America

 

7,821

 

 

6,571

 

19.0

%

 

 

15,629

 

 

13,347

 

17.1

%

Total Executive Search (a)

 

218,359

 

 

235,459

 

(7.3

)%

 

 

451,148

 

 

452,363

 

(0.3

%)

Professional Search & Interim

 

134,743

 

 

54,559

 

147.0

%

 

 

233,690

 

 

106,396

 

119.6

%

RPO

 

107,326

 

 

95,893

 

11.9

%

 

 

221,248

 

 

183,398

 

20.6

%

Total fee revenue

 

727,849

 

 

639,443

 

13.8

%

 

 

1,423,752

 

 

1,224,838

 

16.2

%

Reimbursed out-of-pocket engagement expenses

 

7,870

 

 

3,955

 

99.0

%

 

 

15,115

 

 

6,658

 

127.0

%

Total revenue

$

735,719

 

$

643,398

 

14.3

%

 

$

1,438,867

 

$

1,231,496

 

16.8

%

KORN FERRY AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands, except per share amounts)

 

October 31,
2022

 

April 30,
2022

 

(unaudited)

 

 

ASSETS

 

 

 

Cash and cash equivalents

$

593,900

 

 

$

978,070

 

Marketable securities

 

59,188

 

 

 

57,244

 

Receivables due from clients, net of allowance for doubtful accounts of $40,959 and $36,384 at October 31, 2022 and April 30, 2022, respectively

 

670,408

 

 

 

590,260

 

Income taxes and other receivables

 

48,070

 

 

 

31,884

 

Unearned compensation

 

62,411

 

 

 

60,749

 

Prepaid expenses and other assets

 

46,388

 

 

 

41,763

 

Total current assets

 

1,480,365

 

 

 

1,759,970

 

 

 

 

 

Marketable securities, non-current

 

178,565

 

 

 

175,783

 

Property and equipment, net

 

153,041

 

 

 

138,172

 

Operating lease right-of-use assets, net

 

151,537

 

 

 

167,734

 

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

 

184,230

 

 

 

183,308

 

Deferred income taxes

 

83,899

 

 

 

84,712

 

Goodwill

 

790,063

 

 

 

725,592

 

Intangible assets, net

 

94,408

 

 

 

89,770

 

Unearned compensation, non-current

 

122,361

 

 

 

118,238

 

Investments and other assets

 

23,266

 

 

 

21,267

 

Total assets

$

3,261,735

 

 

$

3,464,546

 

 

 

 

 

LIABILITIES AND STOCKHOLDERS' EQUITY

 

 

 

Accounts payable

$

48,623

 

 

$

50,932

 

Income taxes payable

 

26,094

 

 

 

34,450

 

Compensation and benefits payable

 

327,949

 

 

 

547,826

 

Operating lease liability, current

 

49,039

 

 

 

48,609

 

Other accrued liabilities

 

303,470

 

 

 

302,408

 

Total current liabilities

 

755,175

 

 

 

984,225

 

 

 

 

 

Deferred compensation and other retirement plans

 

369,960

 

 

 

357,175

 

Operating lease liability, non-current

 

127,886

 

 

 

151,212

 

Long-term debt

 

395,831

 

 

 

395,477

 

Deferred tax liabilities

 

2,776

 

 

 

2,715

 

Other liabilities

 

27,387

 

 

 

24,153

 

Total liabilities

 

1,679,015

 

 

 

1,914,957

 

 

 

 

 

Stockholders' equity

 

 

 

Common stock: $0.01 par value, 150,000 shares authorized, 76,622 and 75,409 shares issued and 52,909 and 53,190 shares outstanding at October 31, 2022 and April 30, 2022, respectively

 

446,280

 

 

 

502,008

 

Retained earnings

 

1,268,437

 

 

 

1,134,523

 

Accumulated other comprehensive loss, net

 

(136,665

)

 

 

(92,185

)

Total Korn Ferry stockholders' equity

 

1,578,052

 

 

 

1,544,346

 

Noncontrolling interest

 

4,668

 

 

 

5,243

 

Total stockholders' equity

 

1,582,720

 

 

 

1,549,589

 

Total liabilities and stockholders' equity

$

3,261,735

 

 

$

3,464,546

 

KORN FERRY AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES
(dollars in thousands, except per share amounts)
(unaudited)

 

Three Months Ended
October 31,

 

Six Months Ended
October 31,

 

2022

 

2021

 

2022

 

2021

 

 

 

 

 

 

 

 

Net income attributable to Korn Ferry

$

73,541

 

 

$

75,772

 

 

$

150,788

 

 

$

150,595

 

Net income attributable to non-controlling interest

 

1,074

 

 

 

560

 

 

 

2,363

 

 

 

2,134

 

Net income

 

74,615

 

 

 

76,332

 

 

 

153,151

 

 

 

152,729

 

Income tax provision

 

28,886

 

 

 

26,145

 

 

 

55,112

 

 

 

50,024

 

Income before provision for income taxes

 

103,501

 

 

 

102,477

 

 

 

208,263

 

 

 

202,753

 

Other loss (income), net

 

9,048

 

 

 

(5,066

)

 

 

8,273

 

 

 

(9,513

)

Interest expense, net

 

7,098

 

 

 

6,365

 

 

 

14,710

 

 

 

11,791

 

Operating income

 

119,647

 

 

 

103,776

 

 

 

231,246

 

 

 

205,031

 

Depreciation and amortization

 

17,093

 

 

 

15,633

 

 

 

33,322

 

 

 

31,277

 

Other (loss) income, net

 

(9,048

)

 

 

5,066

 

 

 

(8,273

)

 

 

9,513

 

Integration/acquisition costs (1)

 

3,411

 

 

 

1,084

 

 

 

7,016

 

 

 

1,084

 

Impairment of fixed assets (2)

 

—

 

 

 

1,915

 

 

 

—

 

 

 

1,915

 

Impairment of right of use assets (3)

 

—

 

 

 

7,392

 

 

 

—

 

 

 

7,392

 

Adjusted EBITDA

$

131,103

 

 

$

134,866

 

 

$

263,311

 

 

$

256,212

 

 

 

 

 

 

 

 

 

Operating margin

 

16.4

%

 

 

16.2

%

 

 

16.2

%

 

 

16.7

%

Depreciation and amortization

 

2.3

%

 

 

2.4

%

 

 

2.4

%

 

 

2.6

%

Other (loss) income, net

 

(1.2

)%

 

 

0.8

%

 

 

(0.6

)%

 

 

0.8

%

Integration/acquisition costs (1)

 

0.5

%

 

 

0.2

%

 

 

0.5

%

 

 

0.1

%

Impairment of fixed assets (2)

 

—

 

 

 

0.3

%

 

 

—

 

 

 

0.1

%

Impairment of right of use assets (3)

 

—

 

 

 

1.2

%

 

 

—

 

 

 

0.6

%

Adjusted EBITDA margin

 

18.0

%

 

 

21.1

%

 

 

18.5

%

 

 

20.9

%

 

 

 

 

 

 

 

 

Net income attributable to Korn Ferry

$

73,541

 

 

$

75,772

 

 

$

150,788

 

 

$

150,595

 

Integration/acquisition costs (1)

 

3,411

 

 

 

1,084

 

 

 

7,016

 

 

 

1,084

 

Impairment of fixed assets (2)

 

—

 

 

 

1,915

 

 

 

—

 

 

 

1,915

 

Impairment of right of use assets (3)

 

—

 

 

 

7,392

 

 

 

—

 

 

 

7,392

 

Tax effect on the adjusted items (4)

 

(812

)

 

 

(2,228

)

 

 

(1,705

)

 

 

(2,228

)

Adjusted net income attributable to Korn Ferry

$

76,140

 

 

$

83,935

 

 

$

156,099

 

 

$

158,758

 

 

 

 

 

 

 

 

 

Basic earnings per common share

$

1.39

 

 

$

1.40

 

 

$

2.85

 

 

$

2.78

 

Integration/acquisition costs (1)

 

0.07

 

 

 

0.02

 

 

 

0.13

 

 

 

0.02

 

Impairment of fixed assets (2)

 

—

 

 

 

0.04

 

 

 

—

 

 

 

0.04

 

Impairment of right of use assets (3)

 

—

 

 

 

0.14

 

 

 

—

 

 

 

0.14

 

Tax effect on the adjusted items (4)

 

(0.02

)

 

 

(0.05

)

 

 

(0.03

)

 

 

(0.05

)

Adjusted basic earnings per share

$

1.44

 

 

$

1.55

 

 

$

2.95

 

 

$

2.93

 

 

 

 

 

 

 

 

 

Diluted earnings per common share

$

1.38

 

 

$

1.38

 

 

$

2.83

 

 

$

2.75

 

Integration/acquisition costs (1)

 

0.07

 

 

 

0.02

 

 

 

0.13

 

 

 

0.02

 

Impairment of fixed assets (2)

 

—

 

 

 

0.04

 

 

 

—

 

 

 

0.04

 

Impairment of right of use assets (3)

 

—

 

 

 

0.14

 

 

 

—

 

 

 

0.14

 

Tax effect on the adjusted items (4)

 

(0.02

)

 

 

(0.05

)

 

 

(0.03

)

 

 

(0.05

)

Adjusted diluted earnings per share

$

1.43

 

 

$

1.53

 

 

$

2.93

 

 

$

2.90

 

Explanation of Non-GAAP Adjustments

KORN FERRY AND SUBSIDIARIES
RECONCILIATION OF GAAP TO NON-GAAP FINANCIAL MEASURES - CONTINUED
(unaudited)

 

Three Months Ended October 31,

 

2022

 

2021

 

Fee
revenue

 

Total
revenue

 

Adjusted
EBITDA

 

Adjusted
EBITDA
margin

 

Fee
revenue

 

Total
revenue

 

Adjusted
EBITDA

 

Adjusted
EBITDA
margin

 

(dollars in thousands)

Consulting

$

173,092

 

$

175,845

 

$

31,089

 

 

18.0

%

 

$

164,893

 

$

165,732

 

$

30,061

 

 

18.2

%

Digital

 

94,329

 

 

94,577

 

 

27,524

 

 

29.2

%

 

 

88,639

 

 

88,712

 

 

28,556

 

 

32.2

%

Executive Search:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

142,485

 

 

144,147

 

 

37,969

 

 

26.6

%

 

 

158,197

 

 

159,082

 

 

48,907

 

 

30.9

%

EMEA

 

44,645

 

 

44,919

 

 

8,081

 

 

18.1

%

 

 

42,434

 

 

42,571

 

 

7,663

 

 

18.1

%

Asia Pacific

 

23,408

 

 

23,523

 

 

5,834

 

 

24.9

%

 

 

28,257

 

 

28,267

 

 

8,201

 

 

29.0

%

Latin America

 

7,821

 

 

7,822

 

 

2,607

 

 

33.3

%

 

 

6,571

 

 

6,572

 

 

1,366

 

 

20.8

%

Total Executive Search

 

218,359

 

 

220,411

 

 

54,491

 

 

25.0

%

 

 

235,459

 

 

236,492

 

 

66,137

 

 

28.1

%

Professional Search & Interim

 

134,743

 

 

135,762

 

 

32,457

 

 

24.1

%

 

 

54,559

 

 

54,702

 

 

21,825

 

 

40.0

%

RPO

 

107,326

 

 

109,124

 

 

16,004

 

 

14.9

%

 

 

95,893

 

 

97,760

 

 

14,433

 

 

15.1

%

Corporate

 

—

 

 

—

 

 

(30,462

)

 

 

 

 

—

 

 

—

 

 

(26,146

)

 

 

Consolidated

$

727,849

 

$

735,719

 

$

131,103

 

 

18.0

%

 

$

639,443

 

$

643,398

 

$

134,866

 

 

21.1

%

 

Six Months Ended October 31,

 

2022

 

2021

 

Fee
revenue

 

Total
revenue

 

Adjusted
EBITDA

 

Adjusted
EBITDA
margin

 

Fee
revenue

 

Total
revenue

 

Adjusted
EBITDA

 

Adjusted
EBITDA
margin

 

(dollars in thousands)

Consulting

$

339,576

 

$

344,580

 

$

60,639

 

 

17.9

%

 

$

313,371

 

$

314,739

 

$

56,902

 

 

18.2

%

Digital

 

178,090

 

 

178,392

 

 

51,702

 

 

29.0

%

 

 

169,310

 

 

169,393

 

 

54,188

 

 

32.0

%

Executive Search:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

North America

 

294,029

 

 

297,031

 

 

81,718

 

 

27.8

%

 

 

296,875

 

 

298,382

 

 

92,237

 

 

31.1

%

EMEA

 

91,701

 

 

92,248

 

 

16,596

 

 

18.1

%

 

 

85,181

 

 

85,414

 

 

15,248

 

 

17.9

%

Asia Pacific

 

49,789

 

 

49,975

 

 

13,185

 

 

26.5

%

 

 

56,960

 

 

56,999

 

 

16,521

 

 

29.0

%

Latin America

 

15,629

 

 

15,631

 

 

5,224

 

 

33.4

%

 

 

13,347

 

 

13,351

 

 

3,720

 

 

27.9

%

Total Executive Search

 

451,148

 

 

454,885

 

 

116,723

 

 

25.9

%

 

 

452,363

 

 

454,146

 

 

127,726

 

 

28.2

%

Professional Search & Interim

 

233,690

 

 

235,814

 

 

61,618

 

 

26.4

%

 

 

106,396

 

 

106,634

 

 

41,264

 

 

38.8

%

RPO

 

221,248

 

 

225,196

 

 

33,713

 

 

15.2

%

 

 

183,398

 

 

186,584

 

 

28,961

 

 

15.8

%

Corporate

 

—

 

 

—

 

 

(61,084

)

 

 

 

 

—

 

 

—

 

 

(52,829

)

 

 

Consolidated

$

1,423,752

 

$

1,438,867

 

$

263,311

 

 

18.5

%

 

$

1,224,838

 

$

1,231,496

 

$

256,212

 

 

20.9

%

 

Investor Relations: Gregg Kvochak, (310) 556-8550
Media: Dan Gugler, (310) 226-2645

Source: Korn Ferry

Released December 8, 2022